Circle’s shares took a hit on Tuesday amid concerns over the CLARITY Act, but analysts at Bernstein are urging investors to stay calm.
Circle’s stock plummeted by approximately 20% on Tuesday, driven by fears that the proposed CLARITY Act could disrupt the company’s business model. However, in a recent note to clients, Bernstein analysts Gautam Chhugani, Mahika Sapra, Sanskar Chindalia, and Harsh Misra argue that the market reaction was overblown. The CLARITY Act, which seeks to regulate yield offerings on stablecoins, primarily targets platforms that distribute yield to users, such as Coinbase, rather than the reserve income earned by issuers like Circle.
Understanding the CLARITY Act
The latest draft of the CLARITY Act aims to prohibit platforms from offering yield on passive stablecoin balances or products deemed ‘economically equivalent’ to interest. However, the legislation allows for activity-based rewards tied to user engagement, such as trading or payments. According to Bernstein, this means that the stablecoin reward carve-outs could still allow for the distribution of rewards linked to user activity tiering.
Circle’s Business Model Intact
Circle’s core business model relies on earning income from reserves backing its stablecoin, USDC (USDC). These reserves are primarily invested in short-term U.S. Treasurys, and Bernstein estimates that this reserve income reached about $2.6 billion in 2025. The analysts stress that the draft legislation does not impact this income, as it is generated from the underlying reserves and not from the distribution of yield to users.
Market Overreaction
Despite the sharp decline in Circle’s stock on Tuesday, the analysts at Bernstein believe the market’s reaction was exaggerated. They note that Circle’s shares have still gained over 160% from their February lows and are up 30% year-to-date. In mid-day trading on Wednesday, Circle’s stock had clawed back some of its losses, rising more than 3.5%.
Bullish Outlook on Circle
This isn’t the first time Bernstein has expressed a bullish outlook on Circle. Earlier this month, the firm reiterated its ‘Outperform’ rating on the stock, setting a price target of $190, nearly double its current levels. The analysts point to strong momentum in USD Coin (USDC), with its circulating supply growing from about $30 billion to $80 billion over the past two years. This growth is driven by demand for trading, collateral, payments, and global access to U.S. dollars.
USDC’s Expanding Role
Bernstein also highlighted rising on-chain transaction volumes as evidence of USDC’s expanding role across crypto markets and cross-border finance. USDC is currently the second-largest U.S. dollar-denominated stablecoin, behind Tether’s USDT. In the fourth quarter of 2025, USDC’s transaction volume approached $12 trillion, underscoring its significance in the digital finance ecosystem.
While the CLARITY Act has sparked concerns, the analysts at Bernstein remain confident in Circle’s resilience and the continued growth of USDC. As the regulatory landscape evolves, Circle’s focus on reserve income and user engagement is likely to position it well for future success.
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