Bernstein analysts say markets overreacted to proposed stablecoin legislation on Tuesday, arguing that a sharp sell-off in Circle shares failed to account for a key distinction in how the draft law is structured. In a note to clients, analysts Gautam Chhugani, Mahika Sapra, Sanskar Chindalia, and Harsh Misra contend that investors conflated two separate concepts: who earns yield and who distributes it. The analysts summarized the distinction plainly, writing that Circle earns while Coinbase distributes.
The proposed CLARITY Act would bar platforms from offering yield on passive stablecoin balances or products considered economically equivalent to interest. However, the draft legislation does not appear to restrict the reserve income earned directly by stablecoin issuers. The Bernstein team noted that the bill primarily targets the distribution of yield to end users, leaving Circle’s underlying business model intact.
The analysts also pointed out that the legislation includes potential carve-outs for activity-based rewards tied to user engagement, such as trading or payments. This means platforms could still distribute rewards linked to specific user behaviors under certain conditions. Bernstein described the market’s immediate response as a reaction that may not have been properly calibrated to the actual scope of the proposal.
Circle’s revenue model centers on income generated from the reserves that back USDC, which are largely held in short-term US Treasurys. Bernstein estimates that this reserve income reached approximately $2.6 billion in 2025. That income stream, the analysts argue, is not targeted by the current draft of the CLARITY Act.
Circle shares dropped roughly 20% on Tuesday following news of the legislative update, despite having risen more than 160% from their February lows. By mid-day Wednesday, shares had partially recovered, trading up more than 3.5%. The rebound suggests some investors reconsidered their initial assessment of the bill’s impact on the company.
This is not the first time Bernstein has expressed confidence in Circle this month. Earlier in March, the firm reiterated an “Outperform” rating on the stock and set a price target of $190, nearly double the levels at which it was trading at the time. The latest note reinforces that position, with analysts pointing to strong growth in USDC’s circulating supply as a sign of the stablecoin’s expanding reach.
USDC’s circulating supply has grown to $80 billion from around $30 billion over the past two years, driven by demand across trading, collateral, payments, and global access to US dollars. Bernstein also highlighted rising onchain transaction volumes as further evidence of USDC’s growing role in both crypto markets and cross-border finance. USDC currently ranks as the second-largest US dollar-denominated stablecoin, behind Tether‘s USDt.
Originally reported by CoinTelegraph.
