Key Highlights
- Circle stock fell over 7% after Morgan Stanley downgraded the company and cut its price target from $106 to $38.
- Morgan Stanley warned that weaker USDC growth and rising competition could reduce Circle’s future earnings.
- Uncertainty over the Clarity Act and mixed analyst views have added more pressure to Circle stock.
Circle (CRCL) stock came under selling pressure on Monday after investment bank Morgan Stanley downgraded the company and sharply cut its price target. The stock fell more than 7% in the early trading session as investors reacted to the new rating.
As of the time of reporting, Circle was trading for $58.13, down from an intraday high around $61.79. Its market capitalization stood at around $15.61 billion, with a current average trading volume of around 15.2 million shares.
Morgan Stanley’s downgrade rattles Circle stock
Morgan Stanley analyst James Faucette downgraded Circle from “Equalweight” to “Underweight.”
He lowered the firm’s price target from $106 to $38, one of the biggest cuts made by a major Wall Street bank since Circle became a public company. The new forecast shows that Morgan Stanley expects slower growth and believes the company could face tougher business conditions in the coming years.
Why Morgan Stanley turned bearish on Circle
According to the company, the main concern is Circle’s USDC stablecoin, which is one of the company’s biggest sources of income. Circle earns part of its revenue from the reserves backing USDC, but Morgan Stanley believes that income could come under pressure if the amount of USDC in circulation continues to fall.
The bank also expects Circle to depend more on transaction-related revenue, which it believes brings in lower profit than reserve income. “We downgrade Circle as USDC contraction exposes reserve income sensitivity and points to a lower-margin shift toward transaction revenue,” Faucette said.
Morgan Stanley also lowered its expectations for USDC over the next few years. The bank reduced its forecasts by about 33% for 2027 and 44% for 2028. Those lower estimates led the bank to cut its earnings outlook for Circle below what many market analysts currently expect.
Competition is becoming a bigger challenge
Another reason behind the downgrade is growing competition. Morgan Stanley pointed to Open USD (OUSD), a stablecoin launched by a consortium that includes Visa, Mastercard, BlackRock, and Coinbase.
According to the bank, OUSD uses a shared governance and reserve model that could make it harder for Circle to defend USDC’s market position if more users and businesses decide to move to competing products.
Morgan Stanley is not the only Wall Street firm taking a more careful view of Circle. Mizuho and JPMorgan have also lowered their price targets in recent weeks as analysts continue to review the company’s revenue outlook and trading activity.
Wall Street isn’t entirely bearish
However, not every analyst is turning bearish. TD Cowen analyst Bryan Bergin recently started coverage of Circle with a “Buy” rating and an $82 price target. Bergin believes Circle is building important payment infrastructure through stablecoins and sees the company playing a bigger role as digital payments continue to grow.
Circle shares closed Friday’s trading session down 2.54% at $62.61 after moving between a low of $58.66 and a high of $63.51. The stock has now fallen about 9% over the past month, which is adding to pressure on shareholders.
Investors await progress on CLARITY Act
Investors are also keeping a close eye on the CLARITY Act, a bill that could help shape crypto regulation in the United States. The legislation was not scheduled for a Senate vote on Monday, leaving uncertainty over whether lawmakers will move forward before the August recess.
While the bill is separate from Circle’s business, delays in crypto regulation have added another layer of uncertainty for companies operating in the digital asset industry.
For now, Circle faces pressure from two fronts: a more cautious outlook from Wall Street and continued uncertainty over U.S. crypto regulation. Together, those factors weighed on the stock at the start of the week.
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