Introduction
In cryptocurrency markets, stablecoins play a critical role in stabilizing digital assets and helping to protect investors from volatility. Tether (USDT), one of the most prominent stablecoins in this field, is preferred by a wide range of users with its one-to-one peg to the US dollar. Recently, the “Stable” and “Genius” bills proposed in the US aim to subject stablecoin issuers to stricter regulations on reserve management and transparency. These regulations may require Tether to reassess its current reserve structure and asset allocation.
Regulatory Environment and New Laws
Two separate bills introduced in the US Congress aim to regulate the stablecoin market:
Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act: This bill requires stablecoin issuers to be licensed, subject to risk management rules and hold one-to-one reserves. In particular, it requires that reserves consist only of insured deposits, US Treasury bills, Treasury short-term repos and central bank reserves.
Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act: This bill mandates federal regulation for stablecoins with a market capitalization of more than $10 billion and provides that state regulations can remain valid if they are compatible with federal rules. It also provides for the acceptance of money market funds and reverse repos in reserves.
Both bills require stablecoin issuers’ reserves to consist of high-quality and liquid assets.
Tether’s Current Reserve Structure and Compliance Status
According to assessments by JPMorgan analysts, only 66% of Tether’s current reserves appear to comply with the STABLE Act, while 83% appear to comply with the GENIUS Act. This non-compliance may require divesting Tether’s reserves of assets such as Bitcoin, precious metals, corporate bonds and collateralized loans and replacing them with regulated assets such as US Treasury bonds.
Tether CEO Paolo Ardoino responded to JPMorgan’s comments on social media platform X, stating that analysts make such comments because they do not own Bitcoin. Ardoino emphasized that it will not be difficult for the company to comply with the new regulations, noting that a large part of Tether’s reserves have high liquidity and that the company earns more than $ 1.2 billion in profit each quarter through US Treasury bonds.
Market Impacts of a Possible Bitcoin Sell-Off
Tether’s decision to sell Bitcoin holdings in its reserves to comply with new US regulations could have various effects on cryptocurrency markets. In the short term, large-scale Bitcoin sales could cause a sudden liquidity crunch and price volatility. This could lead to panic selling by investors, causing prices to fall further. Moreover, changes in Tether’s reserve structure could shake investors’ confidence in stablecoins and create uncertainty in the market. In the long run, such moves to comply with regulations may contribute to increased transparency and investor confidence in the stablecoin market. Building reserves with more liquid and reliable assets can help build the stablecoin ecosystem on a more solid foundation.
Conclusion and Evaluation
Tether’s decision to sell Bitcoin assets in its reserves in order to comply with the proposed “Stable” and “Genius” laws in the US could have significant short-term and long-term effects on cryptocurrency markets. In the short term, liquidity constriction and price volatility are likely to occur, while in the long term, market transparency is expected to increase and the stablecoin ecosystem is expected to strengthen. It is important for investors and market participants to closely monitor regulatory developments and update their portfolio strategies accordingly.
