Shares of stablecoin issuer Circle (CRCL) fell on Tuesday, after a proposed U.S. stablecoin bill raised concerns over yield limits.
Shares of the USDC issuer fell as much as 18% in early US trading, ending a week-long rally that saw a gain of more than 100%. Meanwhile, crypto exchange Coinbase (COIN), which shares stablecoin revenue, fell around 8%.
The main catalyst for this move was the latest version of the Clarity Act, as reported by CoinDesk, which would limit the offering of rewards on stablecoin balances, analysts pointed out.
“The Clarity Act could potentially prohibit yield payments for simply holding a stablecoin (e.g., passive balances) and restrict any approach that makes the program somehow equivalent to a bank deposit,” said Mizuho analyst Dan Dolev.
According to Dolev’s analysis, a potential ban could reduce Circle’s use case in the short term, while not paying rewards would reduce the long-term appeal of holding USDC on Coinbase’s platform.
The stable yield of coins – whether through on-chain lending or on-platform incentives – played an important role in the pitch to investors. Removing this makes it harder for tokens like USDC to scale beyond simple payments.
“This weakens a key part of the bull case,” said Shay Boloor, chief market strategist at Futurum Equities, arguing that it limits USDC’s path to becoming a true store of value product.
The GENIUS Act, focused on stablecoins, prohibited issuers from paying returns directly to users, but they implemented ways to pass the income earned back to reserves. Circle collects interest on USDC backing assets and shares it with Coinbase, which in turn funds user rewards.
The latest clarity bill targets this structure by banning anything that is “economically equivalent to interest,” thereby removing a key incentive for holding stablecoins, according to Amir Hajian, digital assets researcher at Keyrock.
“This pulls the rug out from under the pass-through model that has driven stablecoin adoption,” Hajian said.
There was another development in the background. Tether, issuer of the USDT stablecoin and Circle’s main rival, said it had hired one of the “big four” accounting firms to conduct a long-promised comprehensive audit of its reserves. If successful, the audit could improve USDT’s image among institutional users by demonstrating stronger risk management, which could reduce USDC’s market share.
Not “as bad”
The sale comes after a strong run, in which Circle shares have gained 170% since early February, far outpacing other crypto stocks and the struggling stock market as a whole. This setup left the stock vulnerable to a sharp pullback in the event of negative headlines.
However, analysts do not see this as an existential crisis.
Mizuho’s Dolev Says Recent USDC Volume Outperformance Means ‘Use Cases’ [for stablecoins] are starting to proliferate, which is positive in the long term for Circle. Meanwhile, Coinbase could see its profitability increase in the near term, as USDC accounts for around 20% of Coinbase’s revenue, and a large portion of that is paid out in the form of rewards.
In fact, Owen Lau, an analyst at Clear Street, said “the real situation doesn’t seem as bad as the headline suggests. “It sounds like an overreaction, but the market tends to shoot first and ask questions later.”
Ryan Rasmussen, head of research at digital asset manager Bitwise, agreed that investors should ride out today’s near-term headwinds. Circle is still up more than 30% this year after Tuesday’s decline, and remains a major player in a rapidly growing market, he noted. “There will be workarounds,” such as loyalty programs that could replicate similar performance incentives, Rasmussen said.
“With this in mind, Circle’s long-term outlook has never been better; they have a 30% share of a market that is expected to grow 10-fold over the next four years,” he added.
UPDATE (March 24, 3:46 p.m. UTC): Adds analyst comments.
