Circle shares slumped on Tuesday (nearly 20%) after U.S. lawmakers advanced the Clarity Act. This decline has been linked to the Clarity Act draft language that suggests it would curb interest paid on crypto stablecoin holdings.

A Key Crypto-Basics Misunderstanding

The reason of the sudden drop? The market is misunderstanding the legislation, analyst Gautam Chhugani and his three Bernstein colleagues said in an investor note shared with DL News. “The market is conflating who earns yield with who distributes yield”, they said.

It is no secret that the market is moved by the heightened emotional responses of investors, reacting to real world events such as a geopolitical crisis or a change in the legislation that could affect their…