Coinbase and Circle Shares Surge 11.9% and 19.9% After Senate Passes GENIUS Act

Coinbase and Circle shares experienced a significant surge, jumping double digits, following the Senate's passage of the GENIUS Act. This legislation, if enacted, would provide the first comprehensive federal framework for U.S. dollar-pegged stablecoins, offering clear guidelines on reserves, audits, and licensing. This regulatory clarity could facilitate the integration of stablecoins into mainstream finance, reducing uncertainty for institutions.

Circle, trading under the CRCL ticker on the New York Stock Exchange, saw its stock climb 19.9% to $178.74, reaching a new all-time high. Coinbase, listed on the Nasdaq under the COIN ticker, gained 11.9% since the previous day's close, trading at $283.78. The progress of the GENIUS Act is closely tied to the financial performance of these companies, as they share interest revenue from the cash reserves backing USDC. At the time of writing, USDC had a market capitalization of $61.4 billion.

Circle manages the USDC stablecoin by accepting deposits, minting new USDC ERC-20 tokens on Ethereum, and maintaining cash reserves to facilitate redemptions. While USDC is in circulation, both Circle and Coinbase earn interest on these dollar reserves. This revenue-sharing agreement has been a significant contributor to Coinbase's earnings, with $297 million reported in Q1, up from $197 million in the first quarter of 2024. Coinbase has leveraged this by encouraging investors to hold USDC in their wallets, often with minor yield incentives, effectively turning Coinbase into a quasi-bank with net interest income.

Both Coinbase CEO Brian Armstrong and Circle CEO Jeremy Allaire have strongly advocated for the GENIUS Act. However, challenges remain, as the legislation must still be passed by the House, which may not act swiftly on the bill. Analysts have warned that the current environment, with expectations of potential interest rate cuts by the Federal Reserve, could impact the companies' bottom lines. Stock analyst Gary Alexander cautioned that this might be an opportune time to take profits on COIN and CRCL, given the potential for lower interest rates to shrink the companies' revenue streams.

According to the CME FedWatch Tool, investors are unanimous in their belief that interest rates will remain unchanged ahead of Wednesday's FOMC meeting. However, 15% anticipate a rate cut in July, and 57% expect it to occur in September. This potential shift in monetary policy could significantly affect the interest income earned by Coinbase and Circle from their USDC reserves, posing a risk to their financial performance in the coming months.