S&P Deals Blow to Tether With Rock-Bottom USDt Rating

The row rating was given due to USTt’s exposure to volatile assets like Bitcoin and gold, a lack of full audits, and comparatively loose oversight in El Salvador. Tether rejected the assessment as misleading, and explained that most of its reserves are in low-risk US Treasurys. At the same time, new data from Glassnode shows a strong inverse correlation between Bitcoin’s price and USDt exchange flows, with large USDT outflows historically aligning with BTC peaks and profit-taking phases. 

S&P Drops Hammer on Tether’s USDt

S&P Global Ratings downgraded Tether’s USDt to the lowest rating on its stablecoin stability scale, which raises concerns about the token’s ability to consistently maintain its one-to-one peg with the US dollar. The agency pointed to what it considers an elevated level of “higher-risk” assets in Tether’s reserves, including Bitcoin, gold, secured loans, and corporate debt instruments. 

S&P rating given to USDt

According to S&P, Bitcoin alone accounts for 5.6% of all USDt in circulation, This allocation exceeds the 3.9% buffer implied by Tether’s reported 103.9% collateralization ratio. Because these assets are more volatile than cash or Treasurys, a sharp downturn could potentially weaken collateral coverage.

Breakdown of reserves (Source: S&P Global)

S&P also mentioned regulatory leniency as a factor behind the downgrade. Tether is headquartered in El Salvador and supervised by the country’s National Commission of Digital Assets (CNAD), which has far looser requirements for reserve composition compared to major financial jurisdictions. The ratings agency pointed to the ongoing absence of full audits or detailed, independently verified proof-of-reserve disclosures as another core weakness.

Despite the negative rating, S&P acknowledged that roughly 75% of USDt’s backing consists of US Treasurys and short-term instruments viewed as low-risk. Tether disputes the downgrade, and called the report “misleading” by arguing that it ignores key data about the token’s long track record and widespread adoption. 

In a statement, the company explained  that S&P’s analysis fails to account for the scale and macroeconomic importance of digitally native money. CEO Paolo Ardoino criticized traditional ratings frameworks, and argued that legacy methodologies have historically misjudged risk by giving investment-grade ratings to institutions that later collapsed.

The downgrade comes during a transformative year for the stablecoin industry, remembered for new US regulations, growing political interest, and a sector-wide market cap that surged past $300 billion. 

Meanwhile, Tether’s expanding global footprint is also turning heads. The company is now the 17th-largest holder of US Treasurys, with more than $112 billion in short-term government securities, placing it ahead of countries like South Korea and Germany. Tether also amassed 116 tons of gold, a reserve size comparable to those maintained by several central banks.

Glassnode Reveals BTC–USDt Split

Blockchain analytics firm Glassnode also identified a sharp inverse relationship between Bitcoin’s price movements and the flow of USDt to and from exchanges. In an analysis that was shared on Wednesday, Glassnode compared Bitcoin’s price action with USDT exchange net flows dating back to December 2023. The data shows that periods of rising Bitcoin prices almost always align with net outflows of USDt from exchanges, This means that traders are pulling stablecoins off platforms to take profits or hold on-chain.

Glassnode explained that during highly optimistic market phases, USDT outflows typically spike between $100 million and $200 million per day. This trend intensified in October, when Bitcoin briefly hit a peak of $126,000, pushing 30-day average USDT net outflows above $220 million — a level Glassnode described as a clear profit-taking signal. 

The analytics firm said these outflows have since cooled, which indicates that traders appear to be re-accumulating dry powder for potential new market moves. A separate analysis by Whale Alert earlier this year also revealed a recurring pattern: 

Tether tends to mint new USDt during Bitcoin bull phases and burn tokens during downturns. Bitcoin and USDt are the world’s first- and third-largest cryptocurrencies, with market caps of roughly $1.8 trillion and $184 billion.

The regulatory environment in the United States is also shaping the dynamics between Bitcoin, stablecoins, and institutional participation. In July, the US government passed the GENIUS Act, creating a federal framework for payment stablecoins. Tether CEO Paolo Ardoino confirmed USDt will comply with the new law but later announced plans for an additional stablecoin, USAT, that is designed specifically to meet GENIUS requirements. 

Meanwhile, US federal and state authorities have shown interest in accumulating Bitcoin for strategic purposes. President Donald Trump even signed an executive order in March calling for the creation of a national digital asset reserve, though reports indicate the government has yet to fully implement the plan.