Tether, a stablecoin issuer at the heart of the cryptocurrency economy, is also now hoarding Bitcoin, meaning one of crypto’s most important players may soon be among its biggest investors. It’s likely to be bullish for digital asset prices.
Tether issues USDT, the largest U.S.-dollar stablecoin with a market capitalization of $83 billion, making it the third-largest digital asset after
Bitcoin
and
Ether.
Stablecoins like Tether form the bedrock of crypto, acting as the foundation of all trading and lending activities as a steady source of value. That’s a key role in a world of volatility as it provides critical liquidity to traders, funds, and market makers.
It makes Tether a systemically important player and heaps scrutiny on the quality of the assets—like Treasuries—the group says back each USDT it issues. Tether hasn’t always been as transparent as regulators demand. Based in the British Virgin Islands, the issuer settled charges in 2021 with New York state and the Commodity Futures Trading Commission over its reserves and disclosure practices.
In its latest assurance report—not an audit—signed off by BDO Italia, Tether revealed that Bitcoin made up 1.8% of its total assets, which it says outstripped liabilities by more than $2 billion as of the end of March.
There’s more: Tether said Wednesday that it would regularly allocate up to 15% of its net realized operating profit towards purchasing Bitcoin, on top of the $1.5 billion in Bitcoin it holds in its reserves. The group said that it anticipates its current and future Bitcoin holdings will not exceed the “shareholder capital cushion.”
This move has the potential to be an added bulwark for Bitcoin prices, which have ripped some two-third higher this year but continue to face pressure, most recently in a correction of more than 10% from its April high.
Tether said that it achieved a record net profit of $1.48 billion in the first three months of 2023. Should those numbers hold over the next three quarters, and Tether buys Bitcoin with 15% of that profit, it would mark some $670 million in additional crypto the company plans to purchase through the end of 2023. It could add another $890 million in Bitcoin with profit at current levels through 2024, all else being equal.
The trend would add sustained buy pressure to Bitcoin prices, which could buoy all of crypto.
But, more broadly, it represents the same risk to the digital asset industry as the rise of exchange Binance as the world’s most dominant crypto trading venue: concentration of risk. Not only is much of the crypto market risk concentrated in the smooth operations of Binance as well as the backing of Tether, but a pillar of future price dynamics of Bitcoin may also be taken over by the stablecoin issuer.
Write to Jack Denton at jack.denton@barrons.com
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