Tether Plans to Use Realized Profits to Buy Bitcoin with Stablecoin Reserves

Tether, a stablecoin issuing company, will begin buying bitcoin (BTC), using a part of its profits as of this month. This new strategy focuses on the biggest cryptocurrency by market cap.

Tether will purchase BTC with up to 15% of its realized investment profits, excluding unrealized price increases of reserve assets. The tokens will be added to the reserve surplus.

According to the company’s statement, it will be able to keep the BTC on its own without using third-party custodians.

This development follows Tether’s announcement last week that the company that is behind the largest stablecoin in the world, the USDT ($82 billion), holds $1.5 billion worth of BTC, and $3.4 million worth of gold as assets to back the USDT and smaller stablecoins. According to the 2023 Q1 attestation, 85% of reserves are in cash or cash-like assets like U.S. Treasury Bonds.

Stablecoins are now worth $131 billion and have become an important building block in the cryptocurrency industry. They facilitate trading and transactions by tying their value to a third-party asset, typically the U.S. Dollar, and allowing them to be traded and transferred between fiat currency and digital tokens.

Press release: The BTC campaign is designed to diversify and strengthen the stablecoin reserve, as well as capitalize on the price appreciation of the BTC.

In a press release, Paolo Ardoino said that Bitcoin has consistently proven its resilience. It has also emerged as a store of long-term value with significant growth potential. “Our investment is not just a way of enhancing the performance of our stock portfolio. It is also a means of aligning ourselves to a transformative technilogy.”

The company stated that it will only use realized capital gains from its investments to buy BTC and ignore unrealized capital gain. The statement states that the company will only consider “the tangible gains” from its investment operations, which are the differences between the price of an asset and the net proceeds of a sale, or in the case of maturing assets like Treasury Bills, the difference between the price of the asset and the amount reimbursed.

Tether also said that among its smaller investments, it focuses on communication systems, energy infrastructure and bitcoin mining.

Tether’s lack of transparency and its controversial investment decisions have been criticised by the crypto industry over many years.

The firm’s USDT token emerged in March as a safe-haven as the U.S. banking crisis affected Circle’s USDC stablecoin, the second most popular. A part of USDC’s cash reserves were frozen in the bank after Silicon Valley Bank’s (SVB) sudden collapse over a long weekend. Several stablecoins temporarily lost their dollar peg as a result.

Tether emerged from the crisis as the clear winner, maintaining its price stability despite its perceived disconnect with U.S.-based banks due to being incorporated in British Virgin Islands or Hong Kong. USDT circulation is up 24% in this year, while the majority of rivals are experiencing significant outflows.