One of the biggest players in Cryptos is hoarding Bitcoin. What this means for prices.

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Tether, a stablecoin issuer at the heart of the cryptocurrency economy, is also now hoarding Bitcoin, which means one of crypto’s biggest players could soon be among its biggest investors. It is likely to be bullish for digital asset prices.

Tether issues USDT, the largest US dollar stablecoin with a market capitalization of $83 billion, making it the third largest digital asset after Bitcoin and Ether. Stablecoins like Tether form the bedrock of crypto, acting as the foundation for all trading and lending activities as a stable source of value. It is a key role in a world of volatility as it provides essential liquidity to traders, funds and market makers.

This makes Tether a systemically important player and subjects the quality of assets like treasuries to scrutiny, the group declares every USDT it issues. Tether has not always been as transparent as required by regulators. Based in the British Virgin Islands, the issuer settled charges in 2021 with New York State and the Commodity Futures Trading Commission regarding its reservations and disclosure practices.

In its latest assurance report, which is not an audit signed by BDO Italia, Tether revealed that Bitcoin represented 1.8% of its total assets, which it said exceeded liabilities by more than $2 billion. at the end of March.

There’s more: Tether said on Wednesday that it would regularly allocate up to 15% of its net operating income to buying Bitcoin, in addition to the $1.5 billion worth of Bitcoin it holds in his reservations. The group said it expects its current and future Bitcoin holdings will not exceed the shareholder capital cushion.

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The move has the potential to be an additional bulwark for Bitcoin prices, which have risen by around two-thirds this year but continue to face pressure, most recently in a correction of more than 10% from its April peak.

Tether said it made a record net profit of $1.48 billion in the first three months of 2023. If those numbers hold over the next three quarters and Tether buys Bitcoin with 15% of that profit, that would represent some $670 million in additional crypto. the company plans to buy through the end of 2023. It could add an additional $890 million in Bitcoin with profit at current levels through 2024, all else being equal.

The trend would add sustained buying pressure to Bitcoin prices, which could support the whole crypto.

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But, more broadly, it poses the same risk to the digital asset industry as the rise of the Binance exchange as the world’s most dominant crypto trading venue: concentration of risk. Not only is much of the risk in the crypto market concentrated in the proper functioning of Binance as well as the backing of Tether, but a pillar of Bitcoin’s future price dynamics could also be borne by the issuer of stable coins.

Write to Jack Denton at [email protected]

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