As the digital currency crash continues and the Tether redemptions strive to roll in, the Wall Street Journal has reported an increase in short positions taken by traditional hedge funds against the troubled stablecoin.
In just the past few months, Tether has seen over $16 billion in redemptions as its holders flee to real dollars. Smelling blood in the water, hedge funds have taken short positions worth hundreds of millions against USDT.
What did the Wall Street Journal report?
According to the WSJ report, traditional hedge funds are using Genesis Global Trading, a digital currency brokerage for professional investors, to short Tether, and they’ve upped the ante significantly since the implosion of Terra’s UST algorithmic stablecoin in May. During the crash, USDT lost its dollar peg, trading as low as 95 cents for some time.
Leon Marshall, head of institutional sales at Genesis Global Trading, told the WSJ that as of now, the positions are worth hundreds of millions and counting. While he would not give further details on specific positions, he confirmed a significant spike in interest in Tether shorts since the UST debacle in May.
Marshall said two primary reasons for the interest in Tether shorts. First, some traders are taking a general bet on the economy as a whole as the Federal Reserve raises interest rates and risk assets like digital currencies look less attractive. The second reason is skepticism about the quality of the assets that allegedly back USDT.
Analysis: The skepticism about USDT is warranted
The first reason for betting against Tether is obvious. The second is less obvious to those unfamiliar with Tether but equally obvious to those who are. Let’s look at why.
While claiming to be backed by high-quality assets such as the United States Treasury Bills, Tether has repeatedly refused to open its book to a legitimate audit, kicking the can down the road and making excuses such as that an audit would reveal its secret sauce to its competitors. It has also promised a full audit by a “top 12” firm soon, but has never delivered.
Whenever regulators have shone a light on Tether’s claims, they haven’t stood up, and it has been caught red-handed telling outright lies.
Paolo posting lots of bullshit today. Let's review:
NYAG/CFTC proved Tether was not 100% backed, for over 74% of the time from September 2016 (a month after the "hack"), until some time in 2019. After that, Tether was backed by Chinese commercial paper among other things. pic.twitter.com/03gJCqxO5j
— Bitfinex’ed 🔥 Κασσάνδρα 🏺 (@Bitfinexed) June 27, 2022
Responding to Tether CTO Paulo Ardoino’s unhinged Twitter rant about “coordinated attacks” against Tether in response to the WSJ report, social media commentator Bitfinex’ed laid bare some of his lies.
Tether’s sordid history is replete with lies, fraud, and coverups
One thing becomes blatantly obvious when the facts are laid bare: Tether’s history is peppered with shady dealings and false statements. In 2021, it settled with the NYAG for $18.5 million as the regulator accused it of making public misrepresentations, although Tether did not admit any wrongdoing in the settlement. It was also banned from New York state as part of the deal.
On top of this, Tether has well-established links to shadow bankers connected to Colombian drug cartels, such as Reginald Fowler. It also previously bailed out Bitfinex after its sister company lost hundreds of millions trading client funds and covering it up.
Given the company’s refusal to bring its books into the light of day, its history of lies and deceit, and its potential exposure to the now insolvent Three Arrows Capital, which was one of its biggest customers, it’s reasonable to assume that it has something to hide.
Perhaps the traders on Genesis Global Trading have figured out the same and will experience a bountiful payday soon. Can Tether survive the redemption tsunami it’s experiencing? Will it become the next stablecoin to implode? Time will tell, but a neutral appraisal of the facts indicates it’s not looking good.
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