Morgan Stanley has downgraded Circle Internet and slashed its price target, citing growing risks tied to tokenized money market funds, the Open USD project, and a slowdown in USDC circulation. The move marks a notable shift in sentiment toward the stablecoin issuer from one of Wall Street's largest banks.
Why the downgrade hit
Analysts at Morgan Stanley lowered their rating on Circle Internet and cut the price target, though the firm did not specify the new figures. The downgrade was driven by three main concerns: the rise of tokenized money market funds that compete directly with Circle's yield-bearing products, uncertainty around the Open USD initiative, and a deceleration in the growth of USDC supply. Together, these factors suggest a more challenging environment for Circle's core business.
Tokenized money market funds under scrutiny
Tokenized money market funds have gained traction as an alternative to stablecoin-based yield products. These funds, often issued by traditional asset managers on blockchain rails, offer investors a way to earn returns without leaving the crypto ecosystem. Morgan Stanley's analysts worry that this trend could siphon demand away from Circle's own yield offerings, particularly those tied to USDC. The bank sees the segment as a direct competitive threat that could compress margins and slow adoption.
Open USD and USDC growth headwinds
The Open USD project, an initiative aimed at creating an open-source, decentralized stablecoin, also drew concern. While still early-stage, the project represents a potential long-term competitor to Circle's flagship product. Separately, USDC's supply growth has decelerated in recent months after a period of rapid expansion. Morgan Stanley's note suggests that the pace of new issuance is not keeping up with earlier expectations, raising questions about Circle's market share trajectory. The bank's analysts pointed to a combination of regulatory uncertainty and increased competition as factors behind the slowdown.
Circle has not yet publicly responded to the downgrade. The company continues to expand its presence in payments and cross-border transfers, but the Morgan Stanley call adds a layer of skepticism from a major institutional player. Investors will be watching upcoming USDC supply data and any announcements regarding the Open USD project's progress. The downgrade also puts pressure on Circle to demonstrate that its growth story remains intact despite the headwinds identified by the bank.
