Morgan Stanley downgrades Circle: is USDC losing the stablecoin war?

Morgan Stanley slashed its Circle price target from $106 to $38, citing tokenized money market funds, shrinking USDC supply, and a lower-margin revenue future that raises a harder question: whether any single stablecoin issuer can defend its economics. Summary Morgan Stanley downgraded Circle to underweight on August 3, cutting its price target from $106 to $38 and reducing USDC supply forecasts by 33% for 2027 and 44% for 2028. The bank said tokenized money market funds from BlackRock and others are replacing stablecoin balances as the preferred vehicle for on-chain dollar exposure, eroding the reserve income model that generates most of Circle’s revenue. JPMorgan separately warned that Circle’s revised agreement with Hyperliquid created a “prisoner’s dilemma” between Circle and Coinbase, where both compete to expand USDC distribution at the expense of profitability. 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 in the stablecoin market since May. Open USD, a new stablecoin model with shared governance and reserve economics, could make it more expensive for Circle to maintain distri...