Circle faces 2 profit threats as JPMorgan and Mizuho cut forecasts

Wall Street banks are warning that Circle's USDC revenue model is under attack from two directions at once.

JPMorgan and Mizuho both cut earnings forecasts for Circle Internet (CRCL) on July 14, warning that a revamped Hyperliquid partnership and the launch of Open USD threaten the economics of the company's $73 billion USDC stablecoin.

"The change in the Hyperliquid relationship showcases the challenge for Circle and Coinbase partnership agreements because it can create a prisoner's dilemma that drives Coinbase and Circle to compete with each other when promoting USDC distribution," analysts led by Kenneth Worthington at JPMorgan said in a July 14 report.

Under the new arrangement, Coinbase will classify USDC on Hyperliquid as "on-platform," collecting reserve income and paying 90% of it to Hyperliquid. JPMorgan estimated Coinbase previously split nearly all of that revenue evenly with Circle. Hyperliquid, now one of the largest crypto trading venues, holds about $6 billion of USDC — roughly 8% of the circulating supply, the bank estimated. USDC's circulating supply has fallen to about $73 billion from nearly $80 billion in March, part of a $10 billion contraction in the broader stablecoin market since May.

Mizuho separately downgraded Circle to underperform from neutral and slashed its price target to $50 from $85, citing Open USD — a rival stablecoin backed by a consortium of more than 140 partners including Stripe, Coinbase and BlackRock. Unlike Circle's model, which captures reserve income before sharing a portion with partners, Open USD charges a small operating fee and distributes most reserve income to issuers and distributors. Mizuho analysts led by Dan Dolev said the model "could fundamentally alter CRCL's business model, which relies on retaining a large portion of the treasury yield to drive revenues."

Hyperliquid Deal Reshapes USDC Economics

The Hyperliquid partnership, announced in May, reflects the decentralized exchange's rapid ascent. The platform processed more than $150 billion in trading volume in July alone, while its volume relative to Binance climbed to 11.5%, underscoring its growing share of the derivatives market. JPMorgan's analysis suggests the deal creates a structural conflict: Circle and Coinbase, which have shared USDC reserve income for years, are now incentivized to undercut each other to win distribution deals with large platforms like Hyperliquid.

The bank lowered earnings estimates for both companies, citing the Hyperliquid agreement alongside weaker crypto trading volumes and asset prices. It expects higher interest rates to provide some support for USDC-related revenue over the longer term.

Open USD Threatens Circle's Margin Structure

Mizuho's downgrade adds a second front to Circle's competitive challenges. The Japanese investment bank raised its estimate for Circle's distribution and transaction costs in 2027 to 73% from 64%, cutting its adjusted EBITDA forecast to $699 million from $1.09 billion — roughly 25% below the Wall Street consensus of $941 million.

Coinbase's support for Open USD could strengthen its negotiating position when the two companies renegotiate their revenue-sharing agreement in August, Mizuho said. Circle shares traded 0.6% lower at $62.63 on July 14.

While Circle received final approval from the U.S. Office of the Comptroller of the Currency to establish First National Digital Currency Bank — a milestone Mizuho called positive but overestimated by investors — the bank said higher reserve yields would not be enough to offset the pricing pressure from Open USD's pass-through model.

This article is for informational purposes only and does not constitute investment advice.