Tether is now the 11th largest bitcoin holder in the world

Stablecoin issuer Tether has become the 11th largest bitcoin holder in the world in a move that will spark intrigue and speculation about its ability to impact the market.

While Tether hasn't officially disclosed its bitcoin addresses, Tom Wan, a research analyst at 21.co, said he discovered an address that potentially belongs to Tether that currently holds about 55,022 bitcoins worth around $1.6 billion.

A source with direct knowledge of the matter confirmed to The Block that Tether is the 11th-largest bitcoin holder — the rankings are also maintained on Dune Analytics by 21.co. Tether declined to comment.

The value of holdings matches with the total bitcoin mentioned in Tether's second-quarter reserves report published earlier this week. The company first revealed its bitcoin holdings in the first quarter of this year, when it said it will invest up to 15% of its profits in bitcoin on a regular basis as it shifts its reserves toward crypto and away from U.S. government debt.

The company said at the time that it "anticipates that the current and future BTC holdings in its reserves will not exceed the Shareholder Capital Cushion and will further strengthen and diversify the reserves."

Are Tether's large bitcoin holdings a cause of concern?

While bitcoin has been one of the best-performing assets in the last decade, overexposure to the cryptocurrency could pose risks given its highly volatile nature, research analysts said.

"According to Tether's statement, their bitcoin holding is part of the 'Shareholder Capital Cushion,' a liquidity cushion on top of the current market cap of all Tether's tokens. Being a high-beta asset, bitcoin could bring a higher return for Tether and a greater downside," 21. co's Wan told The Block.

A less volatile asset like cash is a safer option as a liquidity cushion, according to Wan. "Tether's bitcoin holding accounts for $1.67 billion, 50% of the liquidity cushion. Given that only 85% of Tether's reserve is in Cash & Cash Equivalents & Other Short-Term Deposits, if there is a price drawdown for their other reserve assets, a less volatile liquidity cushion would favor their position," he said.

Mikołaj Zakrzowski, research analyst at CryptoQuant, shared a similar view. "In a broader context, the increase of Tether's bitcoin holdings isn't necessarily a major concern, as Tether also possesses a significant amount of U.S. Treasuries and other dollar-denominated assets," Zakrzowski told The Block. "However, the key issue is that it contributes to compounding risk as it introduces additional volatility to the value of company's total reserves that back up the stablecoin."

Moreover, since Tether serves as a "foundational pillar" for the crypto market, any unfavorable events affecting Tether could potentially have a detrimental impact on the price of bitcoin and the entire cryptocurrency market, according to Zakrzowski.

Tether, a 'black box'?

Tether has been criticized for not publishing proper audits of its reserves, as it only publishes attestation reports. Earlier this week, Binance co-founder and CEO Changpeng Zhao called Tether a "black box" in an ask-me-anything session because it doesn't publish formal audit reports. Tether CTO Paolo Ardoino has previously said that "no stablecoin has a formal audit, only attestations."

Last week, Binance partnered with Hong Kong-based First Digital Labs or FD121 and listed its First Digital USD stablecoin and offered free trading for select FDUSD pairs. Binance doesn't offer free trading for Tether's USDT pairs.

Earlier today, Ardoino appeared to take aim at Binance's partnership with First Digital.

"Isn't it interesting that USDT is being pressured down (slightly, within 10bps [basis points], just to push market makers to react), and USDC, the main competitor that you would expect being gaining from the situation, is redeemed heavily nevertheless, while suddenly a competitor born 2 days ago is getting it all? Exactly! It feels definitely organic and not manipulative at all," he tweeted. "Some people never learn."