Circle Internet (CRCL) faces structural headwinds as USDC balance contraction exposes reserve-income sensitivity and indicates a costly shift toward transaction revenue economics, Morgan Stanley said in a Monday research note.

The brokerage said it downwardly revised its USDC stablecoin circulation guidance by 33% in 2027 and 44% in the following year, as utility beyond remittances and stablecoin-linked card spending has yet to gain traction.

Circle's business model must shift from reserve income toward transaction-based revenue as tokenized deposits deplete the value proposition of holding non-yielding stablecoins, which has material unit economic impacts on the company, according to the note.

The brokerage said it downgraded the stock to underweight from equal-weight and cut its price target to $38 per share from $106 earlier.

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