Circle stock price suffered a harsh reversal today, March 24, as investors reacted to the latest updates on the CLARITY Act, which aims to create clear guidelines on regulating the crypto industry. CRCL dropped by ~20%, reaching a low of $103, its lowest level since March 9 this year.
Circle Stock Drops After New CLARITY Act Update
Circle shares plunged after Eleanor Terrett, a top crypto journalist, said the CLARITY Act proposals were more restrictive than expected. Terrett, a well-connected journalist who worked for Fox Business, noted that the proposal would prohibit crypto companies like Coinbase and Kraken from offering yield, directly or indirectly, on stablecoins held on their platforms.
The proposal would instead allow these companies to offer royalty programs tied to user activity on their platforms. It will let the Securities and Exchange Commission (SEC), CFTC, and the US Treasury define these activities.
The new bill, if passed, will be a major setback for the crypto industry. Instead, the rule will benefit banks, which have argued that allowing stablecoin yields will lead to cash outflows from their institutions and to customers moving to crypto companies. As a result, they argue that this trend will reduce the funds they have to lend.
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Circle stock price is falling because the new rules may lead to less demand for the USDC stablecoin by American users. Instead of saving money in stablecoins with no yield, users may choose to save in banks.
CRCL Stock Crash is Overblown
However, these fears seem overblown as USDC volume continues to grow. Data shows that the USDC supply has jumped to over $80 billion, up sharply from last month’s low of $70 billion. This trend may continue, possibly to $100 billion before the end of the year.
At the same time, the company may benefit from rising US government bond yields, with the 10-year and 2-year yields rising to 4.3% and 3.9%, respectively. This growth means the company will make more money by investing its reserves in short-term government bonds.
Circle is also expanding its business into other services as it seeks more ways to generate revenue. For example, it launched the Circle Payment Network (CPN) solution last year as part of its goal to disrupt a business that Swift Network has dominated for years. It also launched USYC, which has since become the largest on-chain money market fund.
Technically, as we wrote before, the stock has more upside in the coming weeks or months, possibly to the 50% Fibonacci Retracement level at $175.
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