Last week, Morgan Stanley downgraded shares of Circle Internet Group (NYSE: CRCL: $66.67) to Underweight from Equal-weight and sharply cut its price target to $38 from $106. Other firms have also issued downgrades or lowered targets, driven by overlapping concerns. We view sell ratings as relatively rare on Wall Street, particularly for an IPO in the last twelve months. What is all the hubbub?
Let us explain.
Investors may recall Circle is the issuer of the USDC stablecoin and a driving force in providing new industrial strength blockchain-based payment rails outside of legacy systems. B2B and increasingly B2C transactions could utilize USDC at a lower transaction cost, faster settlement times with more information per transaction than traditional in place networks. Circle generates most of its revenue from the float or interest income collected from short term treasury investments during the empty time between funding a USDC token and usage of that token in a purchase transaction. This high-margin income stream depends heavily on two factors: the amount of USDC in circulation and prevailing interest rates.
Primary reasons for recent downgrades.
Analysts have cut USDC circulation forecasts significantly (e.g., Morgan Stanley by 33% for 2027 and 44% for 2028). Actual supply has shown stagnation or declines in periods (e.g., ending Q2 around $73 billion, down from higher levels), which reduces this high-margin income stream. This exposes earnings sensitivity and leads to lower long-term EPS estimates (Morgan Stanley’s GAAP EPS views ~3% below consensus for 2027 and ~20% below for 2028). Average consensus revenue growth estimates of 20% and EPS 40% from this year to next may be questionable, according to the Street.
What is more is tokenized money market funds, tokenized deposits, and equivalent products (including expansions by firms like BlackRock) threaten both USDC balances and Circle’s take rates/economics. Newer stablecoin models, especially Open USD (OUSD) from a large consortium (involving players such as Visa, Mastercard, American Express, BlackRock, Coinbase, and many others), use a structure that shares more reserve income with partners/distributors while charging a smaller operating fee. This could force Circle to concede a larger share of yield to retain distribution partners, further pressuring margins. Mizuho highlighted this as a key reason for its July 2026 downgrade to Underperform (PT cut to $50 from $85).
Circle already shares significant reserve income with major distributors (notably Coinbase). Upcoming or recent renewals (and competitive pressure from alternatives like OUSD) raise the risk of less favorable terms. Related arrangements (e.g., with Hyperliquid) have been viewed as weakening economics in some notes.
Summary
Investors in high-multiple growth stocks often need ongoing reassurance that their thesis remains intact. In the near term, the traditional growth-stock narrative of rising sales driving expanding margins and accelerating EPS within a large, open-ended TAM is being challenged. The optics of the stock price performance over the last twelve months reflect this circumstance: IPO at $31 on June 5, 2025, and shortly thereafter, ran to $299 on June 23, now mid-sixties, down 78% from its peak to Friday’s close or down 4% from the $69 first trade (but still up 115% from IPO pricing). We point out the next generation of payments are in the early stages of commercialization and there is plenty of room for more than one solution, but no question the playing field is rapidly changing (unlike the comparative multi decade stability of the four card brand networks in the US).
OK if readers are blurry eyed, we understand. As a refresher, please know we have written on Circle and the related ecosystem early and often. These publications include July 4 -Stripe and OUSD-and February 22-FISV and INDX- of this year and last year’s July 3 deep dive- “Point of no Return” where we wrote in part: “Circle’s flagship product, the United States Digital Coin (USDC) is 100% backed (1:1) by cash and short-term government securities….
- USDC is regulated and transparent, the face value of a USDC token is always known, as is its ability to convert into US dollars through the company or a crypto exchange, including into any fiat currency, 24/7/365.
- In our opinion, Circle answers the call for industrial strength, global, and legitimate next generation payments platform for businesses and consumers.
- There are many benefits to using USDC, including: fast (almost immediate) and low-cost transaction processing anywhere in the world. Cross-border remittance is a natural market which is traditionally expensive on a dollar value sent basis (consumers), and slow for international B2B transactions (may require several days). The combined service revenue opportunity is over $100 billion.
- USDC is natively compatible with 16 blockchain networks and has portability capability to other Ethereum Virtual Machine (EVM) and non-EVM chains. Circle also provides their own wallets and smart contract platform. “
