Tether Prepares for Fed Rate Cuts with Bitcoin, Gold Strategy

Tether is shifting reserves into Bitcoin and gold, betting on Fed rate cuts to boost profits—but risks remain.

Some analysts say Tether’s equity and profits make it strong, despite fears of crypto market swings.

S&P warns of risks, but Tether’s high collateral and cash flow may protect USDT holders.

Tether appears to be positioning itself ahead of a potential Federal Reserve rate-cut cycle, sparking fresh debate on USDT’s stability. The stablecoin issuer is reportedly shifting a larger share of its reserves into Bitcoin and gold, according to BitMEX co-founder Arthur Hayes.

He noted on X that Tether seems to anticipate a rate-cut environment, which could reduce interest income from Treasuries but boost the value of riskier assets like BTC and gold. Hayes warned, “A roughly 30% decline in the gold + $BTC position would wipe out their equity, and then USDT would in theory be insolvent.”

The latest Tether reserve report shows the firm holds roughly $181 billion in assets backing USDT. Most of this sits in cash, Treasury bills, repo, and money market instruments. Additionally, the firm holds about $13 billion in precious metals, nearly $10 billion in Bitcoin, and more than $14 billion in secured loans, alongside smaller investments. Hayes suggested that this strategy represents the early stages of a massive interest rate trade

However, the shift into higher-risk assets has drawn scrutiny, and S&P Global Ratings recently assigned Tether a “weak” stability rating. The rating agency cited the increased likelihood of undercollateralization during crypto market stress.

Equity Perspective and Market Efficiency

Despite these warnings, some analysts defend Tether’s approach. Joseph, a former Citi researcher, emphasized that Tether’s disclosed assets do not include its full corporate equity. He explained that the company’s equity balance includes corporate reserves, equity investments, mining operations, and possibly additional BTC.

“They’re highly profitable, and their equity is valuable,” Joseph stated, estimating Tether’s equity could range between $50 billion and $100 billion. He compared Tether to banks, noting that while banks operate on lower liquid reserves, Tether holds better collateralized assets.

The market remains divided over Tether’s risk profile. Supporters contend that Tether generates large interest revenue and maintains a sizable equity cushion, despite Hayes’ warning of solvency issues in the event of a sudden decline in cryptocurrency values. As a result, the discussion draws attention to the particular dangers and possibilities associated with stablecoins navigating erratic marketplaces.

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