Circle Selloff 'Looks Overdone' Analysts Say as Shares Rise After Cathie Wood Buys the Dip

Circle's stock (CRCL) showed signs of recovery on Wednesday, paring significant losses incurred after developments on Capitol Hill regarding stablecoin regulation. The New York-based stablecoin issuer's shares traded around $102.50, recovering from a sharp 22% weekly decrease. This followed a day of turmoil that also saw rival Tether announce a Big Four audit.

Regulatory Developments and Market Impact

Tuesday's stock decline was linked to proposed changes in market structure legislation, specifically a compromise with the banking industry concerning stablecoin yield. The latest text of the Clarity Act reportedly bars companies like Coinbase from offering deposit-like rewards to USDC holders. This move aims to address concerns raised by community banking organizations about potential outflows.

Simultaneously, Tether announced it was undergoing a full audit with an unnamed Big Four accounting firm. Analysts at Clear Street suggested this could signal a U.S. expansion for Tether's USDT, potentially increasing pressure on Circle's business. However, Clear Street analysts believe the market's reaction to Circle's stock drop was "overdone," stating that while near-term monetization expectations might need adjustment, the strategic demand for USDC remains intact.

Institutional Investment and Analyst Outlook

In a notable development, Cathie Wood's Ark Invest purchased 161,000 Circle shares on Tuesday across several ETFs, an investment valued at approximately $16.5 million. This "buy the dip" strategy suggests institutional confidence in Circle's long-term prospects.

Clear Street analysts maintained a "Buy" rating for Circle with a price target of $152, highlighting unaffected company tailwinds such as tokenization, AI-native payments, prediction markets, and institutional adoption of regulated payment rails. They pointed out that the Office of the Comptroller of the Currency had already proposed rules against stablecoins offering interest-like payments, indicating that the pressure on a pure pass-through yield model predates recent regulatory headlines.

Analysts emphasized that Circle's positioning as a more compliant alternative to Tether's USDT is a key advantage. They believe that even with improved audit standards from Tether, investors are unlikely to favor USDT over USDC on regulatory grounds.

Bernstein's Analysis on Yield and Adoption

Bernstein analysts reiterated their "Outperform" ratings for both Circle and Coinbase, setting price targets of $190 for Circle and $440 for Coinbase. They clarified that Circle itself does not pay yield to USDC holders; rather, the yield ban restricts platforms from distributing yield to end-users, not issuers from earning on reserves. This distinction is crucial for understanding Circle's revenue model, which involves investing USDC reserves in U.S. Treasuries.

Bernstein analysts agreed that restrictions on yield are unlikely to impede the adoption of USDC among institutions or crypto-native users. Coinbase CEO Brian Armstrong has previously stated that a ban on deposit-like rewards could even be more profitable for Coinbase, as the company passes most of the revenue from USDC reserves to its users. Despite this, Coinbase's stock has seen a weekly decline of around 10%, with Bernstein predicting the exchange will navigate these changes and transition to a new rewards model.