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Morgan Stanley slashed Circle's target price to $38, clearly trying to grab a bargain Simply put, there are three reasons for lowering their target price "USDC circulation shrinks, competitor threats, and rising distribution costs" 1⃣USDC circulation has shrunk Circulating supply has basically grown every quarter, except since Q4 2025, which were +2.2%, +2.3%, and -4.8% respectively. Based on three quarters and only one negative quarter, USDC's shrinkage is structural, and even the historical high in USDC circulation only occurred this year. As for mainstream media reports, they revised down USDC supply assumptions for 2027 and 2028 by 33% and 44% respectively, which is relative to Morgan Stanley's previous model. The media only quoted the percentages and did not mention the actual amount, making it impossible to verify whether this downward revision is a real recession or just a downward revision of the growth rate. 2⃣ Competitors threatened the market Tokenized money market funds launched by institutions like BlackRock and Franklin Pay interest to holders, whereas USDC does not. Morgan Stanley believes this diverts funds away from stablecoins. In fact, the current leader in tokenized money market funds is Circle itself. In March this year, USYC overtook BlackRock's BUIDL, with BUIDL's market share dropping from 46% to 18%, while USYC's was 20%. Binance has already listed it as OTC collateral for institutional derivatives. 3⃣ Distribution costs are rising Morgan Stanley believes that after Open USD is released, it will push up Circle's cost of maintaining USDC distribution. Additionally, contracts with Coinbase and Hyperliquid will weaken USDC's economic efficiency. He expects the 41.4% RLDC profit margin in Q1 to fall back to 38~40%. The actual financial report was proven wrong: RLDC profit margin 41.2%, net reserve profit margin 38.5%. The full-year RLDC guidance rose 41.7 ~ 43.7% instead of down, while other revenue guidance for the year was 310 million ~ 330 million, nearly doubling. The financial report also mentioned that platform share has increased by 73% year-on-year, meaning more and more USDC remains on Circle's own platform, saving on distribution costs. In summary: The $38 target price was only held on the assumption of declining balances + lower profit margins. After the earnings report was released, the profit margin decline not only failed but actually reversed. But that doesn't mean $CRCL's outlook is entirely optimistic. There is a ceiling to profit margin improvements, but there is no lower limit to shrinking circulating supply. It is true that circulation has been reduced by 5 billion from the peak, and starting next year, it will face the impact of interest rate cuts. $CRCL