Tether’s Controversial Bitcoin-Buying Strategy: Balancing Innovation and Risk

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In a recent blog post, Tether, the issuer of the largest stablecoin USDT, announced its plan to buy bitcoin regularly with its surplus profits. The disclosure came after a robust attestation completed by BDO Italia, showing the company netted $1.48 billion in profit in the first quarter. Tether’s “excess of reserves” has doubled to $2.4 billion, and it holds over 52,000 BTC with plans to invest 15% of its tangible gains in more cryptocurrencies.

This move places Tether alongside other institutional entities heavily invested in BTC, such as MicroStrategy. Tether’s conservative and prudent investment strategy also includes a sizable position in gold, which could potentially de-risk its exposure to the US dollar. As trust dwindles in the fiscal and monetary policies of the US, discussions around “dedollarization” are gaining attention.

Both Tether and its largest competitor, Circle, are reducing their reliance on pure bank deposits due to concerns about an increasing number of bank failures in the US. While Tether’s bitcoin-buying plan aligns itself with transformative technology, some view it as an attempt to buffer against the US dollar’s weaknesses. As long as Tether doesn’t swap bitcoin for its cash or cash-like reserve assets meant to ensure USDT is always redeemable for the US dollar, it should not have any issues.

However, the decision may still cause uncertainty among investors. Tether has previously been found to have lied about the nature of its reserves, and the current regulatory landscape is unclear. The European Union has passed strict reserve maintenance rules for stablecoin issuers, but the US Congress remains divided on how to address the issue, giving issuers more freedom to self-regulate.

Considering the importance of USDT in the cryptocurrency market, stakeholders might demand greater insight into and control over Tether’s investment decisions. While buying bitcoin with surplus cash will likely have little impact on USDT users and could even benefit BTC holders, it does raise questions about the implications for Tether’s own main product.

For now, Tether can continue to take in funds and invest in the spread however it pleases. However, the company’s support for bitcoin as a hedge is an implicit acknowledgment of the risk associated with its core offering. In the face of uncertainty and potential risks, Tether’s approach raises an essential question: how long can the firm rely on this strategy without encountering significant challenges?

Source: Coindesk

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