Wall Street Downgrade: Mizuho Cuts Circle Rating as Competitive Threats Mount
In a significant move, Mizuho Securities USA analyst Dan Dolev downgraded stablecoin issuer Circle's stock rating from "Neutral" to "Underperform." He set a price target of $50, the lowest among Wall Street analysts and far below the Bloomberg consensus average of $123. This implies nearly 20% downside from Thursday's closing price.
The downgrade reflects a stark reality: Circle's share price has plummeted over 75% from its post-IPO highs last year. The stock fell 7.7% on the day the report was issued.
A Shifting Stablecoin Landscape: New Entrants and Business Model Pressures
Dolev's report highlights a fundamental risk to Circle's business: intensifying competition in the stablecoin sector.
The Rise of a New Consortium
A project called "Open Standard," backed by a consortium of over 100 fintech firms, payment networks, crypto companies, and banks—including heavyweights like Visa, Stripe, Coinbase, and BlackRock—is moving forward with plans to issue a new stablecoin called OUSD. Adding to the competitive pressure, Visa just announced a stablecoin issuance and management platform for financial institutions this Thursday.
The Threat of Revenue-Sharing Models
Circle primarily earns revenue from the interest generated by reserves backing its USDC stablecoin. Emerging projects like OUSD propose a more disruptive model: sharing the yield from reserve assets with partners while charging lower management fees.
"This model could prove highly attractive to existing partners," Dolev noted. "If partners migrate to platforms offering better revenue shares, Circle could face significant pricing pressure and margin compression."
Key Partnership in Flux, Financial Outlook Dims
The analyst also presented a cautious financial outlook. Dolev forecasts Circle's adjusted EBITDA will reach approximately $699 million by 2027, notably below the market consensus of $907 million.
A more immediate challenge is the upcoming renegotiation of Circle's crucial USDC distribution agreement with crypto exchange Coinbase in August. Dolev suggests that the competitive pressure from alternatives like OUSD could give Coinbase substantial leverage to demand a higher share of the revenue. Any unfavorable changes to this core partnership could directly impact Circle's income stream.
The downgrade signals a pivotal shift in the stablecoin market. The era where incumbents could rely on a single product and business model may be ending, as new industry dynamics take shape driven by major entrants and innovative economic structures.