Is Tether really more profitable than BlackRock?

Tether has made a habit of sharing truly massive quarterly profit numbers alongside its attestations reports — and they’re bigger than BlackRock’s.

The firm has reported $12.72 billion in net profit since Q4 2022, compared to BlackRock’s $9.83 billion.

What isn’t usually discussed is that Tether is lumping in the profit from US Treasurys with the mark-to-market gains of its bitcoin and gold holdings — potential profit or unrealized gains — as outlined in one of its blog posts. And it’s inflating Tether’s numbers.

Tether’s quarterly attestations describe assets in the pool of reserves that give tethers their value. As of its most recent report, for the end of Q2, there was almost $118.44 billion backing the tethers in circulation — conveniently over $5 billion more.

Read more: Tether reports net profit of $5.2B in H1 2024

Which means all tether is all properly backed by an equivalent value of assets in reserve, and then some. (It’s worth noting that attestations are not audits and Tether has never been “audited,” for reasons.)

Short-dated US Treasurys made up around 68% of Tether reserves, with reverse repurchase agreements, money market funds, secured loans and bitcoin as the next largest categories.

Tether has been adding bitcoin to its reserves, rising from 2% of the total to 4% over the past year Bitcoin is cash — no need to sell it

Tether reported $1.3 billion in quarterly profit alongside that Q2 disclosure. A staggering amount considering how few people it employs, believed to be under 100.

Much of that profit comes from the US Treasurys it buys. Three-month Treasury bills currently carry a rate of 4.85%, and considering Tether owned almost $81 billion worth, the 10-figure profit sounds about right.

But take this year’s first quarter. Tether reported $4.52 billion in profit. At the same time, the price of bitcoin went up almost 70%, which Tether apparently considers free profit. 

Read more: Nigeria is undergoing a ‘real crypto dollarization event’: Nic Carter

When bitcoin hasn’t been so volatile, Tether has usually reported profits of between 1.01% and 1.81% of the value of its treasury. In Q1 2024, when bitcoin hit an all-time high, that figure was 4.1%.

The firm also reported that its bitcoin holdings increased in value by $2.56 billion throughout that period — from $2.82 billion to $5.37 billion. Tether appears to have bought 8,888.88 BTC ($513.6 million at current prices) during the quarter, going by the attestations and its onchain history, but it’s unknown at what price it bought those coins. 

If we take the average price of bitcoin over the quarter, Tether would’ve spent $481.5 million on that BTC. 

Estimated bitcoin profits are in orange, US Treasurys in blue and gold in yellow. The price of bitcoin is shown by the orange line

Subtracting its estimated spend from the increase in value of its entire bitcoin stash shows what Tether’s quarterly “bitcoin profit” would be: $2.08 billion, or 46% of the total that Tether reported. US Treasurys would’ve otherwise contributed 51%, while gold’s price appreciation perhaps offered around 3%.

To be clear, these are just estimates based on average prices during a volatile time for bitcoin’s price. Tether deposits BTC into a reserve address directly from its sister exchange Bitfinex, so it’s unknown exactly how it acquires the bitcoin that it deposits into its treasury. 

Still, the estimates suggest that for the first quarter of this year, bitcoin made up less than 5% of Tether’s reserve portfolio, while it contributed nearly half of its reported quarterly profits. 

For what it’s worth, Tether says it made $1 billion out of Q1’s $4.52 billion from US Treasurys, while the rest came from unrealized bitcoin and gold gains. That would mean BTC was responsible for much more of Tether’s total reported profits, even as much as 75%.

Tether wrote at the time: “The main contributing [Tether Holdings Limited] entities are those in charge of issuing stablecoins [Tether] and managing the respective reserves where approximately $1 billion of this profit stemmed from net operating profits, primarily derived from US Treasury holdings. The remainder of reported profits were comprised of mark-to-market gains in bitcoin and gold positions.”

Tether could technically turn ‘unprofitable’ if BTC dives

This, of course, means that Tether’s profits are reduced when the prices of bitcoin and gold go down. 

Tether reported only $1.3 billion in profit in last quarter, nearly 70% below Q1, even though it held almost $6 billion more in US Treasurys.

The difference is largely because the price of bitcoin fell 12% between quarters, so the value of Tether’s bitcoin went down by $648 million. Tether also didn’t add any BTC between periods, so there wasn’t any opportunity for a big boost of unrealized profit from freshly acquired coins, as was the case in the previous two quarters. 

Had bitcoin retained its value, Tether would’ve reported almost $2 billion in quarterly profit. It appears only Tether’s Q1 2024 disclosure delineated bitcoin and gold profits from US Treasurys, as was the case with Q2.

So, does Tether earn more profit than BlackRock? 

Watch for Tether to really blow BlackRock out of the water if it keeps buying loads of bitcoin. Tether previously pledged to direct 15% of profits to buying BTC.

Lumping in bitcoin and gold appreciation with US Treasurys profits, sure, Tether is more profitable than BlackRock. Tether must actively continue buying US Treasurys to earn money from them, but it doesn’t have to do anything to report its bitcoin and gold profits, only hold.

By that system, Tether has indeed reported higher profits than BlackRock.

If you only count Tether’s disclosed profits without bitcoin and gold, Tether would’ve made under $7.7 billion from its US Treasurys, going by the ballpark estimates outlined above. 

That’s a difference of about $5 billion. Still monstrous profit, but it would fall just shy of outpacing the world’s largest asset manager.

Tether is likely in any case the most profitable company in crypto, and one of the most profitable outside of it as well.

Depending on your definitions of profit, it might still need a few more years to eclipse BlackRock — but it seems inevitable.

A modified version of this article first appeared in the daily Empire newsletter. Subscribe here so you don’t miss tomorrow’s edition.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.