Analysis of the impact of stablecoins on the price of bitcoin
Tether Q1 2024 Report Analysis: Profit, Risks, and Transparency Issues
The purpose of this article is to provide an in-depth analysis of Tether's financial report for Q1 2024, assess the company's resilience through stress tests, and formulate recommendations for improving transparency. The main conclusion: despite record profits and sufficient capital to cover risks in base-case scenarios, the opacity of key data (portfolio duration, loan structure) remains the primary risk factor for investors.
Analysis Methodology
The analysis is based on data from the BDO Italia attestation report dated May 1, 2024 ("Consolidated Reserves Report" as of March 31, 2024). The calculations presented in this article are the author's estimates based on the specified data.
- Profit Calculation: Unrealized profit is calculated as the difference between total net profit ($4.52 billion) and net operating profit ($1.0 billion) stated in the report.
- Stress Test: Asset losses are calculated using the formula:
Loss = Asset Value × Price Drop Percentage.
T-Bill losses (interest rate risk) are estimated using the formula:
Loss ≈ Portfolio Value × Modified Duration × Change in Rate.
The correlation between price drops across different asset classes in the stress scenario is assumed to be 1 (losses are cumulative) for a conservative estimate. - Liquidity in a Run Scenario: It is assumed that during mass token redemptions, assets will be liquidated in order of decreasing liquidity: Treasury bills (T-Bills), gold, Bitcoin, secured loans.
Key Financial Metrics as of March 31, 2024
| Metric | Value | Comment |
|---|---|---|
| Total Assets (Reserves) | $113.72B | |
| Total Liabilities (Tokens Issued) | $104.55B | |
| Shareholder Equity | $9.17B | Difference between assets and liabilities |
| Net Profit for the Quarter | $4.52B | |
| Reserve Coverage Ratio | 108.8% | (Assets / Liabilities) × 100% |
| Share of Highly Liquid Assets | ~80% | Share of T-Bills in total assets |
Source: BDO Italia report dated May 1, 2024. Calculation metrics are author's estimates.
Shareholder equity of $9.17 billion fully covers liabilities and serves as a buffer to absorb potential losses.
Profit Sources: Operating Income and "Paper" Revaluation
The $4.52 billion profit consists of two components:
- Operating Profit ($1.0 billion): Interest income from holdings in US Treasury bills. In the BDO report, this figure is listed under "Net operating profits from its US Treasuries holdings."
- Unrealized Profit ($3.52 billion): Income from market revaluation (mark-to-market) of Bitcoin and gold. This figure is a calculation and does not represent cash flow. Realizing this profit to cover losses could be difficult due to market impact and would entail tax consequences.
Asset Structure Analysis and Data Gaps
The majority of Tether's assets ($90.9 billion, or 80%) are held in US Treasury bills (T-Bills). The portfolio structure also includes Bitcoin ($5.45 billion), gold ($3.58 billion), and secured loans ($5.04 billion).
The BDO report does not disclose several critical parameters:
- T-Bill Portfolio Duration: A key metric for assessing interest rate risk.
- Counterparties and Loan Collateral: The lack of detail makes it impossible to assess credit risk and concentration risk.
- Asset Valuation Methodology: Details on the valuation of illiquid investments are not disclosed.
Quantitative Risk Analysis: Extended Stress Test
Shareholder equity of $9.17 billion allows Tether to withstand significant market fluctuations.
1. Market and Credit Risk: Scenario Analysis
Scenarios are based on historical volatility data and assume simultaneous risk realization.
| Scenario | BTC Drop | Gold Drop | Loan Default | Cumulative Loss | Remaining Equity |
|---|---|---|---|---|---|
| Base | 20% | 10% | 5% | $1.70B | $7.47B |
| Moderate-Negative | 40% | 20% | 15% | $3.65B | $5.52B |
| Worst-Case | 60% | 30% | 30% | $5.86B | $3.31B |
Even in the worst-case scenario, shareholder equity remains positive, demonstrating a significant margin of safety.
2. Interest Rate Risk: Sensitivity to T-Bill Duration
In the absence of exact data on the T-Bill portfolio duration ($90.9 billion), we model the impact of an interest rate shock (a 100 bps or 1% increase) under different assumptions.
| Average Duration | Unrealized Loss from +100 bps Shock |
|---|---|
| 0.25 years (3 months) | ≈ $227M |
| 0.5 years (6 months) | ≈ $455M |
| 1.0 year (12 months) | ≈ $909M |
This risk is manageable, but its precise assessment is impossible without duration disclosure.
3. Mass Redemption Risk (Run Scenario)
In the event of a mass request for USDT redemption, the most liquid assets—T-Bills—will be liquidated first. Rapidly selling less liquid assets (secured loans, "other investments") could lead to losses due to haircuts during emergency sales.
Attestation vs. Audit
The BDO Italia report is an attestation and only confirms the balance as of a specific date. Unlike a full audit according to International Standards on Auditing (ISA), it does not include an evaluation of internal control systems, independent confirmation of balances with counterparties, or transaction testing. This limits confidence in the reliability of the company's operational processes.
Conclusions and Recommendations
As of March 31, 2024, Tether demonstrates full token backing and a significant capital buffer to absorb market shocks. However, the reliance of profits on volatile assets and the lack of critical data disclosure remain key risks.
To increase transparency and strengthen market trust, it is advisable for Tether to:
- Conduct a full annual audit according to ISA standards within the next 12–18 months, including an assessment of operational processes.
- Disclose the weighted average duration of the T-Bill portfolio quarterly, specifying it within a narrow range (e.g., 0.25–0.5 years).
- Provide aggregated information on the secured loan portfolio, including a breakdown by collateral types (digital assets, equities) and concentration among the top 5 counterparties.