Bernstein Says the CLARITY Act Selloff Is Hitting the Wrong Stock

The Issuer-Distributor Distinction

The initial selloff treated the CLARITY Act as an existential threat to Circle's business model. The day-2 read from Wall Street is more nuanced — and more bullish.

Bernstein analysts Gautam Chhugani, Mahika Sapra, Sanskar Chindalia, and Harsh Misra published a note Tuesday reiterating their Outperform rating and $190 price target, arguing the market is conflating two distinct functions. Their thesis is blunt: "Circle earns. Coinbase distributes." The CLARITY Act's yield ban targets platforms that pass interest through to end users — not issuers that earn yield on reserves. Circle's core revenue stream, roughly $2.6 billion in reserve income in 2025, remains legally intact under the bill's current language.

10x Research founder Markus Thielen took the argument further, telling CoinDesk the bill "weakens Coinbase's distribution-driven model more than Circle's." Coinbase currently captures roughly $900 million annually from its USDC revenue-sharing arrangement with Circle. If the yield ban eliminates the 3.5% APY product that justifies that split, Circle gains leverage heading into the August 2026 contract renegotiation — potentially keeping a larger share of reserve income for itself.

ARK and Bitwise Buy the Thesis

Cathie Wood's ARK Invest didn't wait for the dust to settle. ARK bought 161,513 shares of CRCL during Monday's crash, spending approximately $16.3 million — a purchase that was already up roughly $1 million by Tuesday's close as the stock bounced from its $101.20 low.

Bitwise CIO Matt Hougan called the selloff "overblown", arguing that stablecoin demand is driven by payments and settlement utility, not passive yield. Hougan projected a potential $75 billion valuation for Circle — roughly double the current $25 billion market cap — based on the thesis that USDC's addressable market could reach $1.9 to $4 trillion by decade's end, with or without yield incentives.

The numbers backing that view are real. USDC processed $12 trillion in on-chain transaction volume in Q4 2025 alone. Supply grew from $30 billion to $80 billion over two years. That growth was driven by DeFi, cross-border payments, prediction markets, and AI agent settlements — use cases that don't depend on a 3.5% savings rate.

The Bear Case Hasn't Gone Away

Not everyone is buying the dip. The Motley Fool's March 25 analysis advised a wait-and-see approach, noting that "investing based on hopes for reform is highly risky" given the bill's uncertain timeline. The stock sits 65% below its $298.99 all-time high, and political risk cuts both ways — November midterms could reshape congressional composition and reduce prospects for crypto-friendly legislation.

The more specific concern is USDC supply stagnation. Even if Circle keeps all its reserve income, the growth story depends on USDC supply expanding. Without yield incentives, retail holders have less reason to park dollars in USDC versus a high-yield savings account. If supply contracts from the current $80 billion, Circle's reserve income shrinks proportionally — Bernstein's $2.6 billion estimate assumes supply keeps growing.

Clear Street's Owen Lau called Monday's action a "shoot first, ask questions later" reaction, which cuts both ways: the questions are now being asked, and the answers aren't uniformly bullish. The CLARITY Act is still a draft. The Senate Banking Committee markup hasn't happened. And the distinction between activity-based and passive yield — the legal hinge the entire bull case rests on — hasn't been tested by regulators yet.

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