Why Tether is planning to invest $500 million in Bitcoin mining

Tether aims to become one of the leading Bitcoin miners in the world. The issuer of the largest stablecoin USDT with a capitalization of over $87 billion is making significant investments in the cryptocurrency mining sector, reports RBC Crypto.

Over the next six months, the company plans to invest around $500 million in both deploying its own infrastructure and acquiring stakes in mining companies, Paolo Ardoino, recently appointed CEO of Tether Limited, told Bloomberg in an interview.

These investments include part of a $610 million credit line that Tether provided to German mining company Northern Data AG this month after acquiring a stake in the company in September. According to Ardoino, the company aims to become part of the Bitcoin mining ecosystem and takes a very serious approach to choosing locations for equipment placement or the construction of new substations.

This new direction of activity differs from Tether’s core business of issuing and managing stablecoins, the largest of which is Tether USD (USDT). Entering the cryptocurrency mining market with such significant capital can significantly intensify competition for the limited supply of cryptocurrencies and provide Tether with another opportunity to diversify its sources of income, Bloomberg writes.

Tether earns interest on US Treasury bonds and other assets held in reserve for USDT totaling $87 billion. As of September 30, the excess funds in the company’s reserves amounted to about $3.2 billion. According to the quarterly report published on October 31, Tether has already used over $800 million for investments in Bitcoin and various industry research.

According to Ardoino, Tether is currently building mining centers in Uruguay, Paraguay, and El Salvador, each with a capacity of 40 to 70 megawatts. The company aims to increase its share of the total computing power of the Bitcoin network to 1%, Ardoino says, but refuses to forecast exact timelines for achieving this milestone. For comparison, the share of the largest public mining company Marathon Digital Holdings is about 4%.

A market share of 1% is likely to allow Tether to enter the top 20 largest Bitcoin mining companies in the world, believes Yaran Mellerud, CEO of MinerMetrics, a company specializing in data collection and research in the field of Bitcoin mining. “Given Tether’s importance in the cryptocurrency ecosystem and its financial power, its market share will probably grow significantly above 1% over time,” he told Bloomberg.

By the end of 2023, Tether expects to reach a capacity of 120 megawatts in its own mining operations, and by the end of 2025, it aims to increase it to 450 megawatts, Ardoino says. This is one and a half times higher than the total capacity of the largest Russian mining company BitRiver at several of its sites. According to him, Tether has allocated around $150 million for mining, in which Tether directly participates, and part of this amount is still being distributed among new platforms.

In addition to becoming a miner itself, Tether’s intention to invest significant amounts in this industry could influence its future competitors. After the drop in cryptocurrency prices last year, miners faced a shortage of funds. Two large mining companies — Compute North and Core Scientific — have filed for bankruptcy. Companies that went public during historic highs in cryptocurrency prices are selling all mined coins to replenish cash flow, taking advantage of the recent rise in the price of Bitcoin above $37,000.

As a private company with high financial turnover even in bear market conditions, Tether has unique opportunities to make large-scale investments without the need to adjust to market cycles, believes Mellerud of MinerMetrics.

However, potential challenges facing the mining industry are also relevant for Tether. Growing competition means reduced profits, and the upcoming Bitcoin code update, known as halving, will lead to a sharp reduction in mining revenues next year if the price of Bitcoin does not show significant growth.

Mining difficulty, which is the indicator of the total computing power required to obtain new bitcoins, has already reached historical highs several times this year as miners continue to connect new equipment. The more computing power a miner has, the higher the probability that they will receive a share of the reward distributed among all participants as an incentive to maintain network operation. This gives companies with large capital an advantage, as they can allocate additional resources.

Ardoino says Tether is currently evaluating a potential site with a capacity of 300 megawatts, and its existing mining operations are already profitable thanks to the rising price of Bitcoin. Additionally, the company places equipment in large containers for quick relocation to new locations with cheaper electricity. According to him, the company is “not rushing” to become leaders in the mining market and is focused on “learning and evolving” in this area.