S&P Global Ratings downgraded Tether's USDT stablecoin stability rating from "limited" to "weak," citing an increase in the share of high-risk assets in its reserves.
On Wednesday, the ratings agency warned that Bitcoin now accounts for approximately 5.6% of circulating USDT, exceeding the 3.9% overcollateralization margin. This indicates that the reserve can no longer fully offset Bitcoin's decline in value.
"A decline in Bitcoin's value, combined with a decline in the value of other high-risk assets, could consequently reduce reserve coverage and lead to USDT undercollateralization," analysts Rebecca Moon and Mohamed Damak wrote in their report.
S&P's assessment highlighted the increasing share of high-risk assets in USDT reserves over the past year, including Bitcoin, gold, collateralized loans, and corporate bonds, as well as limited disclosure about these assets.
Analysts also noted that Tether provides limited information about the creditworthiness of its custodians, counterparties, or bank account providers. Other issues include limited transparency in reserve management, the lack of asset segregation to protect against issuer insolvency, and restrictions on direct USDT exchanges through Tether.
Bitcoin's price has plummeted this month, making the cryptocurrency a candidate for the worst monthly performance since the wave of bankruptcies that has hit the crypto sector in 2022. Despite this market turbulence, Tether's USDT circulation increased by approximately $1 billion in November to $184.4 billion, according to CoinGecko data.