Morgan Stanley has downgraded Circle Internet (NASDAQ: CRCL) to underweight and lowered its price target on the stock to $38, citing decelerating growth in USDC as the primary driver behind its increasingly cautious near-term outlook.

According to CoinDesk, the rating change sent Circle shares lower. The stablecoin issuer trades publicly under the ticker CRCL, giving equity investors direct exposure to the performance of its USD Coin franchise. USDC functions as a key settlement and collateral asset across cryptocurrency exchanges and decentralized finance protocols, making its circulating supply a barometer for broader on-chain activity.

Downgrade and Reduced Price Target

Morgan Stanley's underweight designation represents its most bearish rating tier. The reduction to a $38 price target accompanies that downgrade, reflecting diminished expectations for the stock's near-term trajectory.

Analyst rating changes tend to carry outsized weight for crypto-linked equities, where a company's financial performance is closely tied to the adoption and supply growth of a single digital asset. For Circle, that asset is USDC, the second-largest stablecoin by market capitalization behind Tether's USDT, which has historically captured the majority of growth during periods of stablecoin expansion.

The broader sector has seen similar recalibrations. Citi, for example, recently trimmed its Bitcoin and Ether price targets, citing softer fund flows into cryptocurrency exchange-traded products. The pattern suggests a wider reassessment of near-term digital asset growth assumptions across Wall Street research desks.

Slower USDC Growth at the Core of the Bearish Call

Morgan Stanley's downgrade is anchored in slower USDC supply expansion. Because Circle generates reserve income from the assets backing USDC issuance—primarily short-dated U.S. Treasury bills and cash—any deceleration in the stablecoin's circulating supply directly pressures the company's near-term revenue trajectory. Reserve income is also sensitive to prevailing interest rates, meaning that changes in the rate environment compound the effects of supply growth trends on Circle's earnings.

Weaker momentum in stablecoin supply growth reduces the pace of expansion that markets had previously priced in, weighing on investor sentiment toward the stock. This comes even as institutional participants continue building infrastructure around the sector. Notably, BlackRock moved to launch tokenized money market products designed for stablecoin reserves, signaling sustained institutional interest in the broader ecosystem despite near-term headwinds.

Circle has also been expanding its regulatory standing. The company was granted a trust charter by the New York Department of Financial Services, strengthening its position within the U.S. regulatory framework for digital asset issuers. The charter followed the passage of federal stablecoin legislation establishing a formal supervisory regime for payment stablecoin issuers, a development that positioned compliant operators like Circle to compete under clearer rules.

Meanwhile, Morgan Stanley's own asset-management arm has launched Ether and Solana exchange-traded products with staking functionality, underscoring the bank's multi-faceted involvement in crypto-linked investment products even as its equity research team adopted a more bearish stance on Circle specifically.