Biggest Stablecoin Issuer Will Buy Bitcoin Regularly With Its Profits

Tether International Limited, the company behind the most popular stablecoin in the crypto industry, USDT, will buy bitcoin with their realized net profits as part of their reserves management strategy. In an early May report, the company disclosed a bitcoin holding of 2% of their total reserves, representing $1.5 billion. Now and on, it will keep adding new bitcoin to these holdings.

Tether announced it had $1.5 billion in profits in the first quarter of 2023 and it’s set to purchase bitcoin regularly, with 15% of its net profits. The company’s reserves are held mainly in cash, cash equivalents, and U.S. Treasury bills. They will remain like this, as they expect that this bitcoin acquisition strategy will stay within the shareholder capital cushion to back their tokens.

In their new announcement, the company also stated that they will self-custody their bitcoin, taking advantage of its capabilities as an asset. “Tether had already, since few quarters, Bitcoin investments that were disclosed under “Other Investments” in Tether quarterly attestations. These bitcoins are part of excess reserves”, Tether’s CTO, Paolo Ardoino, explained to me in an interview.

Bitcoin Acquisition Wouldn’t Affect USDT Peg

USDT token has a market cap of plus $82 billion, according to Coingecko’s data. Despite some concerns about the backing of the tokens and more demanding regulatory scrutiny, Ardoino clarified that this bitcoin acquisition strategy would mean no change to the Tether tokens already minted and in circulation. On top of the 100% reserves necessary to back their issued tokens, the company currently has $2.5 billion more, representing almost a 3% additional value on top of the minimum 100% reserves. These excess reserves have been accrued through interest rates on their U.S. treasury bills portfolio and other investments like gold.

“Even if bitcoin price went to 0, Tether tokens would still be 100% backed because the value of bitcoin portfolio (almost $1.5 billion) is quite smaller than Tether’s shareholder excess reserves (near to $2.5 billion).”, Ardoino detailed.

According to Tether’s CTO, the company will operate a time-weighted average price strategy, reducing pressure on the market to acquire this new bitcoin stack with their profits. “Basically, it’s a continuous buying process over the quarter.”, he detailed.

With this decision, Tether will follow the steps of MicroStrategy, a known software and business intelligence company using bitcoin as their main treasury asset since 2020. In addition, other crypto companies Like Coinbase, Block, and bitcoin mining companies like Marathon and Hut 8 are also holding bitcoin, according to Bitcoin Treasuries information.