Investing.com — S&P Global Ratings has downgraded the outlook for Tether’s USDT stablecoin, moving its stability rating from “Limited” to “Weak,” primarily due to an increased concentration of high-risk assets within its reserves.
The ratings firm cautioned on Wednesday that Bitcoin now constitutes roughly 5.6% of circulating USDT, surpassing the 3.9% overcollateralization margin. This suggests that the reserve can no longer fully absorb potential depreciation in the value of Bitcoin.
“The decline in Bitcoin’s value, coupled with the drop in value of other high-risk assets, could therefore diminish the reserve coverage and result in USDT being undercollateralized,” stated analysts Rebecca Moon and Mohamed Damak in their report.
S&P’s assessment highlighted the growing presence of volatile assets in USDT’s backing over the past year, encompassing Bitcoin, gold, asset-backed loans, and corporate bonds, alongside insufficient detail being provided about these holdings.
The analysts also pointed out that Tether offers scant details regarding the creditworthiness of its custodians, counterparties, or bank account providers. Further concerns involve a lack of transparency in reserve management practices, the absence of asset segregation to safeguard against issuer insolvency, and restrictions imposed on direct USDT redemption via Tether itself.
Bitcoin’s price has plummeted this month, positioning the cryptocurrency for what might be its worst monthly performance since the wave of bankruptcies that swept through the crypto sector in 2022. Despite this market turmoil, Tether’s circulating USDT supply expanded by approximately $1 billion in November, reaching $184.4 billion, according to CoinGecko data.
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