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The Big Short: Institutional Investors Are Betting Against Tether USDT

Several cryptocurrency projects failed in 2022. Tether USDT, on the other hand, is the project that many expect to fail but is still standing. Traditional hedge funds are shorting the stablecoin issuer because they believe it is only a matter of time.

Several hedge funds bet against Tether throughout 2022. Fir Tree Capital Management, Viceroy Research, Valiant, and other hedge funds are among those considering it.

In March 2022, Bloomberg reported that Fir Tree, a hedge fund with $4 billion in assets under management, had taken a short position against Tether. The hedge fund even stated at the time that it was willing to create a separate fund to short Tether if there was enough client interest.

Viceroy Research also predicted Tether’s failure. Viceroy is a short seller who previously bet against the German company Wirecard AG before it went bankrupt. According to Fraser Perring, the founding partner, something is wrong with Tether. “We know they’ve obfuscated something for every good short of ours.”

Valiant, a San Francisco-based short seller, has now exited its position, citing collateral risk.

Due to counterparty risk, other short sellers appear hesitant to short Tether. “I’m not short Tether – I haven’t found the vehicle,” said Citroen Research founder Andrew Left. I’d be interested if someone showed me how to do it with Goldman Sachs as a counterparty.”

The counterparty used by the majority of traditional hedge funds shorting Tether was Genesis Global Trading. Digital Currency Group, Genesis’ parent company, is currently experiencing liquidity issues.

Leon Marshall, Genesis’s head of institutional sales, stated in June 2022, “There has been a real spike in interest from traditional hedge funds that are looking at tether and looking to short it.”

These traditional hedge funds have decided to short Tether due to numerous speculations about its financial health. Because of the firm’s lack of transparency, rumours have circulated that it may be experiencing internal liquidity issues.

Tether’s finances have been called into question by everyone from on-chain sleuths to crypto executives. Regulators also fined it millions of dollars for making false financial statements.

Meanwhile, the failure of algorithmic stablecoin Terra UST in May and the collapse of FTX in November have added to the pressure on USDT, with many now expecting it to fail next.

However, the company has insisted that it has no issues and will continue to honour redemptions. Tether executives have described the numerous financial speculations as stress tests.

A spokesperson for the hedge fund said they are involved in a “clever scheme to raise capital from those less knowledgeable by leveraging on disinformation with the end goal of collecting a management fee.”

However, given its market position, the failure of the stablecoin leader would be disastrous for the entire crypto sector. USDT is the most valuable stablecoin in terms of market capitalization and one of the most widely used assets.

 

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