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Tether, the stablecoin issuer at the heart of the cryptocurrency economy, now owns Bitcoin, meaning one of the cryptocurrency's major players could soon become one of its biggest investors. This is probably optimistic for digital asset prices.
Tether issues USDT, the largest US dollar-denominated stablecoin with a market cap of $83 billion, making it the third largest digital asset after Bitcoin and Ether. Stablecoins like Tether form the basis of cryptocurrencies, serving as a stable source of value for all trading and lending. It plays a key role in the world of volatility as it provides vital liquidity to traders, funds and market makers.
This makes Tether a systemically important player and verifies the quality of the asset – such as a Treasury – that the group backs each USDT issue. Tether has not always been as transparent as required by regulators. The British Virgin Islands-based broadcaster settled complaints with the state of New York and the Commodity Futures Trading Commission in 2021 over its storage and disclosure practices.
In its latest assurance report, not an audit signed off by BDO Italia, Tether said bitcoin accounted for 1.8% of total assets, accounting for $2 billion in liabilities at the end of March.
MORE: Tether said Wednesday it will allocate up to 15% of its available net operating income to regular bitcoin purchases, in addition to the $1.5 billion worth of bitcoins it holds in reserve. The group said it expects current and future holdings of bitcoin not to exceed its "shareholder cushion."
The move could provide further support to the price of bitcoin, which has risen nearly two-thirds this year but remains under pressure.
Tether said it had a record net income of $1.48 billion in the first three months of 2023. If these numbers hold over the next three quarters and Tether buys Bitcoin with 15% of those profits, it will lock up an additional $670 million. The cryptocurrency company plans to buy by the end of 2023. This could add another $890 million to Bitcoin by 2024 and profit at current levels, all else equal.
This trend will put buying pressure on the price of Bitcoin, which could push the entire cryptocurrency higher.
But more broadly, the rise of Binance, the world's most dominant cryptocurrency trading platform, has created a similar risk for the digital asset industry: risk concentration. Much of the risk in the cryptocurrency market is not only the smooth functioning of Binance, as well as the support of Tether, but also the basis of the future price dynamics of Bitcoin can be captured by stablecoin issuers.
Email Jack Denton at jack.denton@barrons.com