Tether Buys Bitcoin With Its Profits To Back Its USDT Stablecoin

By Kevin • May 19, 2023 3:45 pm • Comments

Tether is still currently the largest and most used stable coin in the cryptocurrency market today with it representation a large portion of all transactions.

The company recently announced that it would use 15% of its net profit to acquire Bitcoin in order to diversify the reserves that it uses to back its USDT stable coin.

In other words, USDT now has some exposure to the value of Bitcoin which makes the markets more impact by what Bitcoin does.

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USDT aims to be pegged to the value of the USD so it is important that the value of its reserves equals the value of the total supply of USDT in the market.

Otherwise, there is the risk of the USDT being depegged which would negatively impact the crypto industry.

CNBC reports:

The company said it would invest 15% of its net profit into bitcoin to “diversify” the reserves that back its USDT token, which aims to stick to a 1-to-1 peg to the U.S. dollar.

That would amount to roughly $222 million, based on the company’s last attestation report, which provides a breakdown of the assets that make up its USDT reserves as well as excess reserves and profits.

A Tether spokesperson clarified the bitcoin it purchases would amount to only a small portion of its overall net profit, with the bulk of excess income being spent on running the business, including bank fees.

“The aim is to keep the Bitcoin portfolio value well below the size of our total excess reserves that accounted for 2.48B at the end of Q1/2023, while bitcoin holdings accounted for 1.5B,” the Tether spokesperson said.

The company has faced a lot of accusations in the past where some accused the company of not having enough reserves to back its stable coin.

So far, there has not yet been any evidence of that and the USDT still manages to maintain its value of 1 USD.

With this new move, this makes Tether one of the biggest holders of Bitcoin as the firm already holds over $1.5 billion worth of Bitcoin on its balance sheet.

This indicates that the company believes that the asset is a good storage of value and provides “insurance” on their capital.

Tether is currently competing against other popular stable coin options like Circle’s USDC and Binance’s BUSD.

CoinTelegraph reports:

Tether claimed BTC was an obvious choice since the market-leading cryptocurrency has proven to be a long-term store of value assets. The stablecoin issuer cited Bitcoin’s mammoth price rise over the past decade and its resilience against traditional financial failures for the decision.

In a statement, Tether chief technology officer Paolo Ardoino said that the world’s first and largest cryptocurrency is underpinned by its potential as an investment asset.

He added that Bitcoin’s limited supply, decentralized nature and widespread adoption have positioned it as a “favored choice among institutional and retail investors alike.“

MicroStrategy has a similar Bitcoin investment plan, actively replacing the U.S. dollar in its reserves with Bitcoin. Although MicroStrategy doesn’t have a fixed time frame for its BTC investment, Tether plans to do it at the end of each month.

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