Bernstein: Circle selloff overblown; rules hit distributors, not issuers

• Circle shares experienced a sharp 20% selloff, dropping to approximately $104 due to investor concerns over the proposed Clarity Act.
• Research firm Bernstein argues that the market is misinterpreting the draft legislation, which targets stablecoin distributors rather than issuers.
• Despite the regulatory uncertainty, analysts maintain an Outperform rating for Circle and Coinbase, with price targets of $190 and $440, respectively.

Misinterpretation of the Clarity Act

A recent decline in Circle (CRCL) shares has been characterized by analysts as an overreaction to U.S. regulatory proposals. The stock fell significantly in a single session, briefly touching the $100 mark before stabilizing. This volatility was triggered by draft provisions in the Clarity Act that seek to limit the payment of yield on stablecoin balances. However, Bernstein analysts led by Gautam Chhugani suggest that investors are failing to distinguish between the entities that issue stablecoins and those that distribute them to retail users.

Issuers vs. Distributors

The core of the regulatory debate lies in how stablecoin economics are structured. Circle generates revenue by investing its $80 billion in USDC reserves into short-term U.S. Treasurys, an activity expected to yield roughly $2.64 billion in income for 2025. Crucially, Circle does not pay interest directly to its token holders. In contrast, distributors like Coinbase currently offer approximately 3.5% yield on USDC balances to attract users. The Clarity Act aims to restrict passive, bank-like interest payments from these intermediaries, but it does not appear to target the spread earned by the issuers themselves.

Regulatory Impact and Adaptation

If the proposed rules are enacted, platforms like Coinbase may need to restructure their reward programs. While passive yield could be banned, rewards tied to specific activities—such as trading or payments—are expected to remain permissible. Bernstein suggests that limiting passive yields could actually benefit Circle by reducing the ability of competitors to buy market share through aggressive interest offers. Furthermore, the demand for USDC has proven resilient, with supply growing from $30 billion to $80 billion over the last two years, driven by its use in cross-border payments and corporate treasuries.

Growth Outlook and Market Volume

The underlying fundamentals for stablecoins remain strong, according to market data. Onchain transaction volume reached a massive $11.9 trillion in the fourth quarter of 2025. Analysts view Circle and Coinbase as the primary public-market proxies for the expansion of the digital dollar. As stablecoins move further into mainstream financial infrastructure, the focus is expected to shift from speculative yield toward practical utility in global payments and liquidity management.