S&P downgrades Tether’s USDT stability rating on Bitcoin exposure

Investing.com -- S&P Global Ratings has downgraded Tether’s USDT stablecoin stability rating to "weak" from "constrained," citing increased exposure to high-risk assets in its reserves. The ratings firm warned on Wednesday that Bitcoin now represents about 5.6% of USDT in circulation, exceeding the 3.9% overcollateralization margin. This indicates the reserve can no longer fully absorb a decline in Bitcoin’s value.

"A drop in the bitcoin’s value combined with a decline in value of other high-risk assets could therefore reduce coverage by reserves and lead to USDT being undercollateralized," analysts Rebecca Mun and Mohamed Damak wrote in their report. S&P’s assessment highlighted the rise in exposure to high-risk assets in USDT’s reserves over the past year, including Bitcoin, gold, secured loans and corporate bonds, as well as limited disclosure about these holdings. The analysts also noted that Tether provides limited information on the creditworthiness of its custodians, counterparties or bank account providers. Other concerns include limited transparency on reserve management, no asset segregation to protect against the issuer’s insolvency and limitations to redeeming USDT directly with Tether.

Bitcoin’s price has crashed this month, putting the cryptocurrency on track for its worst monthly performance since the wave of bankruptcies that affected the crypto sector in 2022. Despite this market turbulence, circulation of Tether’s USDT has increased by around $1 billion in November to $184.4 billion, according to data from CoinGecko. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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