Circle Plummets 20%: The Crypto Earthquake Triggered by a Draft

Written by: Lin Wanwan

On March 24, 2026, Circle’s CEO Jeremy Allaire probably experienced the most difficult trading day since the company’s IPO.

He co-founded the stablecoin company, and its stock price evaporated by one-fifth during trading. Over 30 million shares changed hands that day, and panic was clearly reflected on the market.

And all of this was triggered by just a few pages leaked from an office building in Washington.

$78 billion “Water Supply” Business

To understand this plunge, you first need to know what Circle’s revenue model is.

Many think stablecoin companies are tech firms, but what Circle does is more like a bank. You give it $1, and it gives you 1 USDC token. You can transfer or spend that token freely on the blockchain, while it uses your dollars to buy US Treasuries.

The interest from Treasuries is Circle’s profit.

How profitable is this business? In Q4 2025 alone, reserve interest contributed $733 million.

The circulation of USDC surged 72% within a year, reaching $78 billion. Circle holds a fund pool of $78 billion, earning interest like tap water flowing in, nonstop every day.

But just collecting interest isn’t enough; they need more people to convert their money into USDC. So, Circle made a deal with Coinbase: Circle shares part of the interest income with Coinbase, which then offers a 3.5% annual yield to USDC holders. You deposit your money, sit back, and earn interest automatically. No need to understand blockchain or perform any operations; the earnings are credited automatically.

This model creates a beautiful flywheel: returns attract users, users bring in funds, funds generate interest, and interest feeds back into returns. The flywheel spins faster and faster, and Circle’s stock price soared from about $50 in early February to $135, a 170% increase in six weeks. The market also expects the Federal Reserve to maintain high interest rates, which further benefits Circle, as higher rates mean more reserve interest.

Then, someone set their sights on this machine.

Banking Industry Strikes Back

On March 24, the latest draft of the CLARITY Act was revealed in the U.S. Senate.

This legislation, officially called the Digital Asset Market Clarity Act, was originally meant to regulate the crypto market. A version had already passed the House, but the Senate added an amendment: banning any platform from providing yield on stablecoins, directly or indirectly, including arrangements equivalent to bank deposit interest.

In plain terms, the “interest-bearing” model you all use will be banned.

This clause hits Circle’s core. Without the ability to pay yields, no one will want to hold USDC in the short term, and in the long term, stablecoin business on Coinbase could shrink. Coinbase earned $364 million from stablecoins in Q4, and that money now hangs in the air.

The game behind the ban is even more interesting than the ban itself.

This ongoing battle over stablecoin yields has lasted nearly a year.

The GENIUS Act, signed into law in July 2025, already prohibited issuers from paying interest directly to holders, but the law didn’t clearly cover related parties and third-party platforms. Circle and Coinbase exploited this gray area: Circle shares reserve interest with Coinbase, which then distributes it to users as “rewards,” and the money still reaches the users.

More than 40 banking associations, led by the American Bankers Association, subsequently jointly wrote to Congress demanding to close this loophole. The yield ban in the latest draft of the CLARITY Act is a direct result of this lobbying.

The push for this amendment is driven by traditional U.S. banks.

The reasoning is simple: if Coinbase can offer a 3.5% yield, why would customers keep their money in traditional savings accounts? This yield model of stablecoins directly threatens the banking deposit base. Reports say bank representatives were briefed on the draft on the day it was released. The crypto industry wants to do banking, but banks won’t sit idly by as their deposits are siphoned off by a bunch of coders.

Members of Congress face a choice between these two forces. At least from this draft, the traditional sector currently has the upper hand.

Shay Boloor, Chief Market Strategist at Futurum Equities, pointed out a more critical issue: this ban effectively blocks USDC from evolving from a payment tool into a “store of value.”

That upgrade path has been the core logic behind the recent 170% surge in Circle’s stock price. The rise was based on market expectations of USDC’s future potential. Now, with this legislative draft cutting into that imagination, the 170% increase becomes the best reason to short.

The stock plummeted from a high of $125 to around $101, marking the largest single-day drop since its listing in June 2025. Coinbase also fell about 10% in tandem.

Tether’s “Taking Advantage of Your Illness”

But misfortune didn’t stop there.

On the same day, Circle’s biggest competitor, Tether, announced it had hired one of the Big Four accounting firms to conduct a formal audit of its USDT reserves.

This news might seem like a minor headline under normal circumstances, but at this moment, its impact is magnified tenfold.

The stablecoin landscape has been quite clear: Tether’s USDT is the largest, but its reserve transparency has been questioned; Circle’s USDC is smaller but more compliant and solid.

Institutional investors mainly choose USDC for peace of mind. Trust is the core of Circle’s moat.

Now, Tether aims to fill this gap. Once the audit is complete, the biggest difference between USDT and USDC will be erased. Regulators are digging into Circle’s moat, while competitors are building their own defenses.

This two-front attack, timed so precisely, is unlikely to be coincidental. On the eve of a potential reshaping of stablecoin regulation, Tether’s move to show sincerity is a calculated play.

Market insiders say that if Tether secures Big Four audit backing and further expands into the U.S. market, USDC’s institutional share could be further eroded.

Circle’s carefully cultivated image as a “compliance model” is turning from an advantage into a barrier to entry.

Armor and Shackles

But there are also more cautious voices.

Owen Lau, analyst at Clear Street, believes the market overreacted. He says the actual situation isn’t as bad as headlines suggest, and this is more of a knee-jerk reaction to complex legislative news.

He has a point: the CLARITY Act is still a Senate draft, far from becoming law, and the legislative process will be long.

While the Trump administration pushed for the bill, the yield restrictions might be amended or even removed in the final version.

The draft isn’t a one-size-fits-all: rewards tied to payments, transfers, or promotional activities can still be implemented, but “passive yield” will be restricted. The SEC, CFTC, and Treasury will further define what constitutes “permissible rewards” within a year of enactment, with details yet to be written.

If Circle can shift its business model from “holding equals earning” to “using equals rewards,” the game might still go on.

Additionally, USDC’s growth isn’t solely driven by yields. Global prediction markets like Polymarket operate on USDC, and such transactional demand won’t vanish just because of a ban.

Last year, Circle also launched Arc, a Layer-1 blockchain designed for stablecoin financial applications, covering global payments, foreign exchange, and asset tokenization, aiming to expand beyond stablecoin issuance into financial infrastructure. USDC won’t die, but whether it can sustain its growth rate over the past year remains a big question.

Looking back, this crash has served as a wake-up call for all crypto companies.

In recent years, the most successful crypto firms have embraced regulation. Circle exemplifies this approach: going public proactively, maintaining transparent audits, lobbying actively—all to prove to Wall Street that they are financial innovators in suits. The market rewarded this, with the stock price multiplying several times within a year of listing. Q4 revenue hit $770 million, up 76.9% year-over-year, with earnings per share of $0.43, far exceeding the expected $0.25. On paper, this is a rapidly growing, excellent company.

But the CLARITY Act draft exposes an uncomfortable reality: compliance means voluntarily placing yourself within the scope of regulation. Tether, being overseas, isn’t directly affected, but Circle, as a U.S.-listed company, must accept scrutiny. Compliance provides armor but also becomes a shackle.

The legislation is still under negotiation, and the story is far from over.

But March 2026 will be remembered: when crypto innovation touches the boundaries of traditional finance interests, the balance of power on Capitol Hill ultimately depends on who has the louder voice in Washington.