Tether Spent $1 Billion on Bitcoin During Its Recent Crash. Should Individual Investors Follow Suit?

During the past three months, Bitcoin's (CRYPTO: BTC) price slid as much as 21%, sending the crypto market into a tizzy of anxiety. Right in the middle of that slump, the coin had an unusually committed buyer. Tether, the issuer of the USDT (CRYPTO: USDT) stablecoin, the world's largest, spent about $1 billion from its reserves into new Bitcoin purchases, expanding its already large stash of coins right when many investors were bailing out.

If a systemically important stablecoin issuer is buying the dip here, does that mean regular investors should, too?

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Why Tether is buying

Before considering whether to imitate Tether, it helps to understand what game it's trying to play.

USDT is a dollar-pegged stablecoin that is backed by a large portfolio of reserves. Those reserves currently total about $181 billion, mostly in short-term U.S. Treasuries, with the rest in gold, Bitcoin, secured loans, and other investments. As of the end of the third quarter, management reported about $135 billion in Treasury holdings, $13 billion in gold, and $10 billion in Bitcoin inside that reserve portfolio. Those numbers put Tether among the largest non-government holders of both gold bullion, which it has also been accumulating at a rapid pace recently, and Bitcoin.

The recent $1 billion purchase of Bitcoin is thus part of a pattern of shoring up reserves when prices look favorable. What's more, Tether is profitable because it earns interest fees on its enormous Treasury bill and bond pile. So the company is using a slice of those profits to buy assets like Bitcoin and gold, which might boost its long-term returns and differentiate USDT from rival stablecoins that stick almost entirely to cash and bills for reserves.

What to do here

So, should a regular investor buy Bitcoin because Tether is buying it? Probably not.

Tether can afford to funnel a slice of its substantial earnings into volatile assets like Bitcoin and easily wait out bad years if they occur. A household investor living off a salary or retirement income does not always have that luxury.

The core reason Tether likes having Bitcoin on its balance sheet overlaps with the basic investment thesis for owning some Bitcoin in a retirement portfolio. The coin can't have more of its supply printed like a fiat currency can, and thanks to its halving program, its scarcity increases over time as the rate of new supply being mined drops mechanically. Meanwhile, it is increasingly integrated into the traditional financial system, from large corporate treasuries to exchange-traded funds (ETFs) and even in some proposed sovereign reserves. So buying this asset right now is a bet that its adoption and scarcity will keep increasing during the next decade despite plenty of volatility along the way.

That points to a very different playbook from Tether's for those who choose to dabble. Spread your purchases out over time using dollar-cost averaging rather than doing one huge buy, mentally commit to holding your position for many years, and steel yourself for large declines without panic selling.

Tether's decision to buy the dip here is a vote of confidence in Bitcoin's long-term value, and it lines up with the idea that it's a sensible practice for most investors to own at least a small amount of it. The right way to follow suit is to keep your investment fairly modest, be consistent with slow accumulation of the coin, and to have a clear understanding that this is one of the riskier slices of a diversified portfolio.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.