Citigroup: Stablecoin Incentive Cap May Temporarily Reduce USDC Circulation, but Does Not Impact Circle Core Revenue

On March 26, CoinDesk reported that Wall Street giant Citigroup said the proposed stablecoin incentive limits in the latest U.S. market structure bill would create a hurdle for Circle (CRCL) — but not a fundamental threat to its investment case. Citigroup analyst Peter Christiansen noted the bill bans earning rewards from passive stablecoin balance holding, though it allows reward programs tied to trading or payment activity. Since Circle has passed most of its reserve income to distribution partners including Coinbase, a broader ban on third-party rewards wouldn’t directly hit Circle’s net revenue. However, weaker USDC holding incentives could temporarily weigh on the stablecoin’s circulation and secondary market liquidity, the analyst predicted. Citigroup keeps a High Risk rating on Circle stock, with a $243 price target — while the stock traded around $100 at press time. Circle’s shares tumbled ~20% on Tuesday on news of the bill. Bernstein, meanwhile, said in a Wednesday report that Circle’s Tuesday selloff stemmed from a market misunderstanding of the Clarity Act. The market confused “who earns the revenue” with “who distributes it”: Circle generates reserve income from USDC-backed assets, while platforms like Coinbase pass some of that income to users — and the latter is the rule’s actual target. Circle does not pay income directly to holders, and its 2025 fiscal year reserve income hit $2.64 billion. Bernstein added USDC’s scale has grown from ~$30 billion to ~$80 billion, driven by trading, payment, and collateral demand — not yield. Additionally, Coinbase has taken a cautious stance in Clarity Act negotiations, privately expressing frustration with the latest compromise to Senate staff but not publicly opposing the bill.