Analysts at Bernstein say the market overreacted to Tuesday’s sell-off in Circle shares, arguing investors misread the implications of the proposed CLARITY Act for Circle’s core business.
In a client note, Bernstein analysts Gautam Chhugani, Mahika Sapra, Sanskar Chindalia and Harsh Misra warned that markets are conflating who earns yield with who distributes it. They summarized the distinction simply: ‘Circle earns. Coinbase distributes.’ The draft CLARITY Act primarily aims at platforms that distribute yield to users, not at stablecoin issuers’ reserve income.
The current draft would bar platforms from offering yield on passive stablecoin balances or products deemed economically equivalent to interest, while still permitting activity-based rewards tied to user engagement — for example rewards for trading or payments. Bernstein notes these carve-outs for activity-linked rewards could allow platforms to structure incentives around user behavior, meaning the legislative risk to issuers’ reserve income may be limited.
Circle’s business model relies on income from the reserves backing USDC, which are largely invested in short-term U.S. Treasurys. Bernstein estimates reserve income at about $2.6 billion in 2025 and stresses that this issuer-earned income is separate from yield distributed by third-party platforms to end users.
Following the CLARITY update, Circle shares plunged roughly 20% on Tuesday despite a gain of more than 160% from February lows. By midday Wednesday CRCL had recovered some ground, trading up about 3.5%. The stock remained approximately 30% higher year-to-date.
Bernstein had reiterated a bullish stance on Circle in early March, keeping an ‘Outperform’ rating and a $190 price target, roughly double the share price at that time. The firm pointed to strong momentum in USDC: circulating supply has grown to about $80 billion from roughly $30 billion over the past two years, driven by demand for trading, collateral, payments and global dollar access. Rising on-chain transaction volumes — USDC’s transaction volume approached $12 trillion in Q4 2025 — also support Bernstein’s view of USDC’s expanding role across crypto markets and cross-border finance.
USDC remains the second-largest U.S. dollar-denominated stablecoin after Tether’s USDT. Bernstein’s note argues the CLARITY draft’s focus on distribution, not issuer reserve income, means the market reaction may have been disproportionate to the actual regulatory risk to Circle’s core earnings.