Bitcoin News Today: S&P Flags Tether's Opaque, High-Risk Reserves as Stability Threat

S&P Global Ratings has downgraded Tether's USDT stablecoin stability rating to "weak" from "constrained," marking the lowest possible score on its 1–5 scale for assessing stablecoin risk. The move reflects growing concerns over Tether's exposure to high-risk assets, including Bitcoin, gold, secured loans, and corporate bonds, as well as persistent gaps in transparency around reserve management and risk appetite . The downgrade underscores heightened scrutiny of the world's largest stablecoin as its reserves shift toward less liquid and more volatile holdings, raising questions about its ability to maintain a stable peg to the U.S. dollar.

The ratings firm noted that Bitcoin now accounts for approximately 5.6% of USDT's $184.4 billion in circulation, surpassing the 3.9% overcollateralization margin. This threshold, according to S&P, means the reserve can no longer fully absorb potential declines in Bitcoin's value. Analysts Rebecca Mun and Mohamed Damak warned that a drop in Bitcoin's price, combined with losses in other high-risk assets, could reduce the coverage ratio and leave USDT "undercollateralized" . This risk is amplified by Bitcoin's recent 30% decline from its all-time highs, which has put the cryptocurrency on track for its worst monthly performance since the 2022 market crash .

Tether's reserves include not only Bitcoin but also $12.9 billion in gold holdings and corporate bonds, all of which carry credit, market, and liquidity risks. S&P highlighted the lack of transparency surrounding the creditworthiness of Tether's custodians, bank account providers, and counterparties, as well as the absence of asset segregation to protect against insolvency . The firm also criticized the limitations on direct redemption of USDT tokens and the lack of a robust regulatory framework to govern the stablecoin's operations.

The downgrade comes as Tether expands its reserves beyond traditional cash and U.S. Treasuries, a strategy that has drawn regulatory attention globally. While the company has maintained "a notable level of price stability" during periods of crypto volatility, the shift toward riskier assets increases systemic exposure, particularly if market conditions deteriorate further . Tether has not publicly responded to the downgrade but has previously asserted that USDT combines "stability, transparency, and global accessibility" .

The implications for the stablecoin market are significant. USDT's dominance in cross-border transactions and decentralized finance (DeFi) platforms means any erosion of confidence in its stability could trigger broader liquidity challenges. Regulators have already begun probing stablecoin reserves, with the U.S. Securities and Exchange Commission (SEC) and European Union's MiCA framework signaling a push for stricter collateral requirements. S&P's assessment may accelerate calls for regulatory clarity as investors demand greater assurance about the safety of stablecoin-backed assets.

For now, Tether's ability to navigate this risk depends on its capacity to balance growth in high-yield reserves with the need for stability. The downgrade serves as a cautionary signal that the crypto ecosystem's reliance on opaque collateral structures may no longer be sustainable in a risk-averse market environment.