Markets
Implications of Tether’s record profits for the crypto market
Tether continues to lead the stablecoin sector, with far-reaching implications for cryptoassets
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Like rope
Lashing
continues to dominate the stablecoin market and has made a record profit of US$4.52 billion in the first quarter of 2024, it seems like the right time to take a look at the importance of this unique stablecoin, as well as the implications these results will have for crypto assets in general. These results especially deserve analysis and examination as the stablecoin space remains under regulatory scrutiny in the United States and other markets. Additionally, there are some market trends and volumes that seem contradictory, and when this occurs, it is reasonable to dig deeper into these numbers to see what information can be extracted.
Widely considered one of the most opaque stablecoins, despite getting a leading position in the market Through several market cycles, Tether and USDT have routinely found themselves in the proverbial hot seat. These investigations have taken the form of lawsuits, multi-million dollar legal settlements and the need to hire a new (and better known) auditing firm, the path to these record profits has not been universally easy. Leaving aside these headlines, which are definitely worth noting, there are several other trends and themes that crypto investors and advocates should be aware of.
Tether has an interesting profit mix
One of the biggest drivers of Tether’s record profits, $3.52 billion to be precise, stems from gains in both bitcoin and holdings. Although the 2024 bull market appears to have lost some steam following the long-awaited halving event, bitcoin still achieved above-average returns only in 2024. Even gold holdings, with long-standing gold bugs such as Peter Schiff continuing to publicly criticize crypto and predicting an imminent collapse to $0 benefited Tether by boosting its spectacular profit performance. These gains are even more interesting considering that bitcoin continues to be treated as an asset rather than a medium of exchange, but by incorporating bitcoin into reserve assets, the world’s largest stablecoin continues to benefit.
Also noteworthy is the $1 billion that Tether generated from operating profits derived from holdings in the US Treasury. In an interesting development, it appears that higher rates for longer continue to benefit some aspects of the crypto space – namely stablecoins – even as non-dollar-denominated cryptocurrencies like bitcoin have faced headwinds.
Stablecoin Competition Is Increasing
It’s true that USDT is the long-time leader of the stablecoin sector, and the record profits made in the first quarter of 2024 do little to alter this position, but the reality is more subtle than the headlines might convey. While USDT continues to dominate centralized exchanges, with a 69% share of stablecoins on centralized exchanges, according to research from DeFiLLamathis dominance is not reflected in transactional volume.
USDC
USDC
the stablecoin issued and managed by Circle, was responsible for more than 50% of all stablecoins transactions in 2024 and has far exceeded USDT when transaction volume is measured weekly or monthly. Although it is far behind USDT in terms of market capitalization and currently issued tokens, there are several reasons for this recovery and USDC surpassing USDT.
First, Circle and USDC are recovering from an operational and reputational blow following the complicated collapse of Silicon Valley Bank. Second, although Tether has recently improved the quality and consistency of attestation reporting, Circle remains widely regarded as the most stable and transparent stablecoin. Lastly, the April 2024 announcement that Stripe would reintroduce crypto payments, specifically using USDC, have all combined to reinforce 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 must be given to stablecoin legislation. With the most recent legislation presented receiving significant resistance and criticism that the US appears to remain in the quagmire of inconsistent regulations that have stalled crypto development since bitcoin reached popular consciousness in 2017.
With the odds of substantive legislation diminishing as the 2024 presidential election draws ever closer, the likelihood of the U.S. achieving clarity and comparability for stablecoin issuers continues to diminish. Legislation and regulation are not a panacea for the ills of the cryptoasset market, but they 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 into the market, some are making record profits, and this crypto subset urgently needs clarity and conciseness to continue its productive and profitable growth.