Tether’s Potential Asset Liquidation for Compliance

Tether may have to sell non-compliant assets—including bitcoin, precious metals, corporate paper, and secured loans—to comply with proposed U.S. stablecoin regulations, according to JPMorgan analysts.

The U.S. has introduced two stablecoin bills: the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act in the House and the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in the Senate. These acts seek to regulate stablecoin issuers with licensing requirements, risk management rules, and 1:1 reserve backing.

Under the STABLE Act, only 66% of Tether’s reserves are compliant, while under the GENIUS Act, 83% meet standards. JPMorgan analysts, led by Nikolaos Panigirtzoglou, noted a declining compliance ratio since mid-2024 as stablecoin supply surged.

Tether currently holds about 83,758 bitcoin, worth over $8 billion at current prices as part of its reserves, confirmed by its bitcoin address in 2023. In 2023, Tether announced plans to allocate up to 15% of its quarterly profits for bitcoin purchases.

Challenges to Tether

The STABLE Act enforces stricter reserve requirements and allows for state-level regulation, while the GENIUS Act mandates federal oversight for large issuers and permits a broader range of reserve assets. If either bill passes, Tether would need to restructure its reserves, shifting holdings into U.S. Treasuries and other liquid assets.

Tether controls nearly 60% of the stablecoin market and has already faced regulatory scrutiny in Europe, where the Markets in Crypto-Assets (MiCA) rules require large issuers to hold 60% of reserves in EU banks. This has led to Tether’s delisting from several exchanges in Europe, though its limited market share there minimized the impact.

In contrast, the U.S. presents a much greater regulatory challenge for Tether, given its significant market share in the U.S. The analysts believe Tether’s dominant position may be pressured by both proposed bills, which require high-quality and liquid assets as reserves.

“U.S. stablecoin regulations requiring more transparency and frequent reserve audits pose additional challenges to Tether,” the analysts stated.

The proposed U.S. stablecoin regulations are expected to be enacted later this year.

(Updated to mention Tether’s current bitcoin holdings)