Circle Internet Group (NYSE:CRCL) plummeted 22% Tuesday after draft language from the Clarity Act reportedly bans exchanges from offering stablecoin yield, but Bernstein analysts say the market is conflating who earns yield with who distributes it.

The Bernstein Counter-Thesis

Analyst Gautam Chhugani and his Bernstein colleagues argue the market misread the risk. “Circle earns. Coinbase distributes. The Clarity Act targets distribution,” they wrote in an investor note.

The proposal would ban companies from paying users simply for holding stablecoins in a way that resembles interest on bank deposits. 

However, carve-outs for activity-based rewards could still allow platforms to offer incentives linked to payments, trading, or loyalty programs.

Bernstein said the selloff “may not be calibrated enough” because rewards tied to bona fide activity may still be permitted under the draft language.

The Clarity Act Stablecoin Battle

Patrick Witt, executive director of the President’s Council of Advisors for Digital Assets, confirmed the move Friday, crediting Senators Thom Tillis and Angela Alsobrooks for bridging the partisan divide to tackle a difficult issue.

The clash over stablecoin rewards reflects a deeper struggle between banks and crypto firms. 

At the American Bankers Association summit in March, executives warned that stablecoins could drain deposits from the traditional banking system, threatening lending capacity across the $23 trillion U.S. credit market.

“It would be extremely detrimental should our deposits be cut back,” said ABA chair-elect Cathy Owen.

The Crypto Stock Carnage

Coinbase (NASDAQ:COIN) fell as much as 11%, while MARA Holdings (NASDAQ:MARA), Bullish, Galaxy Digital (TSX:GLXY), and Robinhood Markets (NASDAQ:HOOD) also moved lower. 

Bitcoin (CRYPTO: BTC) briefly fell to around $69,000.

Needham analyst John Todaro expects that if the draft language passes, it would curtail Coinbase’s program offering certain customers 3.5% rewards on USDC balances.

The Tether Competition Threat

Competition among stablecoin issuers drew renewed attention Tuesday. 

Tether announced it entered into a formal agreement with a Big Four accounting firm to complete its first full audit, creating speculation the El Salvador-based firm could be preparing to enter the U.S. market.

Tether launched USAT, a U.S.-regulated stablecoin, in January after long restricting U.S. users from using its USDT stablecoin. 

Monness analyst Gus Gala said the Tether audit news is “hitting the stock more so today” than the Clarity Act language.

CRCL Tests $100 Support

Circle trades in premarket at $105.77 after dropping nearly 30% in just a few sessions following a massive rally from $60 to $140. 

Price now tests the 100 EMA at $104 as support.

Key support sits at $100 psychological and $94.56 (200 EMA). Resistance clusters at $115-$117 (20/50 EMA).

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