Un-Tethered / How safe are Stablecoins

There are sectors of the financial world that are currently wildly speculative and cause me concern. In my recent post on gold's advance in 2025, I expressed my thoughts on the factors contributing to the 60% rally.https://www.mortonir.com/post/gold-euphoria-speculation-or-a-store-of-value

My concerns go further...

Stablecoins (like Tether) also have significant elements of speculation. Tether is designed to track the U.S. dollar, but as a crypto token. Rather than living with the volatility of Bitcoin, Tether's structure is that you can buy Tether, with U.S. dollars (or exchange Bitcoin for Tether) and own crypto that stays in alignment with the U.S. dollar.

This should be fairly simple to structure. The owners of Tether (registered as a BVI Business Company...ownership lacks transparency) take your U.S. dollar and buy U.S. treasuries. The owners of Tether collect interest on the treasuries (several billion dollars per year). As an investor / holder of Tether tokens you receive no interest. At this point you are probably shaking your head! Why not simply buy U.S. treasuries yourself and collect the interest income?

Perhaps you have made a fortune on Bitcoin, are unsettled by Bitcoin's recent decline, and want to convert (discreetly) to a more "stable" coin. Other more nefarious reasons for remaining anonymous come to mind...

How important is Tether and crypto to the financial system?

(December 2025), Tether is sitting on $174 billion in circulation. That’s part of the overall $3 trillion crypto market (Bitcoin owns almost 60% of it, stablecoins about 10%). Thankfully, relative to the value of all listed U.S. securities ($68 trillion), crypto is a small factor in creating overall market enthusiasm or bearishness.

Crypto speculators are a busy bunch, transacting $140–150 billion every single day (5% of outstanding issuance). For comparison, the entire U.S. stock market is worth $68 trillion, but only trades $500 billion per day (roughly 0.7% of its outstanding capitalization).

You might ask, what is the risk in Tether. If the investment portfolio is made up of U.S. Treasuries, what could go wrong? Plenty as it turns out....

Tethers $181 billion portfolio invested as follows:

• ~$127B in U.S. Treasuries (basically the safest thing you can own)

• $14.6B in “secured loans” (read: lending to crypto holders with Bitcoin as collateral)

• $14 B in actual gold

• $9.9B in Bitcoin

Why would the owners of Tether invest in anything other than U.S. treasuries? They make a fortune on Treasury interest alone—$13 billion profit in 2024, another couple billion already this year, none of the interest shared with holders of Tether tokens. Most of that cash never leaves the company; it just piles up as shareholder equity (currently ~$6.8B cushion). This $6.8 billion has occurred over time with the increase in value of the non treasury holdings and interest payments received. It offers reassurance that there is a buffer in Tether in case anything goes wrong. but what happens if the non-treasury holdings fall in price?

• Gold + Bitcoin both drop 20% → still fine

• Both drop 30% → buffer gone, small deficit

• Throw in a 20% hit to those “secured loans” (very possible if BTC dumps) → instant $7.5B hole

Combined Drop in Gold + BTC	Buffer Impact	Status
−10%	~$4.5B surplus	Safe
-20%	~$1.2B surplus	Safe
−30%	~−$2.5B deficit	Underfunded
−50% in "Other" Assets	~−$11.7B	Immediate insolvency

If the reserves ever fall below circulating USDT? Peg breaks, panic redemptions, fire-sale everything. Shareholders get wiped (they’re dead last in line). So if the non treasury holdings increase in value, the owners of the BVI Tether company are rewarded, not the token holders. If the assets fall below the outstanding issuance of Tether, token holders eat the loss.

Are gold and crypto connected?

It is interesting that both gold and crypto have rallied significantly over the past several years. Is there a connection between the speculation in gold and the crypto market?

Tether has been buying up physical gold like it’s on sale. The investment firm Jefferies, just crunched the numbers and said that over the last six months of 2025, Tether bought more gold than every official central bank combined. They’re now sitting on $14 billion worth of gold. That puts Tether ahead of every private holder on the planet except central banks.

Lots of inter connected parts to contemplate. A shake out in one could cause a ripple effect. Not large enough to have an outsized effect on equities, but increased stock volatility would be expected over the shorter term.

Regards,

Tim

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Tim Morton, CFA, is a retired portfolio manager with 45 years of experience working with private clients. He is the editor of mortonir.com and a contributor to Barron's. My comments are not to be taken as investment recommendations. They are purely for discussion purposes. Please see your registered advisor for investment advice.