Tether's Future in European Markets Remains Uncertain as MiCA Regulations Take Effect and USDT Redemptions Soar

The future of Tether in European markets remains unclear as the European Union's new stablecoin regulations take effect and USDT redemptions soar.

Tether’s Future in Europe Uncertain as Stablecoin Redemptions Soar

The future of Tether (USDT) in European markets remains unclear as the European Union’s new stablecoin regulations take effect and USDT redemptions reach new heights.

On January 1, the EU officially launched its Markets in Crypto-Assets (MiCA) regulations. Ahead of this event, nearly $4 billion in USDT was redeemed, leading to a slight decrease in Tether’s market cap, which currently hovers around $137 billion, down from $141 billion before Christmas.

These redemptions mark the largest since the onset of the ‘crypto winter’ in mid-2022, which was triggered by the exposure of fraudulent activities at several crypto operators. This culminated in the collapse of Sam Bankman-Fried’s digital asset exchange FTX and its affiliated market-maker Alameda Research, which was the biggest purchaser of USDT at the time.

Since the redemptions began, USDT has been trading slightly below its $1 peg, indicating customer uncertainty regarding Tether’s future in a post-MiCA environment.

Under MiCA, ‘significant’ stablecoins like USDT are required to maintain 60% of their reserve assets in cash, which must be stored in EU banks. However, Tether CEO Paolo Ardoino has expressed concerns that this poses an unacceptable risk to Tether due to the potential for bank failure.

Amid the uncertainty over USDT’s legality in the EU, Coinbase (NASDAQ: COIN) delisted the stablecoin in mid-December. Other prominent exchanges have hinted at following Coinbase’s lead, including Binance, which restricted “the availability of Unauthorized Stablecoins for [European Economic Area] users” on June 30. A few months earlier, the OKX exchange imposed similar limitations on its EEA customers.

In a further blow to Tether that extends beyond EU borders, Binance has teamed up with Tether rival Circle, the issuer of the USDC stablecoin, to accelerate USDC adoption around the globe.

Circle received MiCA approval for USDC last July, highlighting Tether’s unwillingness/inability to do likewise. During the same period, USDC’s market cap increased by $2 billion, while USDT’s market cap decreased by $4 billion.

Ardoino and ‘friends of Tether’ have launched a social media campaign to refute claims of USDT’s imminent European demise. Some point out that other exchanges have yet to delist USDT, while others highlight that EU member states have grace periods to enforce MiCA’s edicts, potentially giving USDT a window of up to 18 months to retain its relevance.

Despite these claims, Tether itself halted support for its Euro-denominated EURT stablecoin in November, acknowledging at the time that MiCA was the catalyst behind this move.

Tether, Bitfinex doing the financial hokey-pokey?

Despite its EU issues, Ardoino tweeted on January 2 that Q4 2024 was “a great quarter for Tether.” However, we’ll have to wait another five weeks or so before the company publishes the latest attestation of its fiat reserves.

The Q3 document—which is not, despite Tether’s insinuations, a proper independent audit—showed $6.1 billion worth of reserves over and above the amount of issued USDT at the time.

On December 30, just one day before the quarter ended, Tether’s wallet of BTC received an additional 7,629 tokens, valued at over $705 million. Later that same day, a second transfer added another 775 BTC to this total, bringing the transfers to 8,404 BTC, valued at over $775 billion.

The BTC was sent from the Bitfinex exchange, which shares common ownership with Tether.

This is problematic for several reasons, not the least of which is that Tether/Bitfinex have a history of swapping assets ahead of inspections by third parties to preserve an image of solvency. BDO Italia, the firm Tether pays to conduct attestations, is only ever granted a look at Tether’s financial figures for a single day, traditionally the final day of the quarter, which would be the day after the Bitfinex transfers.

An hour before the new year arrived, Bitfinex transferred 30,000 BTC, valued at around $2.8 billion, to an unknown wallet. Presumably, this is some other entity that requires some temporary rebalancing of its balance sheet. The future of finance, indeed.

Lutnick ready to Rumble

Tether has long been the subject of reports of impending indictments, most recently in the United States, where federal authorities appear to be losing patience with USDT’s popularity among terrorists, criminals and individuals/entities looking to evade U.S. economic sanctions.