Circle plunged on CLARITY Act fears, but fundamentals unchanged — Bernstein

Circle’s shares sell-off on Tuesday may have been overdone as investors failed to see that the stablecoin issuer’s core business model remains unaffected by the proposed CLARITY Act, analysts at Bernstein said on Wednesday.

In a note to clients, Bernstein analysts Gautam Chhugani, Mahika Sapra, Sanskar Chindalia and Harsh Misra said markets are conflating “who earns yield” with “who distributes yield.”

“Circle earns. Coinbase distributes,” the analysts wrote, noting that the draft legislation primarily targets the distribution of yield to users — not the underlying reserve income earned by issuers like Circle.

According to the latest draft, the CLARITY Act would prohibit platforms from offering yield on passive stablecoin balances or products deemed “economically equivalent” to interest. However, the proposal leaves room for activity-based rewards tied to user engagement, such as trading or payments.

“The stablecoin reward carve-outs could still allow distribution of rewards linked to user activity tiering,” the analysts said, adding that “the market knee-jerk reaction may not be calibrated.”

Circle’s business model relies on earning income from reserves backing $USDC ($USDC), which are primarily invested in short-term US Treasurys. Bernstein estimates this reserve income reached about $2.6 billion in 2025.

Circle shares fell roughly 20% on Tuesday following the legislative update, despite having gained more than 160% from their February lows. In mid-day trading on Wednesday, CRCL shares had clawed back some of the previous day’s decline, trading up more than 3.5% at last look.

Circle (CRCL) stock is still up 30% year-to-date. Source: Yahoo Finance

Related: Crypto investor sentiment will rise once CLARITY Act is passed: Bessent

Bernstein reiterates bullish outlook on Circle as $USDC adoption accelerates

This isn’t Bernstein’s first bullish call on Circle this month. Earlier in March, analysts reiterated their “Outperform” rating on the stock, setting a $190 price target, nearly double current levels.

The latest note reinforces that view, highlighting strong momentum in USD Coin ($USDC). Its circulating supply has grown to $80 billion from roughly $30 billion over the past two years, driven by demand for trading, collateral, payments and global access to US dollars.

Bernstein also pointed to rising onchain transaction volumes as evidence of $USDC’s expanding role across crypto markets and cross-border finance.

$USDC is currently the second-largest US dollar-denominated stablecoin, behind Tether’s USDt (USDT).

$USDC’s transaction volume approached $12 trillion in the fourth quarter of 2025. Source: Bernstein

Related: Deloitte, Stablecorp plan stablecoin infrastructure for Canadian institutions