Citigroup: “Stablecoin interest restrictions are a negative for Circle… but not a fundamental threat”

Global investment bank (IB) Citigroup has assessed that provisions in the U.S. crypto market structure bill (the “Clarity Act”) that restrict interest payments on stablecoins could act as a headwind for Circle, the issuer of the dollar stablecoin USDC.

According to CoinDesk on the 26th (local time), Citigroup said in a recent report that “the interest-payment restrictions included in the Clarity Act could be a negative for Circle.” Citigroup added, “(However) this is not a fundamental threat to Circle’s investment appeal,” noting that “the issue could potentially hinder (Circle’s) scaling, but not to the extent of undermining the investment thesis.”

Citigroup’s view is that if stablecoin interest payments are restricted, Circle’s liquidity could decline temporarily. Citigroup said, “Circle is classified as a payments instrument, so (if interest is restricted) the incentive to hold it weakens,” and analyzed that “circulating supply and secondary-market liquidity could temporarily decrease.” It added that “the key metric for stablecoins remains transaction volume, not circulating supply.”

Citigroup set Circle’s target price at $243. It also assigned a “high risk” rating to Circle shares.