Circle shares plummeted nearly 20% on Tuesday, dragging crypto stocks lower after investors recoiled at a proposed ban on stablecoin yield.
At the heart of the sell-off is new language widely reported to be included in the latest version of the Clarity Act, a long-awaited crypto market structure bill that would define how the industry will be regulated in the US.
But Bernstein says the market has misread the risk.
“The market is conflating who earns yield with who distributes yield,” analyst Gautum Chhugani and his three Bernstein colleagues said in an investor note shared with DL News.
“Circle earns. Coinbase distributes. The Clarity Act targets distribution.”
The analysts added that carve-outs for activity-based rewards could still allow platforms to offer incentives, meaning the sell-off “may not be calibrated enough.”
Clarity at last?
The proposal would ban companies from paying users simply for holding stablecoins in a way that resembles interest on bank deposits, Politico reported.
However, rewards linked to “bona fide activity” — such as payments, trading or loyalty programmes — may still be permitted.
Patrick Witt, the executive director of the President’s Council of Advisors for Digital Assets, confirmed the move on Friday.
“Credit to Senator Thom Tillis and Senator Angela Alsobrooks for bridging the partisan divide to tackle a difficult issue,” he said. “More work to be done to close out this and other outstanding issues, but this is a major milestone toward passing the Clarity Act.”
Neither Alsobrooks nor Tillis immediately replied to a request for comment from DL News.
President Donald Trump’s administration has also relentlessly pursued crypto-friendly policies despite partisan gridlock.
Last week, the Securities and Exchange Commission delivered a pivotal interpretation of federal securities law, offering long-awaited clarity on which blockchain-based assets fall within its remit — and which do not.
“As lawmakers consider broader reform to guard against rogue regulation, the SEC is doing what it can and should be doing by providing clarity about the proper boundaries of our jurisdiction within existing law,” SEC chair Paul Atkins said at the Digital Assets Summit in New York on Tuesday.
Deeper struggle
To be sure, there are plenty of financial leaders opposed to the administration’s pro-crypto stance.
The clash over stablecoin rewards reflects a deeper struggle between banks and crypto firms.
Earlier in March, at the American Bankers Association summit in Washington, executives warned that stablecoins could drain deposits from the traditional banking system, threatening lending capacity across the $23 trillion US credit market.
“It would be extremely detrimental should our deposits be cut back,” said ABA chair-elect Cathy Owen.
Vikram Arun, co-founder and CEO of the wealth management platform Superform, told DL News that “with Trump supporting the crypto industry, the question is no longer ‘is this allowed’ but rather ‘how does the US win’, and that weight will be translated to lawmakers far more than any single policy win.”
More FUD?
The sell-off of Circle shares also coincided with a viral post from pseudonymous blockchain investigator ZachXBT alleging that Circle froze multiple USDC wallets, amplifying concerns around government control and censorship.
The post has reignited debate on X over centralisation risks in stablecoins, landing just as regulatory uncertainty intensifies.
“You fail to protect users during actual incidents yet respond to a request riddled with errors,” ZachXBT said.
Adding to Circle’s headaches is the fact that long-term rival Tether is making overtures to muscle into the US market.
Having long restricted US users from using its USDT stablecoin, Tether launched a US-regulated stablecoin called USAT in January.
On Tuesday, DL News reported that Tether has also signed up one of the Big Four auditing firms to audit the stablecoin issuer, which may help answer some questions about its record.
It is unclear whether PwC, EY, Deloitte, or KPMG has signed up to do Tether’s audit.
