S&P Downgrades USDT Over Increased Exposure to Bitcoin, Gold

Key Takeaways

• S&P has downgraded its stableness standing for USDT.

• The institution cited accrued vulnerability to higher-risk assets successful USDT reserves.

• Tether has accrued golden and Bitcoin purchases successful caller months

S&P Global Ratings has downgraded its Stablecoin Stability Assessment for USDT, citing accrued vulnerability to high-risk assets, specified arsenic Bitcoin and Gold, successful its reserves.

The world’s astir fashionable stablecoin present has the worst imaginable standing connected S&P’s standard aft it was adjusted from 4 (constrained) to 5 (weak).

Ever since the stablecoin’s inception, the bulk of USDT reserves person consisted of cash-equivalent instruments specified arsenic Treasury bills and repos. 

A smaller information of Tether’s reserve funds is allocated to riskier, but much lucrative investments, including Bitcoin and gold.

The constitution of USDT reserves has evolved implicit the years. Initially, the inclination was toward reducing hazard exposure. 

In aboriginal 2023, Tether celebrated the elimination of commercialized insubstantial exposure, proudly declaring that USDT was 81% backed by currency and cash-equivalent assets. However, successful hindsight, that whitethorn person been the precocious watermark of Tether’s efforts to de-risk its reserves.

As of Sept. 30, cash-equivalent investments had shrunk to 77.23% of Tether’s overall reserves. The largest alternate plus people was secured loans (8.06%), followed by precious metals (7.13%) and Bitcoin (5.44%). 

In caller months, Tether has importantly picked up its golden investments, acquiring 26 tonnes of bullion successful the 3rd 4th alone. The steadfast has besides accrued its Bitcoin holdings, purchasing astir 9,849 coins successful September and October.

S&P’s Stablecoin Stability Assessment is designed to bespeak each fixed coin’s hazard illustration and quality to support parity with the currency it references

“Our plus appraisal of 5 (weak) reflects the emergence successful vulnerability to high-risk assets successful USDT’s reserves implicit the past year,” S&P said successful a property merchandise shared with CCN.

The ratings bureau pointed retired that the magnitude of BTC successful Tether’s reserves present exceeds its overcollateralization margin. 

“A driblet successful the Bitcoin’s worth combined with a diminution successful worth of different high-risk assets could truthful trim sum by reserves and pb to USDT being undercollateralized,” S&P warned.

Only stablecoins that are 100% collateralized by low-risk, cash-like assets denominated successful their peg currency person S&P’s highest rating. But adjacent those that conscionable the higher modular don’t needfully marque the cut.