Circle’s stock tumbled on Monday after Morgan Stanley downgraded the stablecoin issuer to underweight and slashed its price target by two-thirds, according to a report from CoinDesk.
Morgan Stanley Downgrades Circle, Cuts Price Target to $38
The bank lowered its rating from equal-weight and reduced the price target from $106 to $38. Circle’s shares fell 6% in the session, extending a year-to-date decline of roughly 30%. Analyst James Faucette wrote that the company faces a “lower-margin shift toward transaction revenue” as reserve income weakens and USDC supply growth slows. Circle Secures New York Trust Charter as Crypto Regulatory Push Accelerates — a development that highlights the company’s efforts to broaden its regulated footprint even as market sentiment darkens.
Faucette’s downgrade centers on expectations that USDC supply will struggle to expand under current conditions, reducing the interest income that Circle earns on its multi-billion-dollar reserve. As the stablecoin market matures, the bank sees the revenue mix tilting toward lower-margin transaction fees.
Tokenized Fund Competition Adds Pressure
The Morgan Stanley note also flagged the growth of tokenized money market funds and alternative stablecoin models as a structural headwind. Products such as Open USD are emerging, while traditional banks and asset managers test on-chain instruments that could challenge Circle’s market share. Global Banks Test Tokenized Money for Cross-Border Payments in $1 Million BIS Pilot, a development that underscores the rising institutional push into tokenized cash equivalents.
The competition is not merely theoretical; tokenized fund assets have already attracted tens of billions in institutional capital. Morgan Stanley’s analysts believe these products offer yield-bearing alternatives that may divert demand from stablecoins like USDC, particularly in institutional and treasury management use cases.
The 9-to-5 Banking Era Is Officially Dying, Morgan Stanley Execs Acknowledge — a reminder that the same bank flagging Circle’s risks is also navigating its own transformation in a world where tokenized assets and digital money are reshaping financial services.
While Circle remains a dominant player with a regulatory moat — its New York trust charter and compliance-first approach — the downgrade highlights how even well-established crypto firms face sharp valuation resets when growth narratives shift. As tokenized cash products gain traction, the stablecoin giant must find new ways to defend its revenue base without relying solely on reserve yields.
