Bernstein issues a warning: The market misreads the CLARITY Act; Circle keeps its $190 target price

After the draft of the “CLARITY Act” proposed restrictions on passive stablecoin yields was announced, Circle’s stock price dropped nearly 21% to around $104 within five days. However, Bernstein analysts released a report on March 26, clearly stating that this round of sell-off reflects a misunderstanding of the market regarding the draft of the “CLARITY Act,” and maintained a target price of $190 for Circle.

Source of Market Panic Misjudgment: Ignoring Key Scope of the Bill

The core logic behind the recent collapse of Circle’s stock price is the market’s concern that the draft of the “CLARITY Act” will directly jeopardize the core profit model of stablecoin issuers by restricting “passive stablecoin yields.” Bernstein believes that the market made a critical conceptual confusion in interpreting this draft.

The actual intent of the draft is to limit “Idle Yield” — that is, the interest-like returns that users passively earn simply by holding stablecoins. At the same time, the draft retains the space for “active rewards” related to real actions such as payments and platform usage. The issue lies in the draft’s phrasing of “economically equivalent to interest,” which is highly open-ended, leaving room for varying interpretations and triggering widespread uncertainty.

Bernstein’s Core Framework: Issuers vs. Distributors, Two Distinct Legal Positions

The key to Bernstein’s analysis is clarifying the treatment differences for two different roles within the stablecoin ecosystem under the “CLARITY Act”:

Stablecoin Issuers (Issuer, such as Circle): The source of revenue comes from allocating USDC reserves into low-risk assets like short-term U.S. Treasury securities, which is considered asset allocation behavior, rather than directly paying interest to users; Bernstein believes this model is not the main regulatory target of the bill.

Yield Distributors (Distributor): Their role is to transfer the yield generated from reserve assets to end-users through a platform, essentially acting as a “yield intermediary”; the draft’s restrictions on bank-like interest distribution behaviors apply more directly to this type.

Based on this analytical framework, Bernstein maintains a target price of $190 for Circle, believing that the current stock price of $104 is significantly undervalued relative to its fundamentals, and that the panic sell-off by investors due to the misinterpretation of the draft does not reflect Circle’s actual legal risks.

Uncertainty in Legislative Direction: Coinbase’s Opposition and Possible Stagnation of the Bill

It is noteworthy that Bernstein’s interpretation is not a consensus within the industry. Coinbase has formally opposed the draft of the “CLARITY Act,” warning that unclear rules may harm the normal operation of the stablecoin system. If major market participants cannot reach a consensus on the direction of the provisions, there is a risk that the bill’s progress may become stagnant.

The “CLARITY Act” is currently still in congressional negotiation, and the final text may still be subject to modification before formal approval. The wording “economically equivalent to interest” is expected to become a core contentious point in subsequent legislative negotiations. Bernstein’s analysis provides an important counter perspective, but the final direction of the bill remains a key uncertain factor affecting the valuation of crypto-related stocks.

Frequently Asked Questions

Why does Bernstein believe the market misread the “CLARITY Act”?

Bernstein points out that the market overlooked the critical distinction between “issuers” and “distributors” in the draft. As an issuer, Circle’s revenue comes from reserve asset allocation, rather than directly paying interest to users; while distributors like Coinbase, which transfer yield to users, are the primary regulatory subjects of the draft.

What is Bernstein’s target price and rating for Circle?

Bernstein maintains a “Outperform” rating for Circle, with a target price of $190, believing that the recent drop of Circle’s stock price to around $104 is an overreaction, and that there is significant undervaluation relative to its fundamentals.

Does the “CLARITY Act” impact Coinbase more than Circle?

According to Bernstein’s analytical framework, as a yield distributor, Coinbase’s business model is more likely to be constrained by the draft than Circle’s. Coinbase has formally opposed the draft, warning that unclear terms may harm the stablecoin system, and has called for clearer regulatory definitions.