After its latest attestation report revealed that it was holding Bitcoin in the portfolio backing crypto’s largest stablecoin, USDT, Tether is doubling down.
The company said on May 17 that it would direct up to 15% of its operating profits towards purchasing Bitcoin.
“Tether’s decision to hold Bitcoin is in line with our strategic approach to diversifying our reserves and ensuring their stability,” Paolo Ardoino, the CTO of Tether, told The Defiant. “I would like to emphasize that Tether has no plans to sell its Bitcoin holdings.”
He added that Tether’s excess reserves exceed its Bitcoin holdings, which positions the company well in terms of stable growth.
Tether already owned $1.5B worth of Bitcoin as of March 31, equivalent to roughly 52,600 tokens. If consolidated into one wallet, that would make the company the world’s thirteenth-largest holder of Bitcoin, according to BitInfoCharts.
A major caveat of that ranking is that a single entity can control multiple Bitcoin addresses, making it difficult to determine how much of the digital asset anyone really holds.
Ardoino clarified to The Defiant that Tether had been holding a “significant” amount of BTC in many previous quarters and didn’t acquire the entirety of its stash in Q1 2023 as some on social media suggested.
Sam Kazemian, the founder of Frax Finance, thinks Tether is making a good move by continuing to acquire BTC.
“I think it’s extremely smart for stablecoin issuers to put some of their profits (not collateral) into digital assets,” he told The Defiant over Telegram. He added that Frax accumulates ETH, but might buy BTC as well if holders of the project’s FXS token vote to do so.
Trillion Dollar Opportunity
Kazemian believes that stablecoins are a huge opportunity in the crypto space. “I think the top stablecoin issuers will be the next Apple, Amazon, and Google of this generation,” he said. In line with Kazemian’s prediction, Tether said in a May 15 post that its Q1 profits exceeded those of established companies like Netflix, Starbucks, and PayPal.
Tether has been enjoying increased profits because interest rates have been rising since March 2022. The company owned just over $53B in U.S. treasury bills as of March 31, a record high. Higher rates have meant that Tether is raking in profits from its fixed-income holdings.
Kazemian sees stablecoin issuers as being win-win businesses if they’re able to reach scale. “If the economy is doing well and rates are low, their investments and their tokens increase in value,” he said. “If the economy is in a recession and rates are very high, they simply get paid by the U.S. government.”
To be sure, Tether has more than its share of detractors — the company isn’t registered with the SEC, John Reed Stark, a well-known cybersecurity expert and lawyer, highlighted on Twitter. This means that the company doesn’t have to adhere to the strict US reporting standards. As such, the reports about Tether’s BTC holdings, as well as assets and liabilities, don’t constitute a full-fledged audit, Stark said.
Despite its increasing dominance, Tether has been embroiled in various legal battles over the years – in 2021, the Commodity Futures Trading Commission ordered Tether to pay $41M for misrepresenting the status of the reserves backing USDT. The Wall Street Journal also reported on the companies behind Tether using falsified documents and shell companies to gain access to bank accounts.