Bitcoin Updates: Tether Faces Scrutiny Over Stability—S&P Issues Caution While Crypto Community Responds

S&P Global Ratings has reduced Tether's

stablecoin to its lowest stability category, labeling it "weak." The downgrade is attributed to Tether's growing investments in high-risk assets such as and ongoing doubts about the transparency of its reserves . This represents a notable change in the agency's evaluation, as USDT—the largest stablecoin globally—now faces increased examination amid stricter regulations targeting digital assets. S&P's action signals concerns that Tether's reserves might not be sufficient to cover potential losses from volatile assets, especially Bitcoin, which , exceeding the 3.9% overcollateralization buffer. S&P cautioned that if Bitcoin and other risky holdings lose value, the stablecoin could become undercollateralized .

The agency's review points to a broader pattern: Tether's reserves have increasingly shifted toward riskier assets over the last year, including gold, secured loans, corporate bonds, and Bitcoin

. S&P highlighted that these assets are exposed to credit, market, and interest rate risks, heightening worries about Tether's ability to withstand market turbulence. The lack of clarity regarding the credit quality of custodians, reserve management, and asset separation adds to these vulnerabilities. The agency also took issue with for providing minimal information about its regulatory compliance and redemption processes, which fall short of the protections found in conventional finance .

Tether has rejected the downgrade, describing it as "misleading" and asserting that the rating methodology is not appropriate for evaluating digital-native currencies

. In its response, Tether pointed to its ten-year record of maintaining a 1:1 peg with the U.S. dollar and cited its $135 billion in Treasury holdings and $13 billion in yearly profits as proof of its stability . CEO Paolo Ardoino dismissed the rating, arguing it reflects an outdated financial system that has missed major crises in the past, . Tether also emphasized its importance as a financial tool in developing economies, enabling transactions in places like Turkey and Nigeria .

This downgrade comes as regulatory oversight of stablecoins intensifies. Earlier this year, the U.S. enacted the GENIUS Act, requiring stablecoins to be fully backed by low-risk assets such as Treasuries. Tether asserts that 77% of its reserves comply, but

—worth $14 billion—raises questions about adherence. At the same time, Bitcoin's 30% drop from its October high about Tether's vulnerability to crypto market swings. Nevertheless, USDT's market value has climbed to $184 billion, with daily trading volumes over $76 billion, in the digital asset market. S&P's move highlights the widening gap between traditional finance and crypto-focused firms. While Tether maintains it offers a digital dollar alternative, regulators and investors are increasingly calling for stronger protections. The agency's warning serves as a reminder of the challenges in maintaining stability in the evolving stablecoin sector .