December 11, 2023

Tether Chief Technology Officer Paolo Ardoino (Paolo Ardoino) said the company expects a $700 million increase in excess reserves for the quarter, which is not over yet.

Justin Tallis | AFP | Getty Images

Cryptocurrency giant Tether said on Wednesday it will buy hundreds of millions of dollars worth of bitcoin to back the world’s largest stablecoin.

The company said it would invest 15 percent of its net profits in bitcoin to “diversify” its reserves backing its USDT token, which is designed to maintain a 1:1 peg to the U.S. dollar.

That would amount to roughly $222 million, according to the company’s latest attestation report, which provided a breakdown of the assets that make up its USDT reserves, as well as excess reserves and profits.

A Tether spokesperson clarified that its bitcoin purchases accounted for only a small portion of its overall net profit, with most of the excess income used to run the business, including bank fees.

A Tether spokesperson said: “Our goal is to have a Bitcoin portfolio value well below our total excess reserves of 2.48B at the end of Q1 2023, compared to Bitcoin holdings of 1.5B.”

According to CoinGecko, USDT is the largest stablecoin in the market with over $82.8 billion in circulation. It competes with Circle’s USD Coin and Binance’s BUSD.

Stablecoins are used by traders to move in and out of different cryptocurrencies without having to convert the money back into fiat currency.

“The decision to invest in Bitcoin, the world’s first and largest cryptocurrency, was based on its strength and potential as an investment asset,” Tether Chief Technology Officer Paolo Ardoino said in a statement. “

“Bitcoin continues to prove its resilience and has emerged as a long-term store of value with enormous growth potential. Its limited supply, decentralized nature, and widespread adoption make Bitcoin a favorite among institutional and retail investors.”

The move would make Tether an even bigger holder of bitcoin — the company already holds more than $1.5 billion worth of bitcoin on its balance sheet — and credits prominent investors such as Paul Tudor Jones and MicroStrategy boss Michael Saylor Investors act to accumulate large amounts of Bitcoin, believing that the token is immune to currency debasement and inflation.

Analysts and investors previously told CNBC that bitcoin could get a boost this year due to the influence of so-called “whales” — market participants with strong financial firepower that allow them to buy large amounts of the coin.

Tether’s approach to maintaining a $1 value for its token has caused controversy in the past due to concerns about the quality of its reserve assets. Previously, the company held large reserves of commercial paper — a type of short-term unsecured debt issued by companies. This is considered less secure than other forms of debt such as U.S. Treasury bills.

Tether attempted to allay investor concerns by exiting commercial paper and replacing those fund holdings with only U.S. government debt securities.

In February, the company said it had cut its commercial paper holdings to zero.

USDT and its issuer remain a bone of contention in the crypto market. The U.S. Department of Justice is reportedly investigating possible bank fraud by Tether executives.

Stablecoins have become a hot topic among regulators, who have been scrambling to find ways to rein in the industry following the collapse of several prominent players in the space.