After Circle shares dropped sharply this week amid concerns that proposed crypto legislation could limit incentives to hold USDC, some analysts are coming to the company's defense, with Bitwise arguing the stablecoin issuer could be worth $75 billion by 2030.

Circle shares fell about 20% on Tuesday amid reports that draft provisions in the Clarity Act could limit rewards tied to holding or using USDC. At the same time, rival Tether, the global stablecoin market leader, said it had engaged a Big Four auditor, a move that could help position the USDT issuer as increasingly compliant as it seeks to expand its footprint in the U.S.

"The reaction is overblown," said Bitwise Chief Investment Officer Matt Hougan, who cited Citigroup's base case projection that the total stablecoin market could reach $1.9 trillion by 2030.

"There’s nothing about the Clarity Act news that changes the base case forecast," Hougan added. "Interest income has not been a primary driver of stablecoin growth to date; the vast majority of stablecoins today are held in ways that don’t pay interest."

While USDC does not directly pay yield to holders, incentives or rewards have at times been passed on to users — particularly through platforms like Coinbase. With the stablecoin market growing increasingly competitive, any reduction in incentives to hold USDC could weigh on Circle’s long-term growth prospects.

"One popular view is that Circle’s share of the market will decline over time as big firms like Bank of America, Stripe, and Wells Fargo get involved in stablecoins," Hougan said. "I’m not so sure. Historically, innovators do pretty well at protecting early market leads."

Circle shares rebounded about 3% Wednesday to $104.44, according to The Block's CRCL price page.

Circle's strong business case

Analysts at William Blair said the stock may have been primed for a pullback following recent gains, but they disagreed that the Clarity Act would materially hamper Circle’s long-term prospects.

"Although legislative language is ambiguous, we think such a construct would satisfy banks’ concerns about deposit flight," analysts wrote. "In any event, our view is that the stablecoin genie is out of the bottle, and USDC’s benefits to cross-border B2B commerce far outweigh any interim legislative uncertainty."

Banking lobbyists have been advocating for limits on stablecoin rewards, arguing that such incentives could draw deposits away from traditional institutions that rely on those funds to issue credit.

In addition to limiting rewards, the bipartisan proposal from Sens. Angela Alsobrooks, D-Md., and Thom Tillis, R-N.C., could also restrict access to transaction size data — potentially making it harder to calculate rewards — a source familiar with the proposed legislation told The Block.

The yield debate has often centered on whether stablecoin issuers compete with banks by passing returns on to users. Bernstein analysts said Wednesday that limiting such payouts could even strengthen Circle’s position by reducing incentives for competitors to attract liquidity through aggressive yield offers.

When it comes to Circle facing increased competition, William Blair analysts said, regardless of the firm engaging a Big Four auditor, Tether could face challenges expanding in the U.S.

"Tether faces significant hurdles on the path to potential GENIUS compliance, not the least of which is illicit USDT use, which will probably draw U.S. regulatory scrutiny," they wrote.

Tether’s USDT stablecoin is not formally regulated in the U.S., though American users can still hold it. The company recently launched a U.S.-focused stablecoin, USAT.