By Elizabeth Howcroft and Juby Babu
LONDON (Reuters) -The number of dollar-pegged stablecoins issued by Tether has crossed $100 billion, as the price of bitcoin surged on Tuesday towards a record high amid broader cryptocurrency demand.
Tether issues a stablecoin which is designed to maintain a constant value of $1. It is widely used as a way of moving money in cryptocurrency without being exposed to price swings in other cryptocurrencies such as bitcoin and ether.
At just over $100 billion in circulation, Tether is the third-biggest cryptocurrency, with around $27 billion worth of the tokens having been issued in the last year, according to market tracker CoinGecko. Around $122.5 billion of the token has changed hands in the last 24 hours, CoinGecko data shows.
The Tether token's milestone, which it posted on its website late on Monday, comes as a surging bitcoin was just 5% off a record high. Bitcoin's price has surged 57% so far in 2024 and at $66,600 is not far from hitting a record high of $70,000.
Tether, which is widely used as a way to purchase cryptocurrencies on exchanges, says it maintains its dollar peg by holding dollar-based reserves which match the volume of cryptocurrencies it has created.
"Traders were willing to pay a premium on tether in order to get their orders through," said Justin D'Anethan, head of Asia-Pacific business development at digital assets market maker Keyrock.
"Ironically, tether has always been FUDed (plagued by anxiety about their legitimacy) as they resisted disclosing their reserves and balance sheet for years," D'Anethan said.
"Nonetheless, they’ve been around and stood the test of many volatility events, from 2017 up to now," D'Anethan added, noting that a majority of cryptocurrency pairs are denominated in Tether's stablecoin, which explains the demand for it when investors are bullish about cryptocurrencies.
U.S. regulators have warned banks that stablecoin reserves could be subject to rapid outflows, for example if holders rushed to exchange such tokens back into traditional currency.
Tether agreed to provide quarterly reports on its reserves for two years, as part of a 2021 settlement with the New York Attorney General's office.
At the end of 2023, Tether's reserves held $63 billion of U.S. Treasuries, as well as $3.5 billion of precious metals, $2.8 billion of bitcoin, $3.8 billion of "other investments" and $4.8 billion of "secured loans", its latest report says.