Mizuho Lowers Circle Price Target Amid Open USD Competition

Mizuho Downgrades Circle’s Price Target

Mizuho has announced a downgrade of Circle Internet Group from Neutral to Underperform, significantly lowering its price target from $85 to $50. This decision comes amid rising competition from Open USD, a new entrant in the stablecoin market.

Pressure from Open USD

The investment bank expressed concerns that Open USD poses a significant threat to Circle’s existing distribution model and could squeeze profit margins for stablecoins. Open USD shares reserve earnings with its partners, potentially altering the economic dynamics for Circle’s USDC globally.

According to analysts led by Dan Dolev, Open USD “could fundamentally alter CRCL’s business model” by changing reserve income flow to distributors, thereby affecting Circle’s profitability.

Revised Earnings Outlook

Mizuho has revised its 2027 earnings expectations for Circle, increasing the estimated distribution and transaction expense ratio from 64% to 73%. Furthermore, the firm cut its adjusted EBITDA forecast from $1.09 billion to $699 million, marking about a 25% decrease from analyst consensus.

The bank acknowledged that while higher interest rates might bolster reserve income, they may not completely counterbalance the implications of changing stablecoin economics and erosion of yield for Circle.

Competition and Challenges

Open USD, launched on June 30, boasts participation from over 140 companies, including major players such as Coinbase, Mastercard, Stripe, and BlackRock. Its business model enables partners to mint and redeem the stablecoin without incurring fees, contrasting with Circle’s methods.

A additional challenge arises from Circle’s revenue-sharing relationship with Coinbase, expected to be renegotiated in August. Given Coinbase’s involvement in Open USD, the renegotiation could award Coinbase greater leverage, raising potential concerns for Circle.

JPMorgan has also lowered its earnings forecasts for both Circle and Coinbase, cautioning that new USDC revenue-sharing arrangements with Hyperliquid may further diminish the reserve income for both entities.

Circle’s Ongoing Developments

Despite these challenges, Circle continues to expand its USDC infrastructure. Recent data indicates USDC circulation at approximately $73 billion as of July 13, a decrease from $77 billion at the end of Q1. Circle has also received approval to establish Circle National Trust, which will focus on digital asset custody.

Additionally, Circle is expanding USDC’s use in Asia, including a pilot program with JCB for cross-border treasury transfers in Japan, signaling continued efforts to grow its market presence.

As competition within the stablecoin space intensifies, Mizuho’s downgrade underscores the critical challenges Circle faces in protecting its economic model and market share.