Banks Enter Stablecoin Fray, Sending Circle and Coinbase Shares Lower

The shares of Circle Internet Group and Coinbase have taken a hit after The Wall Street Journal reported that JPMorgan Chase and other banks are exploring their own stablecoins. This development has raised concerns for the two companies, whose businesses heavily rely on the distribution of USDC, a regulated stablecoin.

Circle's business model depends on the distribution of USDC, and its revenue is tied to reserve income and partners such as Coinbase. However, with banks now entering the picture, Circle faces a direct threat to its story.

The provision in question is Section 404 of the CLARITY Act, which aims to bar covered crypto firms from paying interest or yield equivalent to a bank deposit. This would significantly impact Coinbase's revenue, as much of it comes from USDC rewards tied to balances held on its platform and third-party platforms.

Banks are also preparing their own tokenized money networks, with JPMorgan evaluating a stablecoin alongside its existing tokenized deposit product, JPM Coin. The BankChain Alliance, formed by 39 state banking associations, plans to support tokenized deposits, stablecoins, payments, and automated settlement across multiple currencies.

Circle and Coinbase can still come out fine if Section 404 leaves enough room for real activity-based rewards and if USDC maintains its lead with exchanges and merchants across onchain finance. However, the easy version of the trade is gone, and the next phase will be crypto companies defending yield economics while banks build rival rails under the language of safety.