Tether's Bitcoin Buying Spree: Risky Business Or Genius Strategy?

In an effort to diversify its reserves, Tether Holdings Ltd. USDT/USD, the company behind the world's largest stablecoin, has announced plans to invest up to 15% of its profits into Bitcoin BTC/USD on a regular basis.

The decision goes into effect this month, with all Bitcoin acquired henceforth to be regarded as supplementary holdings over and above the obligatory assets reserved for backing its USDT token and other stablecoins, the British Virgin Islands-based company stated.

Stablecoins, such as Tether, are digital tokens designed to mirror the value of less volatile assets like the dollar, typically secured by maintaining substantial reserves as separate collateral.

As of the end of March, Tether confirmed through a third-party verification of its holdings that it possessed about $1.5 billion worth of Bitcoin as part of its reserve assets for its tokens.

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Tether intends to oversee the storage and management of all Bitcoin, circumventing the need for custodial or banking partners that it currently employs for other assets like cash and cash equivalents.

The company reassured on Wednesday that it doesn't foresee the value of its existing and future Bitcoin holdings surpassing its shareholder capital buffer, which acts as a safeguard against significant losses.

As per Tether’s Chief Technology Officer Paolo Ardoino, this capital buffer currently stands at more than $2.5 billion. He clarified on Twitter that only profits derived from this excess capital would be used to purchase Bitcoin.

This strategy is aimed at ensuring that the total Bitcoin holdings remain below its comprehensive capital cushion.

As of the end of March, an attestation revealed that Tether held approximately $81.8 billion in reserves, with about 85%, or $69.3 billion, held in cash and cash-equivalent assets such as short-dated U.S. Treasury bills.

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