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Tether's Investment Shift to Strengthen USDT Reserves
Tether International Ltd., the brains behind the third-ranking cryptocurrency in terms of market capitalization, has unveiled plans to allocate 15% of its net investment profit towards Bitcoin. This commitment equates to a substantial $222 million drawn from their Q1 earnings and is aimed at diversifying the reserves that support its USDT stablecoin.
Tether faced penalties from U.S. authorities in 2021 for inaccuracies concerning the reserves underpinning its stablecoin, which is designed to maintain parity with the U.S. dollar. As of last week, Tether confirmed that its total assets reached $81.1 billion, predominantly held in Treasury bills. The company maintains that 85% of its assets are highly liquid, constituted by cash and cash equivalents, while gold and Bitcoin make up roughly 4% and 2% of Tether's entire reserves, respectively.
Tether affirmed that its Bitcoin reserves would not surpass its equity buffer—reserves exceeding the customer liabilities emanating from the issuance of Tether's tokens.
The Ongoing Discourse Around Tether's Reserve Transparency
Tether's handling of reserves resulted in a $41 million fine from the Commodities Futures Trading Commission (CFTC) and a separate penalty from the New York Attorney General two years ago. Critics maintain that Tether has a long journey before its reserves are perceived as fully transparent and confirmed.
James Reed Stark, a former SEC attorney, took to Twitter to express his concerns. He asserted that Tether's essential business operations hinge solely on its financial reserves, which currently remain unaudited, unverified, and therefore, questionable. Stark's tweet ignited a Twitter debate with Tether's CTO, Paolo Ardoino.
Tether's Calculated Risk on Bitcoin's Upside
By investing in Bitcoin, Tether seeks to leverage the digital asset's prospective growth. However, it's not alone in this endeavor. Software corporation MicroStrategy (MSTR) has likewise adopted a similar strategy of buying Bitcoin as an investment. As the first quarter concluded, MicroStrategy's Bitcoin treasury had grown to a staggering 140,000, valued at roughly $4.2 billion.
Tether's newly-adopted strategy could provide a solid foundation for Bitcoin's value as the year draws to a close. Analysts at Standard Chartered Bank anticipate the cryptocurrency reaching $100k by the end of 2024, as reported by CNBC. The disintegration of SVB and middle-tier lenders has amplified the prospects of BTC as a "trustless asset." Profits from crypto miners and the conclusion of the Fed's tightening cycle could also provide a significant boost, according to analyst Geoff Kendrick.
