CRCL Leads Crypto Stocks Lower After Morgan Stanley Downgrade Adds To Bitcoin, CLARITY Act Pressure

Morgan Stanley downgraded CRCL stock to ‘Underweight’ from ‘Equal Weight’ and slashed its price target by 60%.

• Crypto-linked equities traded lower pre-market following Bitcoin’s drop to under $63,000.
• The crypto market also faced uncertainty with the CLARITY Act nowhere on the Senate’s calendar for this week, ahead of the chamber's scheduled recess starting August 10.
• CRCL led the decline in large-cap crypto equities, with BMNR, MSTR, and COIN shares also trading in the red pre-market.

Shares of Circle Internet (CRCL) fell in early morning trade on Monday after Morgan Stanley downgraded the stock, adding to pressure from a broader selloff in crypto equities as Bitcoin (BTC) slipped below $63,000 and the CLARITY Act remained stalled in Congress.

CRCL stock fell over 5% in pre-market trade, leading losses among crypto-linked large caps. On Stocktwits, retail sentiment around the USDC (USDC) stablecoin issuer trended in ‘bearish’ territory over the past day. Sentiment around USDC also remained in the ‘bearish’ zone.

Meanwhile, Bitcoin’s price fell 0.8% in the last 24 hours to below $63,000. Retail sentiment around the apex cryptocurrency on Stocktwits also trended in ‘bearish’ territory over the past day. 

However, it outperformed Ethereum (ETH), Ripple’s XRP (XRP), and Solana (SOL) among the top 10 cryptocurrencies by market capitalization. All three fell more than 1% in the last 24 hours. 

Digital asset treasuries Strategy (MSTR) and Bitmine Immersion Technologies (BMNR) also slid in pre-market trade. MSTR stock edged 0.8% lower in pre-market trade, in tandem with Bitcoin, while BMNR stock fell more than 1.5%. 

Shares of crypto exchange Coinbase (COIN), which also partners with Circle on USDC revenue, dipped around 0.8% in pre-market trade.

Morgan Stanley Warns Circle’s USDC Revenue Model Faces Pressure

Morgan Stanley analyst James Faucette downgraded Circle Internet to ‘Underweight’ from ‘Equal Weight’ with a price target of $38, down from $106, according to a note to investors cited by TheFly. This implies a potential downside of nearly 40% from CRCL’s closing price on Friday. 

According to the firm, Circle could earn less money than many investors expect because the amount of USDC in circulation may not grow as quickly.  "USD Coin contraction exposes the company's reserve income sensitivity,” Faucette wrote, adding that it “points to a lower margin shift toward transaction revenue." He also said that Circle's tokenized money market fund is "carrying structurally weaker economics."

TD Cowen Sees Long-Term Growth Opportunity in Circle

Meanwhile, TD Cowen initiated coverage of CRCL with a ‘Buy’ rating and a $82 price target. It stated that the company offers a “compelling combination” of attractive growth and diversification, adding that Circle has "rapidly growing" high- margin fee-based revenue.

TD Cowen's price target implies a potential upside of over 30% from CRCL’s Friday closing. However, it is below the market average of $118.48, according to Koyfin, implying an upside of nearly 90%. 

CLARITY Act Uncertainty Continues

The stock is also being weighed down amid the uncertainty around the Digital Asset Market Clarity Act (CLARITY). The legislation did not appear on the Senate’s agenda for the week, with the chamber scheduled to enter recess on Aug. 10.

If a closure motion is filed by Wednesday, the Senate could hold a procedural vote as early as Friday, though final passage would not immediately follow.

CRCL stock has fallen over 20% this year and dropped more than 65% in the last 12 months.