Tether buys bitcoin with net profit to back USDT stablecoin

Tether buys bitcoin with net profit to back USDT stablecoin

Paolo Ardoino, Tether’s chief technology officer, said the company estimates that the excess reserve will increase by $700 million in the current quarter, which has not yet ended.

Justin Tallis | Afp | Getty Images

Cryptocurrency giant Tether announced on Wednesday that it will buy hundreds of millions of dollars worth of Bitcoin to fund the world’s largest stablecoin.

The company said it will invest 15% of its net profits in bitcoin to “diversify” the reserves backing its USDT token, which aims to maintain a 1:1 peg to the US dollar.

That would total around $222 million based on the company’s most recent certification report, which includes a breakdown of the assets that make up its USDT reserves, as well as excess reserves and earnings.

A Tether spokesman clarified that the bitcoins purchased would account for only a small portion of the overall net profit, with the bulk of the excess revenue being spent on running the company, including bank fees.

“The goal is to keep the value of the bitcoin portfolio well below the size of our total excess reserves, which at the end of Q1 2023 were 2.48 billion, while bitcoin holdings were 1.5 billion,” said the Tether- Speaker.

According to data from CoinGecko, USDT is the largest stablecoin on the market with more than $82.8 billion in circulation. It competes with Circle’s USD coin and Binance’s BUSD.

Stablecoins are used by traders to get in and out of various cryptocurrencies without converting funds back into fiat currencies.

“The decision to invest in Bitcoin, the world’s first and largest cryptocurrency, is underpinned by its strength and potential as an investment asset,” Tether CTO Paolo Ardoino said in a statement.

“Bitcoin has consistently demonstrated its resilience and has emerged as a long-term store of value with significant potential for growth. Its limited supply, decentralized nature, and widespread adoption have made Bitcoin a preferred choice among institutional and retail investors alike.”

The move would make Tether an even bigger holder of bitcoin – the company already holds over $1.5 billion worth of bitcoin on its balance sheet – and follows the moves of big-name investors like Paul Tudor Jones and MicroStrategy CEO Michael Saylor, amassing huge reserves, believing that the token is immune to the effects of currency devaluation and inflation.

Analysts and investors previously told CNBC that Bitcoin could see a boost this year due to the influence of so-called “whales” — market participants with significant financial clout that allow them to buy up large amounts of tokens.

Tether’s methods of maintaining a $1 value for its token have caused controversy in the past due to concerns about the quality of its currency reserves. Previously, the company held much of its reserves in commercial paper — a form of short-term, unsecured debt issued by companies. This is considered less secure than other forms of debt, such as US Treasury bills.

Tether attempted to allay investor fears by exiting commercial paper and replacing those fund holdings solely with US Treasuries.

In February, the company announced that it had reduced its commercial paper holdings to zero.

USDT and its issuer remain a bone of contention in the crypto market. The US Department of Justice is reportedly investigating Tether executives over possible bank fraud.

Stablecoins have already been a hot topic for regulators scrambling to figure out how to keep the industry in check following the demise of several notable companies in the space.