Stocks of major crypto players Coinbase and Circle have soared following the Senate’s passage of a potentially game-changing bill: the GENIUS Act. This proposed legislation marks a turning point for stablecoin regulation, offering clear federal guidelines that could ease institutional fears and boost digital dollar adoption.
How the GENIUS Act Could Transform Stablecoin Regulation in the U.S.
The GENIUS Act (short for “Guaranteed Essential National Infrastructure for U.S. Stablecoins”) is being hailed as the first major federal attempt to provide clear, nationwide rules for stablecoins—cryptocurrencies pegged to the U.S. dollar.
If signed into law, the GENIUS Act would:
- Require stablecoin issuers to maintain fully-backed cash reserves
- Mandate regular audits and financial disclosures
- Introduce licensing requirements to ensure oversight
- Create standards for consumer protection
This kind of regulation could be a turning point. For years, stablecoins like USDC have existed in a regulatory grey area, making some banks and institutions hesitant to get involved. With a federal law in place, it would become far easier for these players to integrate stablecoins into their payment systems and financial products.
Coinbase and Circle Stock Surge: Why Investors Are Betting Big
Following the Senate vote, both Coinbase (COIN) and Circle (CRCL) saw their share prices jump sharply. Circle hit an all-time high of $178.74, rising nearly 20% in a single trading day. Coinbase also saw an 11.9% gain, trading at $283.78 by market close.
The market response isn’t just about optimism—it’s tied directly to business fundamentals. Here’s why.
Coinbase and Circle jointly issue USDC (USD Coin), one of the largest stablecoins in the market, with a current market cap of $61.4 billion, according to CoinGecko. The two companies split interest revenue generated from the dollar reserves backing USDC. These reserves are typically held in short-term U.S. Treasury securities or other cash equivalents.
The Hidden Risk: How Fed Interest Rate Cuts Could Hurt Coinbase and Circle
While the GENIUS Act has triggered market optimism, some analysts are urging caution. The reason? The revenue Coinbase and Circle earn from USDC depends on interest rates remaining high. And there’s growing speculation that the Federal Reserve may start cutting rates as early as September.
Currently, the Fed’s benchmark interest rate allows Coinbase and Circle to earn significant interest on their USDC reserves. But if the Fed lowers rates:
- The yield on short-term Treasuries will drop
- Coinbase and Circle will earn less from reserve holdings
- Their profit from USDC could shrink considerably
Stock analyst Gary Alexander has warned investors not to get too comfortable. Writing for Seeking Alpha, he noted that Coinbase has started to resemble a quasi-bank, using USDC reserves to earn net interest income much like traditional financial institutions. And just like banks, their revenue could take a hit when rates fall.
According to the CME FedWatch Tool, 57% of analysts believe the Fed will lower rates by September. While the GENIUS Act might still become law, lower interest rates could undermine one of the key financial incentives driving profits.
Conclusion: A Promising Step, But Not Without Risk
The passage of the GENIUS Act in the Senate is undeniably a big win for the crypto sector, especially for companies like Coinbase and Circle. It brings long-sought clarity to stablecoins, making it easier for major financial institutions to embrace digital dollars like USDC.
But behind the headlines, a more complicated picture is emerging. These firms have built a lucrative business model on earning interest from USDC reserves—a stream of income that is closely tied to Federal Reserve policy. If rates drop, their margins could shrink quickly.
So while the market is celebrating today, smart investors are watching what happens next—not just in Congress, but also at the Fed.
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