Executives from Tether and Blockchain.com both commented on the U.S. government’s potential upcoming debt default on May 25.
Tether is not at risk, CTO says
Tether CTO Paolo Ardoino said that it is unlikely that the U.S. will default on its debt in the coming weeks. He said on The Block’s Scoop podcast:
“… I don’t think will happen — I mean, it would be catastrophic for the U.S. economy. I think everyone is sitting tight to monitor what’s going on and what will happen.”
He also suggested that Tether is not at risk. Though much of Tether’s reserves are made up of U.S. treasuries, Ardoino said that Tether has begun to use instruments that provide the company with deep liquidity and holds excess reserves.
Ardoino said these instruments would protect its USDT stablecoin against a de-peg in case of any “black swan” event — presumably including a default.
Recent reports revealed that Tether holds $53 billion in U.S. treasuries. This accounts for 64% of Tether’s reserves; it also means that Tether holds about as many treasuries as Thailand, which is the 25th largest country to hold U.S. treasuries.
The CEO of Tether’s main competitor, Circle, incidentally said this month that his firm no longer holds long-term U.S. treasuries in anticipation of a possible default.
Blockchain.com CEO comments on US default
Though Ardoino is confident that the crypto industry can survive a default, others have more limited optimism toward the situation.
Blockchain.com CEO Peter Smith said during the 2023 Qatar Economic Forum:
“I think on a short horizon … a U.S. default or a U.S. recession are probably bad for crypto … I think on a long horizon, they’re probably good for crypto.”
Smith explained that a default could benefit crypto in the long term, similar to how recent bank failures caused initial losses but later led to a stronger market.
He also argued that a U.S. default is somewhat likely, as he believes, based on his view of U.S. politics, that “there has probably never been as high a chance” that officials will fail to raise the debt ceiling. “It’s incredibly entrenched now and very hard to get anything done,” Smith added.
President Joe Biden and Congression leader Kevin McCarthy have failed to reach a spending and debt ceiling deal as of May 25, according to Reuters. Treasury Secretary Janet Yellen has said that a default could occur by June 1 if leaders do not reach an agreement.
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