Tether Pledges to Spend 15% of Profits on Bitcoin, Amid Criticism

Stablecoin issuer Tether announced Wednesday that it would allocate up to 15% of its net realized operating profits to the purchase of Bitcoin (BTC). Is this a trustworthy plan for further diversification or a distraction from its questionable accounting?

The issuer described the decision as part of an investment strategy. One aimed at building Bitcoin holdings and diversifying its reserves portfolio. The issuer intends to project health and steady growth, but not everyone believes Tether’s claims.

Tether Spends Profits in Bitcoin

In its Wednesday announcement, the company said it fully expects current and future BTC holdings in its reserves not to exceed the Shareholder Capital Cushion. It characterized the planned allocations as part of a well-thought-out strategy.

The company went to some lengths to emphasize its “conservative and prudent approach to investment decisions.” And its goal of building and diversifying its reserves.

In the firm’s May 10 public statement regarding its Q1 2023 attestation, Tether cites BDO Italia as a source. Tether stressed its heavy diversification of reserves, encompassing everything from BTC to corporate bonds to physical gold.

According to the issuer, Tether’s reserves grew $1.48 billion in the first quarter of 2023. They now stand at $2.44 billion in total. Furthermore, Tether claimed a 20% increase in total token circulation.

Tether Under Fire

Does Tether need more Bitcoin? Tether claims to have $1.5 billion of BTC already in reserve. The new strategy of Tether to spend profits in Bitcoin will add significantly to this total.

Tether’s busy buying of reserve assets has not gone without controversy. As reported recently in BeInCrypto, a Twitter user who goes by the name, girevik accuses the exchange of exploiting US Federal Reserve and Treasury Department policies for its own benefit.

Tether’s strategy is to make money from the interest in US treasuries. But to do so without paying depositors anything, girevik alleged in a May 10 tweet.

“The higher interest rates go, the more profit Tether earns. The Fed and US Treasury are now basically subsidizing Tether’s BTC purchases,” the tweet stated.

In another May 10 tweet that quickly got 16,500 views, girevik let loose at Tether. He asked whether investors are fleeing the platform in pursuit of 5% risk-free returns in a bank or money market fund.

“Nah, there is enough demand for a digital dollar outside of the banking system, even if it earns 0%. Tether issuance keeps growing, unaffected by rising rates,” girevik wrote.

In the Regulators’ Sights

Tether’s stablecoin is a target of pending action by the US House Financial Services Committee. It has also come in for criticism recently from a former Securities and Exchange Commission (SEC) official.

In a May 8 Twitter thread, John Reed Stark, a former head of the SEC’s office of internet enforcement, called on regulators to ban Tether’s stablecoin, calling the currency “a mammoth house of cards.”

In Stark’s view, the seemingly impressive growth figures and stated holdings of Tether come across only in an attestation, rather than an audit. This makes the figures far less trustworthy than if the firm had provided a proper audit.

Stark blasted Tether’s “remarkably condescending and ineffective public relations blather, hype and bluster,” and stressed the difference between an attestation and an audit.

“Under any circumstances, an attestation is not the same thing as an audit—and this kind of ‘unverified snapshot’ would never pass any sort of regulatory muster,” he wrote.

BeInCrypto has reached out to Tether for comment.