Coinbase Stock Surges on Draft Crypto Bill, but USDC Rewards Risk Remains Critical

What happened

Coinbase shares jumped as the U.S. Senate unveiled draft legislation for a comprehensive cryptocurrency regulatory framework, reducing near-term regulatory uncertainty that has weighed on the stock. This news aligns with market narratives framing regulation as a tailwind for Coinbase's institutional and stablecoin businesses, potentially boosting investor confidence. However, the DeepValue report warns that the CLARITY Act, part of this regulatory push, could specifically target and curtail exchange-funded USDC rewards, a loophole supporting $355 million in Q3 2025 stablecoin revenue. Despite the positive sentiment, Coinbase's earnings remain heavily dependent on volatile crypto prices, trading volumes, and interest rates, with negative operating cash flow in 2025 highlighting financial fragility. Thus, while the draft bill signals progress, its details will determine whether it solidifies Coinbase's moat or undermines its most profitable revenue stream.

Implication

If the draft legislation preserves the GENIUS rewards loophole, it could strengthen Coinbase's stablecoin economics and support higher valuations by reducing regulatory overhang. Conversely, if it includes language banning exchange-funded rewards, as feared in the DeepValue report, Coinbase's subscription revenue could decline sharply, pressuring margins and cash flow. Regulatory clarity might accelerate institutional adoption and ETF inflows, boosting trading volumes and custody services, but this is offset by Coinbase's high sensitivity to crypto cycles and interest rates. Moreover, the company's negative operating cash flow and reliance on capital markets for growth suggest that any benefits must outweigh persistent operational risks. Therefore, investors should await more legislative details and Q4 earnings to assess the net impact before adjusting positions, as the outcome could swing the stock between the report's bear and base scenarios.

Thesis delta

The draft legislation introduces a potential positive catalyst by advancing regulatory clarity, which could reduce existential risk and support Coinbase's growth narrative in the near term. However, the core investment thesis remains largely unchanged: the stock's valuation at ~19.7x earnings still embeds optimistic assumptions, with key risks from USDC reward curtailment, cyclical downturns, and negative cash flow persisting despite the news.