Mizuho has downgraded Circle to underperform and cut its price target to $50 due to concerns about competition from OpenUSD.
Mizuho's Concerns Over OpenUSD Impact on Circle
Japanese investment bank Mizuho has downgraded Circle's rating from neutral to underperform, slashing its price target from $85 to $50. This decision stems from worries about OpenUSD's business model, which could threaten Circle's profit margins.
Analysts led by Dan Dolev highlighted that OpenUSD, a dollar-backed stablecoin launched by the Open Standard consortium, may compel Circle to allocate a larger share of its reserve income to distributors, thereby squeezing its margins. OpenUSD operates by charging a minimal fee and redistributing most reserve income among its issuers and distributors, contrasting with Circle's current model that retains reserve income before sharing.
Circle's shares were trading down 0.6% at $62.63 at the time of the report. The stablecoin issuer has also seen its circulation drop to approximately $73 billion, down from nearly $80 billion in March, reflecting a broader decline in the stablecoin market.
Mizuho has revised its adjusted EBITDA forecast for Circle to $699 million for 2027, which is about 25% lower than Wall Street's consensus estimate of $941 million. This adjustment follows a rise in projected distribution and transaction expenses, now estimated at 73% for 2027, up from 64% previously.
Additionally, Circle's partnership with Coinbase is set to be renegotiated in August, and analysts suggest that Coinbase's involvement with OpenUSD could enhance its bargaining power during these discussions. Mizuho's report indicates that while interest rates may be slightly higher in 2027, the increase in reserve yields will not sufficiently alleviate the anticipated pricing pressures.
Furthermore, a report from JPMorgan pointed out that Circle's collaboration with Hyperliquid could pose further challenges, creating a "prisoner's dilemma" that may adversely affect profits from its dollar-pegged stablecoin.
