Funds Betting on Tether (USDT) Peg Crash to US Dollar


Investment funds further increase shorts against Tether. They’re betting that the USDT peg to the US dollar will crash. Below, there’s a rundown from the WSJ article on that subject.

Fir Tree Partners and Viceroy Research LLC, among other investment firms and specialists familiar with the matter, say that the price of Tether might fall.

Tether is the largest digital asset pegged to the dollar, or a stablecoin, backed by cash reserves and other financial assets. There’s about an $82B Tether in a capital cycle.

Many people were involved in attempts to reveal details about a cryptocurrency knowing its usage has gotten far ahead of its financial transparency.

Tether is the foundation of the crypto ecosystem. Market players opt for Tether rather than banks as a convenient tool to buy cryptocurrency.

A Tether press secretary said that short-sellers might be 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.”

“Tether has been stress tested time and time again and passed with flying colors. During such events, its peg remained solid, all redemptions were honored and even the price on exchanges remained stable,” he added.

Over the past year, Tether has been stable (it hasn’t traded lower than 0.999 cents to the U.S. dollar) which means that short-sellers have yet to prove their point.

The Tether press secretary said that the company is concerned about its transparency:

“Tether manages a portfolio of conservative, diversified, liquid assets”. He added that its reserve assets exceed liabilities.

Tether is accused of being too obscure by many people involved in financial trading and regulation. Tether Holdings Ltd., its holding company, has committed to conducting an audit of its reserves but never did one. Years of an investigation by New York’s attorney general ended up in an $18.5 million settlement of accusations that Tether deceived its clients, but all Tether is obliged to do is to report on its assets, in general, each quarter. Tether doesn’t want to disclose even the name of the chief investment officer, so they asked the court to block any requests regarding public records.

Fraser Perring, founding partner at Viceroy, said that in case the token is “backed one-to-one, go and disclose it,”. He was the one who saw problems at German fintech company Wirecard AG before it fell apart. “We know every single really good short of ours, they’ve obfuscated something.”

It is said that a little less than one-third of Tether’s commercial papers, totaled $24B at the end of 2021, originating in the unsteady Chinese development market. This and developers’ big debts resulted in downgrades in their bonds and selloffs.

In response, Tether pointed out a January report made by Coinbase crypto exchange that analyzed Tether’s disclosed commercial papers. It states that although Tether “had owned any short-term liabilities associated with weak sectors, such as Chinese real estate, it would no longer be in its portfolio, as rating agencies have downgraded much of that debt to sub-investment grade over the past year.”

Tether neither admitted nor denied that last year, the Commodity Futures Trading Commission discovered that Tether hadn’t held equivalent dollar reserves most of the time, which resulted in a $41 million settlement with the CFTC.

Original article contributor: Peter Rudegeair of Dow Jones & Company, Inc.


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