Italy's Power Users Pay the Price for High Reliance on Natural Gas

Economic

Energy

Summary:

Italy's average wholesale power prices have been the highest among major European markets for the past three years...

Italy's average wholesale power prices have been the highest among major European markets for the past three years, elevated by a substantially greater reliance on natural gas for electricity generation than rival economies.

Wholesale power prices in Italy averaged 127 euros ($137.80) per megawatt hour in 2023, according to LSEG, which was a third more than the average power prices in Germany and France last year, and over 50% higher than the average price in Spain. Italy's Power Users Pay the Price for High Reliance on Natural Gas_1

Italy's Power Users Pay the Price for High Reliance on Natural Gas_1

Italy's power costs have climbed further above some key rival economies so far in 2024, with wholesale prices last month averaging nearly 40% above prices in France and 60% more than wholesale prices in Spain. Italy's Power Users Pay the Price for High Reliance on Natural Gas_2

Italy's Power Users Pay the Price for High Reliance on Natural Gas_2

Such a stiff power cost premium over regional counterparts has hurt major power consumers in Italy, especially industry and large manufacturers, some of which have been forced to cut energy use and production over the past year or so to avoid racking up steep financial losses.

Gas Dependence

Italy's relatively higher reliance on natural gas for electricity generation was a key driver behind the elevated power costs.

The share of natural gas in Italy's electricity generation mix in 2023 was just over 45%, compared to 6% in France, 15% in Germany and 23% in Spain, data from think tank Ember shows.

Italy's Power Users Pay the Price for High Reliance on Natural Gas_3

Such a high dependence on natural gas means Italy's utilities have had little scope to dispatch other forms of power for generation, even with annual increases in renewable power production in the country.

This in turn has meant that as regional natural gas prices have soared since Russia's invasion of Ukraine in 2022, and replacement supplies in the form of liquefied natural gas (LNG) imports and alternate pipelines have also jumped in price, Italy's power firms have had to pass on those higher costs to consumers. Italy's Power Users Pay the Price for High Reliance on Natural Gas_4

Italy's Power Users Pay the Price for High Reliance on Natural Gas_4

Some large energy consumers, especially industry, have balked at paying sharply higher power bills, and instead reduced total energy use - and business output.

This in turn allowed power firms to cut electricity output from natural gas-fired power plants to the lowest since 2015 last year, and coal-fired output to the lowest in three years, while lifting the proportion of renewables in the overall generation mix.

Going forward, however, any sustained increase in total electricity generation levels will require utilities to burn more gas in power stations, exposing them to potential further hikes in power costs.

Breaking The Fossil Fix

Fossil fuels have accounted for roughly 60% of total electricity generation in Italy over the past decade, with natural gas alone accounting for around 50% in recent years.

Until 2019, thermal coal had accounted for an additional 12% to 15% of electricity output, but pollution reduction efforts led to the closure of some outdated coal plants which served to push coal's share of the electricity generation mix to a record low of 5.3% in 2023.

However, reduced coal-fired output has forced power firms to further boost their reliance on gas as the main pillar of the country's power system, even as gas prices climbed in the wake of the Russia-Ukraine war.

Italy's power firms have also tried to boost electricity generation from other sources, with solar generation up by 37% and wind generation up by 34% since 2018, Ember data shows.

Hydro facilities also play a key role in clean power generation in Italy, and in 2023 accounted for 15% of total electricity output.

However, hydro output levels can be volatile due to droughts, such as in 2022 when total hydro generation dropped to the lowest in over 20 years and accounted for just 10% of total electricity output.

Such unpredictable output from hydro plants, along with the intermittent generation from solar and wind farms, means that Italy's power firms are unlikely to be able to cut their use of natural gas for baseload generation any time soon.

And that, in turn, means any further increases in regional natural gas prices may keep Italy's power prices higher than in elsewhere in Europe.

($1 = 0.9217 euros)

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Alex

Economic

A year after the collapse of Silicon Valley Bank, the International Monetary Fund has warned that US lenders' continued exposure to risk could spark a new financial crisis.

In its global financial stability notes published on Tuesday, the IMF found that high interest rates and tumbling commercial real estate prices still put US banks at risk of failure.

"The high concentration of CRE [commercial real estate] exposures represents a serious risk to small and large banks amid economic uncertainty and higher interest rates," the IMF said.

The report specifically mentioned a "weak tail of banks" that are vulnerable because of high interest rates.

SVB and banks within this category had an "exceptionally high concentration of CRE exposures".

"The turmoil also serves as a stark reminder of the impact that rapidly rising interest rates can have by interacting with underlying financial vulnerabilities," the IMF said.

The IMF said the episode showed how a group of weak banks can force regulators to enact emergency measures, even if that group of banks is "not individually systemic".

California-based SVB was one of a number of regional lenders – along with Signature Bank and First Republic Bank – to fail as the Federal Reserve raised its interest rates, which caused the value of long-term Treasuries to fall.

That panic extended into Europe, where UBS acquired rival Credit Suisse in a $3.2 billion takeover.

The IMF blamed the banks' management for assuming inflation would be transitory, and not managing the interest rate or liquidity risks associated with it.

"The main culprit was the management of the institutions that ended up in distress," Tobias Adrian, who co-wrote the report, said during an event at the Brookings Institution in Washington.

Mr Adrian said SVB faced "highly concentrated exposures on both the asset side and the liability side" of its asset sheet, pointing to duration and liquidity risk, as well as the lender's dependence on uninsured deposits.

But federal regulators also hold some responsibility for not flagging the problems faced by SVB sooner, he said.

While the IMF praised the actions taken by the Fed, FDIC and Treasury Department to contain the spread of possible contagion, Mr Adrian said supervisors should have intervened sooner.

A Fed report after SVB's collapse found weaknesses in the US regulator's supervision. SVB had 31 unaddressed warnings at the time of its failures, the report said.

"They did see many of the problems but they hesitated to act," Mr Adrian said.

The Fed has since taken steps strengthen its supervisory role, including reviewing banks whose profiles show higher interest rate and liquidity risk.

It is also monitoring "potential credit deterioration" in commercial real estate.

Source: The National News

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Cohen

Economic

Central Bank

Australia's economy grew at a snail's pace in the December quarter as a punishing squeeze on household incomes brought consumer spending to a standstill, reinforcing market bets that the next move in interest rates will be down.

The slowdown confirmed high borrowing costs were working all too well to curb demand, prompting treasurer Jim Chalmers to declare that the balance of risks in the economy is shifting from inflation to growth.

Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product (GDP) rose 0.2% in the fourth quarter, under forecasts of 0.3%. That compared with a upwardly revised 0.3% expansion in the prior quarter.

Annual growth slowed to 1.5%, down from 2.1% the previous quarter and the lowest since early 2021, when the economy was emerging from a pandemic-driven recession.

In a telling sign of the softness in domestic demand, household spending did not add to economic growth at all in the fourth quarter, as a 0.7% rise in spending on essentials was offset by a 0.9% fall in discretionary spending.

ABS data showed households are spending more on electricity, rent, food and health while cutting back on hotels, cafes and restaurants as well as things like new vehicle purchases and clothing and footwear.

"Australian consumers are suffering from higher interest rates and cost of living pressures, while the rate of housing investment remains in the doldrums," said Deloitte Access Economics partner Stephen Smith.

"There is simply not enough demand in the Australian economy to justify the RBA's (Reserve Bank of Australia) claim about 'homegrown' inflation.... Monetary and fiscal policy need to pivot away from containing inflation to stimulating economic growth."

'Need to respond'

The RBA has raised interest rates by a whopping 425 basis points since May 2022 to tame inflation, and has not ruled out another rise due to persistently high services price pressures, even as headline inflation has retreated to two-year lows.

The central bank had expected the economy to slow to an annual 1.5% by the end of the last year and to 1.3% by mid 2024.

Australia is not alone in facing pressure on growth. Globally, economic growth has slowed in response to elevated interest rates, fanning rate cut expectations later in the year. Both Japan and Britain slipped into a recession in the second half of last year, while the eurozone economy has also stalled.

Growth in Australia has been supported by record immigration, but on a per capita basis, GDP fell 0.3% for the December quarter, shrinking for three straight quarters in the longest declining streak since 1982.

While the household saving ratio did rebound to 3.2%, it was still subdued after sitting at 1.9% in the previous quarter.

Net trade was a big driver of growth, with a pull-back in imports — thanks to Australians spending less money overseas — adding 0.7 percentage points to fourth-quarter GDP growth.

"Addressing inflation is still our primary concern, but these numbers show that the balance of risks in our economy are shifting from inflation to growth," said Treasurer Jim Chalmers at a briefing.

"If you look at these quarterly figures, if you look at the way inflation is coming off in welcome and encouraging ways, we need to respond to that," said Chalmers, who is expected to unveil the government's budget in May.

Analysts expect the economy will continue to slow down in the months ahead before picking up in the second half of the year. Markets are pricing the first rate cut from the RBA to come in August.

"That means 2024 will be a tale of two halves. The first defined by lingering cost-of-living pressures and the second half by relief in the form of tax and rate cuts," said Harry Murphy Cruise, economist, Moody's Analytics.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Central Bank

Economic

Complementing the detailed ECB preview, this report focuses on the first communication made by the European Central Bank after the completion of each rate setting meeting. A press statement called "Monetary policy decisions" is released at 13:15 GMT and it is the first point of reference for traders. This communiqué has grown in both length and importance since President Lagarde took over on November 1, 2019.

The communiqué layout is mostly predetermined

There is a preset layout for this communiqué with the necessary flexibility to shift the segments around in order to convey the intended message. The initial section contains a comment on the current economic conditions, mostly on inflation, with the first paragraph presenting any likely rate changes decided in the respective gathering. Barring a major upset, Thursday's communiqué should report that the ECB decided to keep the three ECB rates unchanged.

ECB Staff projections are again the key

This first section of this communication release becomes even more important when the ECB staff projections are published in March, June, September and December of each year. Therefore, on Thursday this section will be closely scrutinized as the updated ECB staff projections could offer the ECB with sufficient justification for a rate cut soon, even in April. This has occurred in the past as on June 9, 2022 the staff projections were used to pre-announce the first rate hike after almost 11 years of stable rates, while the September 2023 projections essentially confirmed the end of the 14-month long rate hiking cycle.

The next paragraph usually signals the ECB's rate intentions regarding its future gatherings. For example, the "Governing Council (GC) will take whatever action is needed" comment at the April 14, 2022 communiqué morphed into the "the GC decided to take further steps in normalising its monetary policy" sentence in the June 9, 2022 release, essentially signalling that a rate hike was coming up next.

Since hiking rates in September 2023, the communiqué includes the following key paragraph: "Based on its current assessment, the GC considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The GC's future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary." Should President Lagarde et al decide to send an initial dovish signal to the market, this paragraph could be amended, especially the latter part about the time needed to maintain the current level of ECB rates.

The "Key ECB interest rates" segment is usually next

Provided that there are no changes at the various ECB asset purchases programmes, the details of the meeting's rate decision follow. Should the ECB want to clearly state its strategy for the next meeting, comments like "the GC expects to raise the key ECB interest rates again in September" appearing after the June 9, 2022 gathering could feature at Thursday's communiqué. This looks somewhat far-fetched considering President Lagarde's inclination to avoid any precommitment, but the ECB has utilized this approach in the past and could possibly employ it again, if deemed necessary.

A comment on the various ECB purchase programmes usually follows

Βarring a surprise, no change at both the Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) is expected. The PEPP was amended at the December 2023 meeting with the ECB announcing its intention to reduce the PEPP portfolio by €7.5bn per month on average over the second half of 2024. It also maintained its original promise of discontinuing reinvestments under the PEPP at the end of 2024. Another amendment to the PEPP announced on Thursday could mean that a rate cut could be closer than currently foreseen by the market.

The "Refinancing operations" section is usually last

The refinancing section of this press communication is usually not market moving. However, the final four operations of the third TLTRO programme mature during 2024 with the first, and biggest one with €215.5bn outstanding amount, scheduled for a March 27 maturity. Considering the €3.5trn deposited at the overnight ECB facility, the full repayment of this amount is unlikely to change the current liquidity profile of most banking institutions. Nevertheless, President Lagarde et al could have a comment on the provision of liquidity by the ECB.

Putting everything together, when the monetary policy decisions communiqué is published on Thursday at 13:15 GMT the focus should be on (1) the first section detailing the new staff projections, offering the ECB's view on recent inflation prints and possibly including a comment from President Lagarde et al on upcoming ECB gatherings and (2) on the "Key ECB interest rates" segment potentially signalling a rate cut in April or June.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

ING

Economic

Central Bank

A cumulation of weaker data and dovish headlines has pushed yields lower

Yields were testing lower on Tuesday against a backdrop of mixed data. The move lower kicked off in the European session with weaker French industrial production data. Smaller upward revisions in the PMIs later did not move the needle.

More movement was seen against the backdrop of a UK headline stating that Chancellor Hunt was planning a 2% point cut of the national insurance – a central measure of the spring budget to be announced on Wednesday. This has provided Gilts with room to outperform since the option of wider tax cuts would have been a more costly and come with a potentially more inflationary impact and headaches for the Bank of England.

In the US, the ISM services release handed markets a mixed bag with a disappointing headline but improving business activity and new orders components. Something the market may have been more sensitive to ahead of Friday's jobs data was the employment component dipping into contractionary territory.

The cumulative result of the above was 10Y Bunds testing the 2.3% level and US 10Y Treasury yields falling towards a low of 4.11% amid a second day of curve flattening. We are still not fully convinced that rates can only go down from here. Despite some softness in equities over the last session, the overall risk backdrop still looks frothy across a wider set of indicators from spreads to volatility.

Central banks' near term holding patterns should be confirmed this week

In the end, it will come down to the data. The market appears to have become more sensitive to some of the survey data of late. And especially in the US survey data has given a different impression of the underlying economic strength than the official data with its bumper growth and jobs figures – on the latter we will get the update this Friday. But official data is what the Fed has to use as its main guide, and it signals a hold for now. That tension in the data is what can keep curves flatter before we eventually get to a resteepening when rate cuts become more imminent.

Wednesday Fed Chair Powell testifies before Congress, and we do not expect a big shift in language. The central case should remain that rates have peaked, but the economy remains robust and more evidence of inflation returning to 2% needs to be seen before rates are cut. To us it would be another confirmation of a holding pattern over the coming months of central banks. The ECB should provide us with their version at the policy meeting on Thursday.

Wednesday's events and market view

Wednesday will be a busy day in data, though less so in EUR markets where the only notable release are the retail sales. Headlines ahead of the UK Spring Budget may have taken the edge off this key event Gilts.

The main focus should be the US. In data markets should get a first feel on the labour market with JOLTs job opening numbers and the ADP payrolls estimate, even if the latter is of questionable use in predicting Friday's official data. Later in the day the Fed will then release is Beige Book. The highlight will be Fed Chair Powell's testimony to Congress.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Kevin Du

Cryptocurrency

Bitcoin, the cornerstone of the cryptocurrency market, has reached a new record value more than two years after its previous peak. On Tuesday, the digital asset passed its previous peak from November 2021 of just under $69,000, although it later eased back to a little above $64,000.

Bitcoin is now worth about $1.3tn, a substantial chunk of the total $2.6tn cryptocurrency market. Here are the factors behind its latest revival.

What is bitcoin?

Bitcoin was created in 2008 by Satoshi Nakamoto, the pseudonymous author of a white paper that established the concept of a digital currency that allows "online payments to be sent directly from one party to another without going through a financial institution".

The "double spend" problem of someone duplicating or falsifying a digital token – which cannot be prevented by a separate institution policing the system, because that would go against the underlying principles of bitcoin – is solved by having transactions recorded on a universally accessible ledger called a blockchain.

This is all secured by cryptography, where transactions are protected by a form of encryption called public-private key encryption. This enables a transaction to take place without a financial institution sitting in the middle of it.

Transactions are placed on the blockchain by bitcoin "miners", who get to pack them into blocks that are linked (or "chained") together, by solving a cryptographic puzzle using specialised hardware. These miners are rewarded with newly created bitcoins.

Why has bitcoin been so popular?

A key aspect of bitcoin's appeal is its anti-authoritarian stance – the ability to carry out financial transactions without a financial institution overseeing the process and charging fees. Tim Swanson, a cryptocurrency industry commentator, has described it as "censorship-resistant digital cash".

It has also benefited from a low-interest-rate environment – a longstanding economic trend since the 2008 financial crisis – that has pushed some investors towards riskier assets, such as cryptocurrencies, in pursuit of better financial returns. It has also been viewed as an "inflation hedge", like gold, meaning that it cannot be devalued by a central bank printing more of it, because bitcoin is designed to have a finite number of units in issue – 21m to be exact.

Carol Alexander, professor of finance at the University of Sussex business school, argues that people are mistaken to view bitcoin as a gold-like safe haven from market volatility and inflation.

"Like gold, bitcoin has been viewed as 'uncorrelated' with stock markets, but it is far too volatile an asset to be considered like that," she says.

And, obviously, its performance at various points in its short existence – its price rose 70% alone in May 2017, for instance – has also drawn in people attracted to the publicity around its at-times outsize returns.

Why has it risen in price this time?

A major factor in bitcoin's rise since the start of the year has been the approval by the US financial regulator in January of exchange-traded funds [ETFs] – a basket of assets that can be bought and sold like shares on an exchange – that track the price of bitcoin.

The ETF announcement shows there is now "institutional maturity" in the cryptocurrency market, according to Jeff Billingham, the director of strategic initiatives at research firm Chainalysis. "We did not see this kind of infrastructure and trust in the market in the previous cryptocurrency bull runs," he says.

Continuing doubts over the stability of the cryptocurrency market were underlined by the collapse in November 2022 of FTX, one of the world's largest crypto exchanges, and the subsequent trial and conviction of its founder and chief executive, Sam Bankman-Fried. The market's most influential figure, Changpeng Zhao, founder of the world's largest cryptocurrency exchange, Binance, also faces a spell in jail after pleading guilty in the US to federal money-laundering violations.

The head of the Securities and Exchange Commission (SEC), Gary Gensler, remains sceptical about the market despite begrudgingly approving the bitcoin ETFs, having had his hand forced by a court ruling.

"Bitcoin is primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing," he said in a statement announcing approval of the ETFs.

James Knightley, the chief international economist at the banking group ING, says elevated inflation readings out of the US over the past month have encouraged bitcoin buyers who see the cryptocurrency as an insurance policy against rising prices, while a general boom in tech stocks has steered investors to look at riskier assets like bitcoin.

"Risk appetite has also soared in recent weeks with tech stocks fuelling the sense of Fomo [fear of missing out] in markets and I think bitcoin is being swept along in all of this," he says.

Is the latest rise sustainable?

The momentum has to ease at some point, says Neil Wilson, the chief analyst at brokerage firm Finalto. Wilson says "parabolic" market moves – where prices shoot up dramatically – are "never sustainable in themselves".

"It will run out of steam. But that doesn't mean it can't go higher, just that some kind of consolidation or correction seems likely in the interim," he says, citing "standard" factors such as investors cashing in their profits and the supply of new buyers drying up.

There is also the upcoming "halving" event – where the amount of bitcoin released into circulation via mining is halved – which has boosted prices when it has happened in the past, as reduction in supply leads to a higher price.

John Reed Stark, a former senior SEC official and senior lecturing fellow at Duke University's school of law, says the "greater fool" theory – that there will always be someone willing to overpay for an already overpriced asset – will come into play. People are able to sell hyped assets until "there are no greater fools left, and then it all comes crashing down", he says.

Could a regulatory crackdown affect the price of bitcoin?

Regulators are bringing in tighter oversight of cryptocurrencies in the UK and EU. In the UK, the Treasury is proposing to bring stablecoins – a type of cryptocurrency whose value is pegged to another asset such as a currency or a commodity – under the aegis of existing regulation. The EU has brought in the Markets in Crypto-Assets regulation (MiCa) regime, which requires crypto firms to register with a member state regulator.

There is also the recent US ETF approval, which, as a regulatory action, has helped support bitcoin's price resurgence.

Harry Eddis, the global co-head of fintech at the London-based law firm Linklaters, says: "More regulation, and more heavily regulated crypto assets like ETFs, could help people invest in cryptocurrencies when otherwise they wouldn't because it gives them mechanisms for investing in these assets that they can trust. It could bring more investors into the market, which could in turn support bitcoin's price if they invest in that cryptocurrency."

Source: The Guardian

Risk Warnings and Disclaimers

Add to Favorites

Kevin Du

Cryptocurrency

As Tether toasts $100 billion in circulation this week, the rapid rise of the world's biggest stablecoin has highlighted concerns about potential risks to wider financial markets.

The digital dollar-pegged token is designed to keep a constant value, something Tether says that it does by holding dollar-denominated reserves for every token it creates.

Crypto traders say the tokens are essential for moving funds in crypto quickly, without using the regulated banking system.

"Tether plays a pivotal role in our day-to-day operations, primarily serving as a mechanism for moving funds swiftly between trading venues," said Michael Hall, founding partner of London-based crypto asset manager Nickel Digital.

Regulators, however, have long-standing concerns that growing stablecoin reserves expose the broader financial system to bigger risks, because they act as a bridge between the crypto universe and mainstream financial markets.

James Butterfill, head of research at asset manager CoinShares, said that Tether's dominance increases systemic risk within crypto.

"If Tether fails for some unlikely reason, it would lead to a dramatic decline in trading volumes," he said.

U.S. regulators have warned banks that stablecoin reserves could be subject to rapid outflows, for example if holders rushed to exchange such tokens back into traditional currency.

A spokesperson for Tether said its "products provide real-world value by enabling the billions of unbanked people across the globe to access the global financial system when they couldn’t before."

The spokesperson also said Tether "proactively works with law enforcement and regulatory agencies across the globe to halt the illicit use of stablecoin technology, having frozen several hundreds of millions in USDT connected to illicit activities."

CEO Paolo Ardoino said in a statement in January that Tether is committed to "transparency, stability, and responsible financial management".

Crypto markets have mostly recovered from the collapses that saw prices plunge in 2022. Bitcoin jumped more than 20% last week and on Tuesday hit an all-time high, driven by excitement around inflows into U.S. spot bitcoin ETFs.

Tether is also growing fast. Around $29 billion worth was created in the last year, it said in a statement on Tuesday.

Wider Impact

The crypto lobby has previously said that asset-backed stablecoins do not pose a systemic risk.

But with Tether now holding nearly $100 billion worth of reserves in traditional banking institutions, Rajeev Bamra, Head of DeFi and Digital Assets Strategy at Moody's Investors Service said "anything going wrong with Tether is going to impact those banking institutions at the end of the day".

"I think the concentration risk in Tether is huge," Bamra added, referring to Tether's dominance within the crypto world.

S&P Global Ratings ranked Tether as a 4 in a stablecoin stability assessment last year, the second lowest on a scale of 1 to 5, citing a lack of information on custodians, counterparties or bank account providers of its reserves.

Tether agreed to quarterly reserve reports under a 2021 settlement with the New York Attorney General's office.

At the end of 2023, Tether's latest report says, its reserves held $63 billion of U.S. Treasuries, $3.5 billion of precious metals, $2.8 billion of bitcoin, $3.8 billion of "other investments" and $4.8 billion of "secured loans".

Paul Brody, global blockchain leader at Ernst & Young, said that a reserve report does not constitute a full financial statement audit.

Although various jurisdictions are developing stablecoin legislation, Tether is not currently subject to specific supervision by an authoritative body or rules about how or where it can invest its reserves, S&P Global Ratings analyst Rebecca Mun said in an interview late last month.

Tether Holdings Ltd, which is registered in Hong Kong and owned by a company registered in the British Virgin Islands, says on its website it is "fully transparent", but it does not give details about where its reserves are held.

Hall said Nickel uses Tether "cautiously", balancing the convenience with the downside risk of it losing its dollar peg.

Crypto traders who rely on Tether say they draw confidence from it having previously maintained its peg and processed billions of dollars worth of redemptions during periods of crypto market turbulence, such as in 2022.

"While no asset is without risk, especially in the volatile crypto market, Tether's track record positions it as a comparatively lower-risk option within the spectrum of digital assets," Hall said.