Circle (CRCL) rallied as much as 7% on Wednesday, recovering from its biggest one-day drop on record as Wall Street was weighed down by details of proposed legislation that would limit rewards on stablecoin balances.
Increased competition from rival Tether may have contributed to the dramatic move, which saw Circle plunge 20% on Tuesday.
Trading platform Coinbase (COIN), Circle’s revenue partner from the stablecoin issuer, rebounded 4% on Wednesday after plunging 8% in the previous session. (Disclosure: Yahoo Finance has a partnership with Coinbase.)
Part of the catalyst seems to be the report of Crypto in America who signed the latest text of the Clarity Act proposal to Congress will prohibit platforms from providing yield “directly or indirectly” by holding a stablecoin in a way similar to a bank deposit.
Read more: How stablecoins work
“While it is difficult to fully appreciate these nuances without full access to the latest draft, these restrictions appear to be less Draconian than many would fear,” wrote Compass Point’s Ed Engel in a paper on Wednesday. Analysts have a neutral rating on Circle, with a price target of $79.
The bill, which aims to set rules for which federal agency oversees which parts of the crypto market, has struggled to pass Congress.
The main point of contention is whether crypto platforms should be able to pay customers “yield,” or interest on their stablecoin balances, a move seen as a threat to banks.
“For the broader crypto industry, this is the single most important policy question on the table right now,” Colin Butler, senior vice president of capital markets at Mega Matrix, told Yahoo Finance.
“Yield is what has drawn real money to stablecoins. Without it, people exchange stablecoins but don’t hold them,” he added.
Another storm for Circle came from rival Tether’s announcement that it would hire a “Big Four” accounting firm to complete its first independent audit of its financial statements.
Analysts say the move makes Tether look more credible to big investors.
“This could improve confidence among American investors and accelerate offshore adoption,” Fundstrat’s head of digital assets, Sean Farrell, wrote in a note Wednesday night.
“If successful, it represents a structural competitive threat to Circle, which already operates on thin margins,” he added.
Circle’s stock has been on a tear in recent weeks, going from about $60 in late February to $130, or about 110%, last week.
The company posted strong quarterly results last month as stablecoin circulation exploded.
Expectations that the Federal Reserve will hold rates steady have also helped boost stocks. Circle makes most of its profits from the interest reserves that back its USD coin (USDC-USD).
The company has expanded beyond stablecoins to position itself as a fintech infrastructure provider. Last year, it announced Arc, a specialized blockchain that will support global payments, foreign currencies, and real-world goods tokenized using USDC as its currency.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow him to X with @ines_ferre.
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