Circle selloff may miss the mark as Clarity Act targets distributors, not issuers: Bernstein
A sharp selloff in Circle shares has run ahead of the underlying risk, according to Bernstein, which argues investors are misreading proposed U.S. stablecoin rules.
Circle's shares (CRCL) fell about 20% in the prior session and briefly slipped toward $100 before stabilizing near $104 in premarket trading, according to The Block's CRCL price page. The drop has been tied to draft provisions in the Clarity Act that would restrict yield on stablecoin balances.
Bernstein’s note cuts against that narrative, suggesting the market reaction has blurred key differences in how stablecoin economics actually work. Analysts from the research and brokerage firm asserted that the rules focus on distribution, not issuance.
"Don’t conflate stablecoin issuer with distributor," Bernstein analysts led by Gautam Chhugani wrote, noting that Circle earns income on reserves while platforms such as Coinbase pass yield through to users.
Under the proposal, platforms would be barred from offering yield on passive stablecoin balances in ways that resemble bank interest. Activity-based rewards tied to usage — such as trading or payments — would still be allowed, with regulators given time to define the boundary.
Circle’s model sits outside that restriction, analysts opined.
The company invests roughly $80 billion backing its USDC (USDC) stablecoin into short-term U.S. Treasurys and earns the spread, generating about $2.64 billion in reserve income in 2025. It does not, however, pay yield directly to token holders.
It’s Bernstein’s view that this distinction matters. The yield debate has often centered on whether stablecoins compete by passing returns to users. Bernstein argues that limiting those payouts could even strengthen Circle’s position by reducing incentives for competitors to attract liquidity through aggressive yield offers.
More impact on intermediaries
Analysts said the more immediate impact would fall on intermediaries. Coinbase, which offers around 3.5% yield on USDC balances and shares roughly half of USDC reserve income with Circle, may need to rework its rewards structure under the new rules.
Even there, Bernstein sees room to adapt. Platforms could shift toward engagement-based incentives while retaining users drawn to trading and onchain activity rather than passive yield alone.
Demand for USDC has continued to expand beyond yield considerations. Supply has grown from roughly $30 billion to $80 billion over the past two years, driven by trading collateral, cross-border payments, and corporate treasury use. Onchain transaction volume reached $11.9 trillion in the fourth quarter of 2025 as well.
The analysts maintained an outperform rating on both Circle and Coinbase, with price targets of $190 and $440, respectively, pointing to continued long-term upside tied to stablecoin adoption and payment use cases.
Indeed, Bernstein recently identified the company, alongside Coinbase, as one of the clearest public-market proxies for stablecoin growth as digital dollar usage expands into payments and financial infrastructure.
Gautam Chhugani maintains long positions in various cryptocurrencies. Certain affiliates of Bernstein act as market makers or liquidity providers in the equity securities of Circle and Coinbase.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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