Morgan Stanley cuts Circle to $38 as USDC supply contracts

Morgan Stanley downgraded Circle to underweight on Aug. 3, cutting its price target 64 percent to $38 from $106 and reducing USDC circulation forecasts by 33 percent for 2027 and 44 percent for 2028.

"USDC has effectively not grown since the third quarter of last year despite management's objective of averaging 40 percent annual growth across market cycles," James Faucette, analyst at Morgan Stanley, said in a research note.

The bank cut GAAP earnings-per-share estimates to roughly 3 percent below consensus for 2027 and 20 percent below consensus for 2028. Circle shares fell about 6 percent in premarket trading to $58.81 after the note was published, while TD Cowen initiated coverage with a Buy rating and an $82 price target.

The downgrade arrives days before Circle's second-quarter earnings report on Aug. 5 and follows the company's NYDFS trust charter approval, raising the question of whether regulatory milestones can offset structural pressure on the stablecoin issuer's core revenue engine.

Tokenized funds cannibalize USDC balances

Faucette said tokenized money market funds and tokenized deposits could compete for the same capital that would otherwise remain in USDC. BlackRock expanded its tokenized cash platform on Aug. 3 with two new products — a tokenized share class of an existing money market fund (BSTBL) and a stablecoin reserve vehicle (BRSRV) — both designed to qualify as eligible reserve assets under the GENIUS Act.

The tokenized real-world asset market has grown more than 200 percent over the past year to over $30 billion, according to rwa.xyz. Citi projects tokenized securities could reach $5.5 trillion by 2030. U.S. money market funds alone hold more than $8.4 trillion in assets.

USDC's circulating supply has fallen from nearly $80 billion in March to roughly $73 billion by August, part of a broader $10 billion contraction across the stablecoin market since May. Tether's USDT remains dominant at more than $140 billion in circulation. Stablecoins processed roughly $35 trillion in adjusted transaction volume during 2025, but only about $390 billion represented identifiable real-world payments, according to McKinsey data cited by Morgan Stanley.

Distribution economics deteriorate

JPMorgan separately flagged in July that Circle's revised agreement with Hyperliquid created a "prisoner's dilemma" between Circle and Coinbase. Hyperliquid, the leading decentralized perpetual futures exchange, holds about $6 billion of USDC — roughly 8 percent of circulating supply. Under the new arrangement, Coinbase classifies USDC on Hyperliquid as "on-platform" and pays 90 percent of the reserve income generated by those balances back to Hyperliquid.

Morgan Stanley also noted that Circle's agentic payments product has fallen to roughly $41,900 in daily volume, implying an average transaction size of about $0.24. The bank said the OpenUSD initiative introduces shared governance and reserve economics that increase the cost of maintaining USDC distribution.

Wall Street remains divided on the stock. LSEG data shows 16 of 30 analysts covering Circle rate the shares Hold or Sell, while the remaining 14 recommend Buy or Strong Buy. Circle shares ended July 31 down 2.54 percent, and Cathie Wood's ARK Invest purchased 109,129 Circle shares that day across three exchange-traded funds.

The bear case hinges on whether USDC supply stabilizes above $70 billion, whether BlackRock's tokenized funds gain meaningful adoption, and whether Circle can use its OCC bank charter to build revenue beyond reserve income. The company's Q2 earnings report on Aug. 5 will provide the first management response to these structural pressures.

This article is for informational purposes only and does not constitute investment advice.