Table of Contents
- Tether To Shore Up Reserves Using New Investment Strategy
- Capitalizing On Bitcoin
- Tether’s Problem With Transparency
The entity behind the USDT stablecoin, Tether, has announced that it will use a portion of its profits and purchase Bitcoin (BTC) in an effort to shore up its stablecoin reserves.
Tether had revealed a net profit of $1.48 billion in Q1 2023 and also revealed it had around $1.5 billion in BTC holdings.
Tether To Shore Up Reserves Using New Investment Strategy
According to a statement by the company, it plans to invest around 15% of its net profits to help diversify the assets backing the USDT stablecoin. USDT is the largest stablecoin in the crypto market, maintaining a 1:1 peg with the US dollar. According to the numbers, this would mean Tether would devote around $222 million to purchasing Bitcoin and add the token to its reserve surplus. Tether stated,
“Starting this month, Tether will regularly allocate up to 15% of its net realized operating profits towards purchasing Bitcoin (BTC). Tether anticipates that the current and future BTC holdings in its reserves will not exceed the Shareholder Capital Cushion and will further strengthen and diversify the reserves.”
Furthermore, the company added that it would custody the BTC independently and refrain from using third-party custodians.
“While it is common practice among many institutional investors to third-party custody their Bitcoin, Tether believes in the philosophy “Not your keys, not your bitcoin” and takes possession of the private keys associated with all of its Bitcoin holdings.”
Tether’s moves to accumulate Bitcoin would make the company one of the biggest holders of the asset, joining other notable investors such as MicroStrategy boss Michael Saylor and Paul Tudor Jones.
Capitalizing On Bitcoin
Tether revealed in its Q1 2023 Assurance Report that it held around $1.5 billion worth of BTC in its reserves, along with $3.4 billion worth of gold. Additionally, 85% of its reserves are held in cash or cash-like assets such as US Treasury Bonds. Tether’s pivot towards Bitcoin aims to help strengthen and diversify its stablecoin reserves and also capitalize on its price investment as an investment. Chief Technology Officer at Tether, Paolo Ardiono, added,
“The decision to invest in Bitcoin, the world’s first and largest cryptocurrency, is underpinned by its strength and potential as an investment asset. Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential. Our investment in bitcoin is not only a way to enhance the performance of our portfolio, but it is also a method of aligning ourselves with a transformative technology.”
The company added that it plans to use only its realized profits from investment operations to purchase Bitcoin. This means the firm would consider only the tangible gains from its operations which consist of the difference between the purchase price and the net proceeds from an asset sale. Alternatively, in the case of maturing assets such as Treasury Bills, the difference between the purchase price and the reimbursement amount. The company added that it was also focusing on developing energy and bitcoin mining infrastructure and communication systems, among other investments.
Tether’s Problem With Transparency
Tether has come under heavy criticism within the crypto space and from authorities thanks to a lack of transparency about its reserves and several controversial investment decisions. There have also been concerns about the quality of reserve assets backing its USDT stablecoin. However, despite these concerns, the USDT stablecoin has emerged as a safe haven for investors. This was outlined in March 2023 when the US banking crisis hit USDC, the second-largest stablecoin in the crypto space.
USDC was severely impacted due to the sudden implosion of Silicon Valley Bank (SVB), which left a chunk of USDC’s reserves frozen for a weekend. As a result, several stablecoins lost their dollar peg as a domino effect played out in the market. However, Tether was able to maintain its price stability thanks to a perceived disconnection and isolation from US Banks, thanks to it being incorporated in the British Virgin Islands and Hong Kong.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.