Two of Wall Street's most influential investment banks have delivered a joint verdict on Circle: the economics underpinning its flagship product are under serious threat. Mizuho downgraded Circle — listed on public markets under the ticker CRCL — from neutral to underperform, while simultaneously cutting its price target for the stock. Hours later, JPMorgan added to the pressure by lowering its own estimates for Circle as well as for Coinbase (COIN). The catalyst cited by both institutions: a rival stablecoin initiative called Open USD, which analysts believe is beginning to structurally erode the business model that has made USDC one of the dominant dollar-pegged tokens in crypto markets.
The Open USD Problem
Open USD may not yet carry the brand recognition of USDC, but Wall Street is treating it as a credible competitive threat rather than a fringe challenger. Mizuho's analysts specifically pointed to Open USD when justifying the downgrade from neutral to underperform — a signal that this isn't a routine valuation trim but a structural reassessment of Circle's position in the stablecoin market. When an investment bank moves a stock all the way to underperform, the message is unambiguous: they expect the company to lag the broader market, and the downgrade is a direct warning to institutional holders to reconsider their exposure.
The significance of that language cannot be overstated in the context of Circle's recent history. Circle only recently completed its journey to public markets — a long and turbulent road that included a failed SPAC deal and years of regulatory uncertainty. Going public under the CRCL ticker represented a validation moment for the stablecoin sector broadly. Now, within a relatively short window of trading as a publicly listed company, Circle finds itself the subject of back-to-back bearish calls from two institutions whose research moves institutional capital.
USDC's Revenue Engine at Risk
To understand why banks are suddenly worried, it helps to understand how Circle actually makes money. USDC is a fully reserved stablecoin — every token in circulation is backed by cash and short-duration U.S. Treasury instruments. The yield generated from those reserves is Circle's primary revenue source. When interest rates are elevated, as they have been through much of the post-2022 environment, that reserve income is substantial. But that model has a vulnerability baked into its core: Circle doesn't keep all of that yield. Under its distribution agreement, a significant portion of the reserve income flows to Coinbase, which acts as a key distribution partner for USDC across its exchange platform.
This arrangement has always created a ceiling on Circle's profitability. But what Open USD appears to introduce is a floor problem — a scenario where competitive pressure from alternative stablecoins forces Circle to either offer better terms to distributors, reduce fees, or watch market share erode. Either path compresses margins. JPMorgan's decision to lower estimates for both Circle and Coinbase simultaneously suggests analysts view this not as a Circle-specific issue but as a structural problem for the entire USDC ecosystem, including the revenue Coinbase derives from the distribution partnership.
Coinbase Caught in the Crossfire
The joint nature of JPMorgan's estimate reductions — covering both CRCL and COIN — is particularly telling. Coinbase's exposure to USDC revenue means that any deterioration in Circle's economics ripples directly onto Coinbase's income statement. For Coinbase, USDC has historically functioned as a relatively stable, rate-sensitive revenue stream that complements its more volatile trading fee income. If stablecoin competition intensifies and USDC's reserve income or market share comes under pressure, that cushion shrinks — and JPMorgan's analysts clearly believe that scenario is now plausible enough to reprice.
This is a meaningful moment for the broader stablecoin sector. For years, the competitive landscape has been dominated by two players: Tether's USDT commanding offshore and trading-centric markets, and USDC holding a privileged position in institutional and decentralized finance (DeFi) applications, partly on the back of its regulatory compliance posture and U.S.-based structure. The emergence of Open USD as a threat serious enough to prompt dual Wall Street downgrades suggests the competitive dynamics are shifting in ways the market has not yet fully priced.
What This Means for the Stablecoin Sector
The timing is significant. The U.S. Congress is moving closer to passing comprehensive stablecoin legislation, and Circle has positioned itself as the compliant, regulation-ready operator best placed to benefit from a clearer legal framework. That thesis isn't dead — but the Mizuho and JPMorgan calls suggest that regulatory clarity alone may not protect Circle's margins if new entrants use that same regulatory runway to launch competing products. Open USD, if it gains distribution traction, could benefit from the same legitimacy that stablecoin legislation would confer, while undercutting Circle on economics.
For investors, the double downgrade is a reminder that being first to market as a publicly listed stablecoin issuer does not guarantee durable profitability. Circle built a real business on USDC's reserve yield, but that business is now exposed on multiple fronts: interest rate sensitivity, distribution cost structure, and now direct stablecoin competition. Wall Street's message is clear — the USDC economics that underwrote Circle's IPO story are no longer a safe assumption, and the market needs to reckon with what the company's earnings profile looks like in a more contested landscape.
Written by the editorial team — independent journalism powered by Bitcoin News.