Implications Of Tether’s Record Profits For The Crypto Market

As Tether
Tether
continues to dominate the stablecoin marketplace, and earned a record profit of $4.52 billion in Q1 2024, it seems the right time to take a look at how important this singular stablecoin is as well as the implications these results will have for cryptoassets at large. These results are especially worth of analysis and examination since the stablecoin space remains under regulatory scrutiny in the United States and other markets. Additionally there are some trends and market volumes that seem contradictory, and when that occurs it is reasonable to dig deeper on said figures to glean what insights are able to be extracted.

Widely considered one of the more opaque stablecoins, despite obtaining a leading market position through various market cycles, Tether and USDT have routinely found themselves on the proverbial hot seat. These inquiries have taken the form of court cases, multi-million legal settlements, and needs to hire a new (and more widely known) audit firm, the road to these record profits has not been universally smooth. Setting aside these headlines, which definitely are noteworthy, there are several other trends and themes that crypto investors and advocates should.

Tether Has An Interesting Profit Mix

One of the largest drivers of Tether’s record profits, $3.52 billion to be more precise, stems from gains on both bitcoin and hold holdings. While the 2024 bull market has seemed to lose a little bit of vigor following the long-awaited halving event, bitcoin has still achieved above-average returns in 2024 alone. Even gold holdings, with long-time gold bugs such Peter Schiff continuing to publicly decry crypto and forecast an imminent collapse to $0, benefitted Tether by driving its spectacular profit performance. These gains are even more interesting considering bitcoin continues to be treated as an asset versus a medium of exchange, but by incorporating bitcoin into reserve assets, the world’s largest stablecoin continues to benefit.

Also of note is the $1 billion that Tether generated from operating profits derived from U.S. Treasury holdings. In an interesting development, it would seem that higher-for-longer rates continue to benefit some aspect of the cryptoasset space – namely stablecoins – even as non-dollar denominated crypto such as bitcoin have experienced headwinds.

Stablecoin Competition Is Increasing

It is true that USDT is the long-reigning leader of stablecoin sector, and the records profits earned by Q1 2024 do little to alter this position, but the reality is more nuanced than headlines might convey. Even though USDT continue to dominate centralized exchanges, with a 69% share of stablecoins on centralized exchanges according to research by DeFiLLama, this dominance is not reflected in transactional volume.

USDC
USDC
, the stablecoin issued and managed by Circle, has accounted for over 50% of all stablecoin transactions in 2024 and has far exceeded USDT when transaction volume is measured on a weekly or monthly basis. While ranking far behind USDT in terms of market capitalization and currently issued tokens, there are several reasons for this recovery and surpassing of USDT by USDC.

First, Circle and USDC are recovering from a reputational and operational blow following complicated from the collapse of Silicon Valley Bank. Second, although Tether has recently improved the quality and consistency of attestation reports, Circle remains widely thought of as the most stable and transparent stablecoin. Lastly the April 2024 announcement that Stripe would be re-introducing crypto payments, specifically using USDC, have all combined to bolster the attractiveness of this stablecoin for transactional use.

Stablecoin Legislation Will be Critical

One of the most important implications of the continued growth and profitability of stablecoins is the importance that should be placed on stablecoin legislation. With the most recent legislation that has been put forward receiving significant pushback and critiques that U.S. seems to remain in the quagmire of inconsistent regulation that has stalled crypto development since bitcoin achieved mainstream awareness in 2017.

With the odds of substantive legislation dwindling as the 2024 Presidential election looms ever closer, the likelihood of the U.S. achieving clarity and comparability for stablecoin issuers continues to decrease. Legislation and regulation are not cure-alls for the ills of the cryptoasset marketplace, but would go a long way toward improving the operating environment for stablecoin issues and institutions seeking to utilize these instruments.

Stablecoins continue to make inroads in the marketplace, some are earning record profits, and this subset of crypto is in dire need of clear and concise to continue its productive and profitable growth.