On March 25, 2026, Circle's stock price experienced a cliff-like sell-off in the U.S. stock market, with a single-day drop nearing 20%, triggering simultaneous shocks in both the crypto and traditional financial markets. The apparent trigger was the market's collective panic interpretation of the U.S. "Clarity Act" (hereinafter referred to as the "Clarity Act")—many traders and commentators quickly concluded: if the draft is implemented, Circle would be directly cut off from earning profits from USDC-related assets, and its existing profit model would be forced to reshuffle. The dramatic response of the stock price highlighted a significant misalignment between the intensity of the market reaction and the actual constraints posed by the regulatory draft. The real question is not just about this single daily candlestick, but whether this represents a typical case of "misjudgment," or an early "warning" signal of future regulatory risks. In this round of rapid correction, whether structural opportunities are hiding, or still unpriced institutional variables remains to be seen.

Stock Price Falls by 20% in an Instant: Where Does the Panic Come From?

During the trading session on March 25, Circle's stock price plummeted sharply, igniting panic among the market as the approximately 20% drop was perceived as a significant shock. For an asset so deeply tied to the narrative of "on-chain dollars," such a flash crash is easily interpreted as: the regulatory hammer has truly struck at the core profit engine. On the order book during trading, stop-loss orders were continuously triggered, and liquidity became fragile in a short time, further amplifying the downward price movement.

Accompanying the rapid price decline, a mainstream narrative quickly formed in the secondary market: under the constraints of the Clarity Act, Circle would no longer be able to earn stable returns from USDC-linked reserve assets, or at least would find it challenging to liquidate this part of the value within a regulatory framework. Some viewpoints even slipped into more extreme hypotheses—once the related earnings are strictly constrained, the current valuation will lack support, and the existing stock price system must be re-evaluated as a whole.

This sentiment rapidly spread across social media and trader communities, being recast repeatedly as "profits being cut off" and "end of the profit model." In the recent macro context of frequent regulatory headwinds, including scrutiny of passive income products and tightening of compliance frameworks, this linearly amplified pessimism easily resonates. Panic does not solely stem from Circle itself, but from a collective anxiety about whether the entire "compliant dollar" track is approaching a regulatory turning point.

It is worth noting that not all institutions agree with the speed and extent of this pricing. Bernstein explicitly stated in its research commentary that "the sell-off may have clearly exceeded fundamental risks", believing there is a significant deviation between the current price reaction and the real scope of constraints of the draft. A few institutional investors have also begun to express in post-market discussions that the current decline appears more like an emotional release rather than a systematic revaluation based on cash flow models, which lays the groundwork for possible reversals and repairs in the future.

Misperceived Clarity Act: Misalignment between Issuers and Distributors

To understand this panic, one must return to the Clarity Act itself. According to public reports from Rhythm, TechFlow, and others, the core aim of the draft does not directly target the issuer of tokens like USDC, but rather focuses more on the distributor—the institutions that provide passive income products to end-users. On a simpler level, it is more akin to asking, "Who is selling returns to the public in a wealth management-like form?" rather than "Who is issuing this token itself?"

The regulatory concern, therefore, falls on the commercial model of "providing passive income to regular users," rather than merely "issuing compliant dollar tokens." The draft is concerned with which platforms, banks, or internet financial institutions will package returns related to these assets into income-generating products and sell them to a broad user base. This distinction was blurred or even neglected in many early comments and market responses, leading to the extreme version that "Circle as the issuer will have its returns directly cut off" quickly gaining traction.

Comparing the market's initial extreme hypothesis—that Circle would be forced to stop profiting from reserve assets like U.S. Treasury bonds—with the currently verifiable information reveals a clear gap between the two. Existing interpretations indicate that the draft currently resembles more an effort to delineate regulatory boundaries for passive income products rather than directly pronouncing a "death penalty" for the commercial model on the issuer's side. However, as the final details of the bill have not yet been fully disclosed, and there is a lack of a clear effective timeline, this distinction has not been immediately digested by an emotional market. It is this incomplete information and uncertain timing that makes panic more likely to skew pessimistically, interpreting a regulatory issue aimed at the distribution end as an "overall siege" on the issuer's profitability.

How Circle Makes Money: Treasury Yield and Compliance Boundaries

To determine whether the Clarity Act shakes Circle's foundations, one must look back at its existing profit model. According to public information from Rhythm and Planet Daily, the current operational method of USDC is roughly as follows: when users purchase USDC on-chain or through custodians, Circle holds reserves equivalent to the purchased amount on its asset side, which are mainly allocated to short-term U.S. Treasury bonds and other assets seen as safe and highly liquid. The resulting yield constitutes an important source of revenue for Circle, which typically does not pay this interest directly to ordinary users in the form of cash returns.

The subtlety of this model lies in Circle's ability to earn considerable interest income on the asset side while avoiding being simply categorized as a "provider of income products to the public," thereby retaining commercial profit margins within the existing compliance framework. Regulatory sensitivities usually arise when returns are explicitly packaged and sold to end-users, rather than in how reserve configurations are optimized on the asset side.

Bernstein’s research conclusions in this event are precisely based on this reality: from a fundamental perspective, the current version of the Clarity Act does not immediately disrupt the operational logic of Circle's "short-term U.S. Treasury yield engine." The issuer continues to earn interest spreads on reserve assets, which is a different issue from whether the distribution end provides passive income products to users within the regulatory context.

An even more interesting analysis is: if future regulation indeed imposes stricter constraints on passive income distribution, it may weaken the ability of some competitors to attract liquidity with "high yields" as their main selling point. In such scenarios, issuers that prioritize compliance and do not directly pay high interest to users may gain a relative advantage in the long run. Of course, this viewpoint is still an unverified market deduction, but it at least suggests a direction: regulation does not necessarily mean merely "suppressing profits," it may also reshape the distribution of income and alter the competitive sequence among participants.

Misjudgment or Revaluation: The Structural Game behind Mispriced Pricing

Regarding the judgment that "the sell-off has clearly exceeded fundamental risks", market divergences are gradually surfacing. On one hand are the emotional traders represented by short-term traders and macro hedge funds: faced with regulatory headlines and stock price plummets, they are more inclined to interpret it as a rehearsal for potential "black swans," prioritizing the execution of “cut losses first and ask questions later” risk control discipline. On the other hand, there are those attempting to evaluate, from a medium to long-term value perspective, to what extent this correction has truly altered Circle's cash flow and growth trajectory over the next few years.

If the Clarity Act primarily targets the layer of passive income distribution, then a larger variable going forward is: how the pattern of income distribution will be reshaped. For a long time, the allocation of chips between users, issuers, and distribution platforms has been established in a relatively ambiguous institutional environment—some platforms can attract existing USDC through "high-yield wealth management" while certain institutions return part of the income to specific users through protocol designs. After regulatory intervention, who can continue to allocate income to which users in what form will no longer be purely a business choice, but will be constrained by clear compliance red lines.

In this plunge, from both institutional and retail perspectives, distinctly different gaming strategies can be observed:

● For some retail investors and high-leverage funds, the rapid decline in Circle's stock price is viewed as a "doomsday signal"—they are more concerned that once the regulatory logic is confirmed, valuation adjustments will present an irreversible "stepwise decline," hence they prefer to surrender their holdings at the panic bottom rather than endure continuous uncertainty premiums.

● Conversely, some medium to long-term institutional investors have begun to view this pullback as a source of "discounted chips." For them, regulatory risk is inherently embedded in the long-term narrative of compliant dollar tracks; the key question is whether this draft genuinely alters the fundamental assumptions established previously. If the answer leans more toward "structural adjustment rather than disruption," then the single-day adjustment of about 20% in price instead becomes a window for reconfiguring positions and enhancing expected returns.

It is crucial to emphasize that in the absence of complete financial disclosures and policy details, any quantitative estimates regarding total market cap evaporation or future earnings loss due to this fluctuation carry a significant degree of uncertainty and are prone to fabrication. What can be done is merely to discuss qualitatively: the market currently demands a significantly heightened "regulatory risk compensation," and investors are willing to accept deeper price discounts for the same profit outlook, which is a true reflection of the conflict between short-term emotional trading and medium to long-term value pricing.

Bitcoin Resilient to Pressure and the Underlying Theme of Asset Tokenization

In stark contrast to Circle's dramatic correction on March 25, Bitcoin held its ground above the 70,000 U.S. dollars key range (according to Golden Finance) amid multiple negative headlines and regulatory noise. This indicates that, as the core asset serving as the "risk appetite barometer" for the crypto market, its main bullish narrative and medium to long-term capital allocation demands have not fundamentally shifted due to individual stock events and regulatory drafts.

On a broader macro level, the case of the UK’s Monument Bank planning to tokenize £250 million in retail deposits (source: TechFlow) is quietly sketching another pathway for traditional finance to enter the on-chain world: “stepping” traditional financial assets like bank deposits onto a new infrastructure through tokenization. This bears a fundamental narrative similar to that of compliant dollar assets like USDC—whoever can provide the most reliable, compliant, and accessible solution for "on-chain deposits and cash equivalents" is better positioned to take on the next round of liquidity migration.

When we place compliant dollar assets like USDC alongside bank deposit tokenization in the same context, we discover that regulatory actions such as the Clarity Act truly impact who will become the protagonist in this massive migration. Regulatory clarity can serve as both an accelerator and a barrier—it may filter out participants mainly relying on high-yield marketing while freeing up more space for entities that can sustainably operate within compliance frameworks.

From this perspective, the current turmoil surrounding Circle seems more like a pressure test concerning the pricing methods of individual stocks and their tracks, rather than a definitive judgment on the long-term outlook of "on-chain dollars." Bitcoin holding up under pressure, and traditional institutions like Monument Bank attempting to tokenize deposits, illustrate that both capital and regulators are searching for a new equilibrium for "on-chain financial infrastructure," and Circle’s valuation fluctuations are merely one intense ripple in this grand reshuffle.

After the Regulatory Misread: Circle and the Next Round of the Compliant Dollar Track

Returning to the starting point, the constraints of the Clarity Act that can currently be confirmed still largely focus on the end of income distribution—who, and how passive income products are provided to end-users—rather than directly and immediately cutting off the issuer's ability to earn income from the asset side. The mainstream market interpretation on March 25 exaggerated this regulatory issue aimed at the distribution layer into a "deadly blow" to the issuer’s profit model, thus leading to a noticeable price overshoot.

A relatively neutral but constructive judgment is that before the details and effective timeline of the draft are clarified, the emotional swings around Circle and the compliant dollar track are likely to reoccur, with large single-day volatility being not uncommon. However, such fluctuations are insufficient to alter Circle's core position in the compliant dollar asset track—at least within the current public information framework, there are no signals indicating that its fundamental competitiveness has been immediately dismantled.

Looking ahead, two potential paths can be imagined: One is that regulatory bodies and legislative institutions gradually provide clearer boundaries through subsequent clarifications and implementation of details, while institutions like Bernstein continue to deliver fundamental-based analyses, guiding market sentiment back from the "worst expectations" to more rational pricing, and Circle's valuation also slowly recovers in this process; the other is that regulatory constraints on passive income products become more specified, forcing issuers and distribution platforms to renegotiate the rules of income distribution, with proportionate allocations among users, platforms, and issuers being systematically adjusted, resulting in the phasing out of certain old models and the shaping of new business structures amidst growing pains.

For market participants, what matters more is not the color of the next candlestick, but rather: in every regulatory storm, what is truly written into the provisions and executed. Paying attention to real constraint provisions and execution rhythms, rather than being led by headlines and social media emotions, is crucial to avoiding becoming "emotional peak chips" in the next wave of regulatory narrative impacts. Circle's recent plunge may serve as a reminder—within a compliant and increasingly institutionalized track, understanding the system is becoming as important as grasping market trends.

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