Tether
USDT
 remains the world’s largest stablecoin issuer, with USDT having survived multiple investigations, fines, and other legal actions. Hiring BDO Italia to improve the attestation practices and reporting at the organization will go a long way to addressing the issues and questions around USDT, but that is only part of the story. Following the banking volatility of 2023, including the revelations that Circle had $3.3 billion that was temporarily unavailable at Silicon Valley Bank, stablecoins have found themselves drawing the attention and ire of regulators.

Given the track record of Tether’s attestation practices, and the questions swirling around stablecoins at large, it might strike some investors (and policymakers) as unusual to hear that Tether is planning on investing 15% of its profits into bitcoin. This is especially true because stablecoins, no matter what issuer or token is being discussed, were designed primarily to provide a less volatile crypto alternative to bitcoin and other decentralized cryptocurrencies. Combining what some consider the riskiest and least transparent stablecoin with the most well-known, widely held, and valuable decentralized cryptocurrency is making headlines.

According to a 2023 attestation report, approximately 85% of reserve assets held by Tether are in the form of dollar or dollar-equivalent assets, but the organization also already holds $1.5 billion in bitcoin. Let’s take a look at what this expansion of bitcoin holdings might have on crypto investing at large.

Stablecoins Can Be Profitable

Although the concept of stablecoins is an instrument that maintains its value and holds it peg, to whichever asset it is connected to, this announcement is the clearest indication yet to mainstream investors that stablecoins can be – and are – profitable. To add some context, the $1.48 billion in profits generated by Tether are more than the other large stablecoin issuers, including Circle.

While from a business perspective it makes sense that stablecoin issuers would be profitable, this looks set to only increase the scrutiny that these instruments are under. For example, if a financial institution is issuing financial instruments that generate income and profits for both the issuers and holders of the instruments, the argument against classification as a security becomes significantly weaker. Profits are the goal of any enterprise, and stablecoins continue to prove themselves as a viable and sustainable business model for issuers.

Bitcoin
BTC
 Continues To Be the Institutional Choice

Even as the crypto landscape continues to expand, and the number of cryptoassets grows in both functionality and number, bitcoin continues to be the crypto of choice for institutional investment. Reasons for this include that 1) bitcoin continues to be the most liquid cryptoasset on a global basis, 2) consensus and market sentiment continues to be positive even in the face of regulatory pressures, and 3) bitcoin is one of the few cryptoassets that has received any regulatory guidance, even at a preliminary basis. As accounting standards are finally going to be issued for cryptoassets, specifically bitcoin, it makes sense that institutions and other large investors will continue to be interested in bitcoin versus other cryptoassets.

With many of the largest financial institutions in the world deploying blockchain and cryptoasset products, especially bitcoin and bitcoin-related services, investment dollars will continue to be deployed to this one specific cryptoasset. Taking this all into account, the greater regulatory clarity gradually coming to the space, large incumbent financial institutions allocating increasing amounts of capital to bitcoin projects, and continued market leadership of bitcoin, the investment by Tether seems to make more business sense.

Stablecoins Will Face Regulation First

Something that should be clear to every firm in the crypto sector is that regulation is going to be coming to every corner of the cryptoasset marketplace. Stablecoins might have previously been considered the most staid and conservative part of the crypto marketplace, but regulation is rapidly coming for issuers, developers, and investors in these financial instruments.

As if the scrutiny that had already been brought to bear around stablecoin issuers, in the form of crackdowns on Paxos and fines/legal actions brought against Tether in the past was not enough, this market-making headline will only increase these pressures. Between the profits that Tether generated, the regulatory crackdown stablecoin issuers are under, and the fact that Tether has publicly made waves by announcing plans to invest some of these profits into Bitcoin, regulatory efforts will be turbocharged.

Tether, despite past issues, continues to be the market leader in stablecoins, and by investing profits into fresh bitcoin reserves is ensuring stablecoins will remain on the front-burner for years to come.

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