Tether: the $180bn gold whale
The secretive crypto group buying billions in gold
Tether is one of the world’s most profitable cryptocurrency companies, but it’s lately seemed more bullish on bullion than digital coins.
Tether’s main offering is the stablecoin USDT, a cryptocurrency pegged to the US dollar that is in effect the largest digital money market fund. It has issued roughly $180bn of USDT and ploughed most of that money into US Treasuries while keeping billions of dollars in interest as profits.
But the small group of people who run Tether are investing its “deposits” far from cryptocurrencies, signalling they are not industry cheerleaders. The secretive company has roiled gold markets this year, becoming the world’s biggest holder of the precious metal outside of central banks, Bryce Elder writes in FT Alphaville.
It has a stockpile “roughly equal to smaller central banks, such as Korea, Hungary and Greece”, according to the investment bank Jefferies.
Last quarter the company’s gold purchases accounted for nearly 2 per cent of total gold demand and were equivalent to almost 12 per cent of central bank purchases, Jefferies estimates.
Sources tell DD that the gold bets are a reflection of Tether insiders’ belief that the commodity is the world’s best store of value and a better hedge against inflation than digital currencies. (While Tether does still hold billions in bitcoin, it now holds more money in gold.)
Tether’s gold ambitions go far beyond its own vault and into the world of dealmaking. Our attention is on Tether’s dealmaking around gold royalty companies, which invest in mines in return for a percentage of future revenues.
In June, Tether Investments, which is in charge of investing the company’s profits, paid $105mn for a minority stake in Toronto-listed Elemental Altus. It invested a further $100mn in Elemental in September as it announced a merger with rival EMX.
Tether now holds a controlling stake in Elemental, company filings show. Sources tell DD that Tether has bigger plans for Elemental: it’s looking to use its controlling stake to roll up other gold royalty companies.
“Their goal is to keep consolidating the small to mid-cap gold royalty space,” said a person briefed on the matter. Tether had held discussions with multiple gold royalty companies, the FT reported in September.
While some believe Tether’s gold royalty roll-up strategy is canny, not everyone is a fan. Tether “is the weirdest company I have ever dealt with”, one commodity industry executive recently told the FT.
Gold royalties have an advantage over stockpiled bullion: they give Tether a fixed exposure to gold that doesn’t change even if prices soar.
Tether’s gold bet comes as many on Wall Street are questioning whether its finances are as robust as the company claims.
Rating agency S&P Global on Wednesday downgraded Tether’s assets to its lowest rating, “weak”, warning that Tether’s rising exposure to high-risk reserve assets could leave its stablecoin undercollateralised in a crisis.