Wall Street bullish on Circle's USDC growth despite uncertainty
Shares of Circle Internet Group (CRCL) and Coinbase Global (COIN) both sank earlier this week on reports that the latest draft of the US CLARITY Act crypto market infrastructure bill includes a ban on stablecoin rewards.
If the final bill does in fact ban rewards, then it would mean lawmakers have sided with bank lobbyists, who have argued that crypto companies are using a "loophole" in the GENIUS Act to get around the prohibition on interest.
It would also kill one of the main selling points that stablecoin issuers have made to investors - being able to generate yield or rewards by holding them - which reduces them to just another form of payment. Although there are benefits to using stablecoins as a payment tool, it could be difficult to convince non-crypto investors to use them instead of traditional payment services like Venmo or Zelle.
Shay Boloor, chief market strategist at Futurum Equities, said in a post on X that a ban on rewards “weakens a key part of the bull case by making USDC harder to evolve from a payments utility into a real store-of-value product.”
Shares of CRCL, whose USDC is the second-largest stablecoin in the world behind Tether, plunged more than 20% on news of the ban, while COIN dropped nearly 10%.
But Wall Street doesn't appear to have had their confidence in Circle broken by the potential regulatory headwind.
Citi analysts, led by Peter Christiansen, view the latest development as a potential drag on the stock, but nothing that changes their long-term view of CRCL.
"We view this development potentially (but not necessarily) as a scaling setback, but not a thesis killer," Christiansen said in a client note.
The bank does see this potential ban as creating less incentive to hold USDC, as Boloor noted, but the analysts view tablecoins as an instrument for payment, rather than a security.
“We still maintain the view that stablecoin volume is the key indicator of adoption, not circulation," Christiansen wrote.
Trump could have something to say on rewards ban
William Blair analysts, led by Andrew Jeffrey, reiterated an Outperform rating on CRCL in a client note last week, seeing the 20% selloff on its shares as a "buying opportunity with long-term alpha potential."
Jeffrey called the regulatory uncertainty "manageable," while adding the "status quo may prevail if legislation fails."
The firm points to USDC's position as a leader in cross-border B2B infrastructure, leading it to see "structural stablecoin opportunity outweighing short-term regulatory concerns."
Because President Trump has developed close ties with the crypto industry and is determined to make the US the “crypto capital of the world,” it leaves open a very real possibility that legislation with a ban on stablecoin rewards could in fact fail.
Trump laid blame on the banks earlier this month for the delay in the crypto market infrastructure bill by essentially accusing them of trying to resolve the main disagreement they have with the GENIUS Act through legislation in the CLARITY Act.
“The Genius Act is being threatened and undermined by the Banks, and that is unacceptable — We are not going to allow it,” Trump said in a post on Truth Social. “The U.S. needs to get Market Structure done, ASAP. Americans should earn more money on their money.”
Meanwhile, Morgan Stanley analysts, led by James Faucette, sees CRCL facing "near-term regulatory overhang," but remain bullish on the long-term growth potential.
"Our view: Long-term value tied to use cases," Faucette said. "We believe the core potential in Circle lies in future use cases which are nascent in monetization, such as usage of stablecoins by AI agents, use cases in collateral management/tokenized trading, and cross-border payments."
Circle's shares fell 4.7% on Friday, but are up more than 18% for the year.