Tether buys $222 million worth of bitcoin to back the world’s largest stablecoin, USDT

Tether, a cryptocurrency startup plagued with scandals and government investigations, said on Wednesday that it’s going to buy hundreds of millions of dollars worth of bitcoin to back its USDT stablecoin.

In an announcement, Tether said it would invest 15 percent of its net profit into Bitcoin as part of the effort to “diversify” the reserves that back its USDT token, which means the company maintains $1.00 in reserves for each tether token issued.

That purchase would amount to about $222 million, based on the company’s most recent attestation report, which provides a breakdown of the assets that make up its USDT reserves. The move would make Tether a major Bitcoin holder, joining the ranks of other prominent investors including Paul Tudor Jones and MicroStrategy boss Michael Saylor.  These investors have been accumulating substantial quantities of Bitcoin, driven by the belief that the cryptocurrency remains resilient against the impacts of currency devaluation and inflation.

Tether is a surrogate crypto dollar that is theoretically pegged at the same value as a dollar but can be traded without following regulations on dollars. Tether is one of the commonly known coins called Stablecoins, which are virtual currencies that are always supposed to have the same real-dollar value.

In February, Tether started disclosing the profits generated through its USDT operations, reporting a net profit of $1.48 billion for the month of March. This increase contributed to their total excess USDT reserves reaching $2.44 billion.

As per CoinGecko data, USDT holds the position of the largest stablecoin in the market, boasting a circulating supply exceeding $82.8 billion. It competes against other stablecoins such as Circle’s USD Coin and Binance’s BUSD.

Traders utilize stablecoins to transition between various cryptocurrencies without the need to convert their funds into fiat currencies. This facilitates seamless movement within the crypto market.

“The decision to invest in Bitcoin, the world’s first and largest cryptocurrency, is underpinned by its strength and potential as an investment asset,” Tether CTO Paolo Ardoino said in a statement.

“Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential. Its limited supply, decentralized nature, and widespread adoption have positioned Bitcoin as a favored choice among institutional and retail investors alike.”

Meanwhile, in 2021, the New York Attorney General’s Office said that “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.” Below is how The New York Attorney General’s Office described Bitfinex and Tether’s illegal activities:

“Bitfinex and Tether recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General James. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”

The New York Attorney General’s Office continued:

“This resolution makes clear that those trading virtual currencies in New York state who think they can avoid our laws cannot and will not. Last week, we sued to shut down Coinseed for its fraudulent conduct. This week, we’re taking action to end Bitfinex and Tether’s illegal activities in New York. These legal actions send a clear message that we will stand up to corporate greed whether it comes out of a traditional bank, a virtual currency trading platform, or any other type of financial institution.”

Both Tether and Bitfinex finally reached a plea deal with the State of New York. As part of the settlement, Bitfinex and Tether paid an $18.5 million dollar fine and penalties to the State of New York. The two companies also agreed to provide quarterly breakdowns of their reserves as part of the settlement. Bitfinex and Tether are also banned from continuing illegal activities in New York.