Tether has announced a new strategy of buying bitcoin from their profits to add to the $1.5 billion BTC purchased in Q1 2023.
“Tether will regularly allocate up to 15% of its net realized operating profits towards purchasing Bitcoin (BTC),” the company said.
Tether claims it made a profit of $1.5 billion in the first quarter, up from circa $700 million in Q4. It also revealed a $1.5 billion new bitcoin holding:
The previous report did not have bitcoin, instead it claimed circa $3.4 billion in corporate bonds and gold, as well as about $2.6 billion in other investments.
The gold and “other investments” in the new report remain largely the same, but there’s a new big addition of $1.5 billion bitcoin.
If they were bought during Q1, then we can put them at an average price of $25,000 to give us 60,000 bitcoin.
They will keep adding to their bitcoin holdings 15% of their profits, but rather than to back USDt, this will be as excess reserves according to Paolo Ardoino, the CTO of Tether and Bitfinex.
“Tether, on top of the 100% reserves necessary to back issued tokens, has currently 2.5B+ USD (equivalent) more,” Ardoino said, adding:
“Today Tether announces its commitment to use up to 15% of its newly monthly net operating profits (ie. accounting the realized dollarized profits coming from t-bill and similar investments) to purchase bitcoin as part of its excess reserves.”
That would amount to about $220 million a quarter, or circa $70 million a month, based on the Q1 profits, and $100 million a quarter based on Q4 ’22 profits.
Not vast sums therefore, but it is an addition of constant new demand pressure which may tip bitcoin towards more bullish bias.
Not that Tether is new to buying BTC. They used to hold more than 100,000 in circa 2018, but came under pressure by more traditional ‘stakeholders’ and either divested or just didn’t reveal their bitcoin holdings.
Whether this is just back to revealing the bitcoins, or they sold and now are buying back, is not too clear as Tether doesn’t like responding to the media much.
But the pressure was from the General Attorney of New York, so to appease and to look more legitimate, they may well have shuffled their holdings towards bonds and traditional assets.
Following the bank collapses in March, holding bitcoin for an entity like Tether is now more acceptable as it makes them more resilient to bank deposit risks.
They hold only half a billion in banks now, down from $5 billion, with the vast majority being by far in short term US bonds.
What happens if the US defaults? Well, USDt is pegged to USD so in a real default it becomes worthless save for the circa 2% they have in bitcoin to back the currently $82 billion USDt market cap.
They also have some in gold and stocks, and ironic as it may sound, they would probably fare better than USDc which is run by the more regulated Coinbase and Circle.
Coinbase itself holds some bitcoin too beyond the customer deposits, and they can compete now by holding some eth, although while accounting for the volatility.
Because they have to account for the volatility in fiat too, as well as potentially banks being more restrictive which would make the crypto rails more appealing.
The real competition however is absent as so far it has been the bootstrapping stage. Sooner or later, one of these entities will have to pass on some of their profits to the stablecoin holders because it is their money first, because they can second, and most importantly because such holders are taking a risk in handing over their fiat.
Tether buying bitcoin is a roundabout way of doing just that: giving some of their profits, though to bitcoin holders. They still are the ones holding the funds however, the profits, and so as this matures you’d expect that to gradually change though how else would you do it exactly is not a trivial question beyond straight out sending it to the ERC-20 addresses that hold USDt or c.
Just as savers get interest, so too here. And as savers get interest for a reason, rather than out of bankers’ good will, then so too here eventually.
The reason being that the business can still operate at a profit while giving such interest, and holders obviously would rather have interest so they would hold the stable that does, and therefore either competition between the current stables, or the entrance of new ones, will lead to it.
For now though the profits go to crypto and that is better than nothing, like with USDc which has not announced a similar intention.
Whether they will, remains to be seen. If they do, there would be an additional new source of consistent significant demand, and that may change dynamics, and that change will need to be repriced.