Wall Street bank Citi says proposed limits on stablecoin rewards in the latest draft of U.S. market structure legislation would be a setback for Circle (CRCL), but not a fundamental threat to the investment case.
“We view this development potentially (but not necessarily) as a setback, but not as a thesis killer,” analysts led by Peter Christiansen wrote in Tuesday’s report.
The bill allows narrowly defined rewards programs as long as they do not resemble interest on bank deposits, analysts said. A broader ban on third-party rewards would not directly affect Circle’s net revenue, as the company already passes most of its reserve revenue to distribution partners like Coinbase (COIN).
Still, analysts expect that lower incentives to hold USDC, which they characterize as a payment instrument rather than a security, could temporarily reduce secondary market circulation and liquidity. “We still maintain the view that stablecoin volume is the key indicator of adoption, not circulation.”
Citi has a high risk rating on Circle stock with a price target of $243. Shares were trading around $100 at press time.
Shares of Circle fell about 20% on Tuesday, after a U.S. clarity bill raised the prospect of banning yield from passive stablecoin balances, sparking concerns about the attractiveness of yield-generating crypto products.
The move was compounded by broader investor concern over the impact the rules could have on stablecoin-related revenues and incentives, as well as renewed competitive pressure after Tether signaled plans for a full audit of the Big Four and possible U.S. expansion.
Circle’s selloff on Tuesday reflects a market misinterpretation of the clarity bill, according to Wall Street broker Bernstein.
Investors are confusing who earns yield and who distributes it, the broker said in a report released Wednesday. Circle earns reserve income from USDC-backed assets, while platforms like Coinbase (COIN) pass on some of that yield to users, who are the real goal of the proposed rules.
The draft would prohibit yield from passive stablecoin balances, but allow activity-based rewards tied to trades or payments. Bernstein analysts led by Gautam Chhugani said this pressure on Coinbase’s ~3.5% USDC yield product was likely forcing a restructuring. Circle’s model is not affected. The company does not pay yield to holders and generated $2.64 billion in reserve income in FY2025.
The report notes that USDC’s growth, from around $30 billion to $80 billion in two years, is driven by trading, payments and demand for collateral, not yield.
Bernstein has an Outperform rating on Circle shares with a $190 price target.
Coinbase is moving cautiously through negotiations over the Clarity Act, privately signaling to Senate staff that it is unhappy with the latest compromise while not publicly opposing the bill, according to people familiar with the matter.
Learn more: Circle Selling May Be Exaggerated as Crypto Bill Weakens Coinbase’s Advantage, Analysts Say
