Circle (CRCL) rebounded as much as 7% on Wednesday, recovering from its biggest single-day drop on record as Wall Street digested details of proposed legislation that would limit rewards on stablecoin balances.
Rising competition from rival Tether may also have contributed to the dramatic move, which saw Circle fall 20% on Tuesday.
Trading platform Coinbase (COIN), a Circle partner that receives revenue from the stablecoin issuer, also rebounded 4% on Wednesday after sinking 8% in the prior session. (Disclosure: Yahoo Finance has a partnership with Coinbase.)
Part of the catalyst appeared to be a Crypto in America report that signaled the latest text of the Clarity Act proposal in Congress would prohibit platforms from offering yield “directly or indirectly” for holding a stablecoin in a manner that resembles a bank deposit.
Read more: How stablecoins work
“While it’s difficult to fully appreciate these nuances without full access to the latest draft, these restrictions seem less Draconian than many might have feared,” Compass Point Ed Engel wrote in a note on Wednesday. The analysts have a Neutral rating on Circle, with a $79 price target.
The bill, which aims to lay out rules for which federal agency oversees what portions of the crypto markets, has struggled to pass through Congress.
A key 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 consequential policy question on the table right now,” Colin Butler, executive vice president of capital markets at Mega Matrix, told Yahoo Finance.
“Yield is what has been pulling real capital into stablecoins. Without it, people transact in stablecoins but don’t hold them,” he added.
Another headwind for Circle came from rival Tether’s announcement that it would hire a “Big Four” accounting firm to complete its first independent financial statement audit.
Analysts say the move makes Tether look more trustworthy to major investors.
“This could materially improve trust among U.S. investors and accelerate onshore adoption,” Fundstrat’s head of digital assets, Sean Farrell, wrote in a Wednesday night note.
“If successful, it represents a structural competitive threat to Circle, which already operates with thinner margins,” he added.
Circle stock has been on a tear in recent weeks, rallying from around $60 in late February to $130, or roughly 110%, just last week.
