Latest A new US rule wiped $5B off Circle — but it may hurt Coinbase

Blockchain technology Circle, the issuer of USD Coin (USDC) stablecoin, saw its stock plunge 20% this week, erasing $5 billion in market capitalization in its steepest intraday drop since going public. The sell-off happened on the same day Tether announced it had secured a ‘Big Four’ accounting firm to undertake a full audit of USDT. According to Mario Stefanidis of research firm Artemis, the sell-off was triggered by leaked regulatory drafts and unexpected wallet freezes, sending trading volume surging to 56.4 million shares. This is nearly four times the stock’s 90-day average. Yet, as the dust settles, a growing chorus of market analysts and institutional investors is calling the market’s reaction a severe miscalculation, arguing that the underlying fundamentals for the USDC issuer have never been stronger.

Circle’s CRCL stock has posted a modest 3% recovery to $104 as of today’s market open. CLARITY Act yield rules hit a market already priced for little disappointment The immediate catalyst was the reported arrival of new draft language for the highly anticipated CLARITY Act, which would ban passive stablecoin yield. This means stablecoin users would be unable to earn rewards for simply holding a dollar-pegged token. At the same time, exchanges and affiliated firms would be barred from offering yield, directly or indirectly, on stablecoin balances or through structures deemed economically equivalent to interest. According to reports, activity-linked incentives would still appear to survive under the proposal, with US financial regulators, including the SEC and the US Treasury, given time to define the regulations. The new text landed after a strong rally in Circle shares. The stock had climbed 170% from its February lows and had risen from $50 to $127 as investors responded to earnings, faster USDC growth, and optimism that regulated stablecoins would gain from tokenization, AI-linked payments, prediction markets, cross-border transfers, and 24/7 market structure.

At those levels, Circle was being valued for continued strength in reserve income, expanding adoption, and a smooth regulatory path. However, the revised CLARITY language challenged one of the assumptions supporting that setup, especially for investors who had linked USDC growth to exchanges and brokers’ ability to offer deposit-like rewards on idle balances. Stefanidis said the market had repriced the entire stablecoin trade within hours.

He said the draft exposed a business-model vulnerability, coming at a time when rates had already moved lower, and reserve yields were no longer offering the same support they had a year earlier. According to him, the Fed’s yield on reserves declined to 3.81% in the fourth quarter of 2025 from 4.49% a year earlier. That meant investors were already watching whether slower monetary support would weigh on reserve income before Washington’s latest draft added a new layer of uncertainty. The selloff may have conflated Circle with its distributors Meanwhile, several analysts argued the market’s first reaction to CRCL overlooked how Circle actually makes money. Circle issues USDC, invests the reserves in short-duration US Treasurys and overnight repurchase agreements, and keeps the spread generated on those holdings.

In the fourth quarter of 2025,  » …

About Post Author

Carla Contass

See author's posts