Several crypto projects failed in 2022. However, the project that has survived is Tether USDT, which many people expected to collapse. Traditional hedge funds are betting against the stablecoin issuer because they think it will happen soon.
Several hedge funds wagered against Tether throughout 2022. Other hedge funds include Fir Tree Capital Management, Viceroy Research, Valiant, etc.
According to a March 2022 Bloomberg report, Fir Tree, a hedge firm with $4 billion of assets under control, has shorted Tether. The hedge fund even stated at the time that it would be open to starting a new fund to short Tether if there were sufficient client interest.
Viceroy Research also made an unsuccessful wager on Tether. Before Wirecard AG’s demise, Viceroy, a short seller, made a wager against the German business. Fraser Perring, who founded the company, maintains that Tether has a problem. They have hidden something, as we know of every tremendous short of ours.
A short seller from San Francisco named Valiant, who placed the transaction earlier in 2022, has since sold out, citing collateral risk.
Due to the potential danger of a counterparty, other short sellers seem hesitant to short Tether.
As stated by Andrew Left, founder of Citroen Research:
I’m not short Tether – I haven’t found the vehicle. If someone showed me a way to do it with Goldman Sachs as a counterparty, I’m in.
Genesis Global Trading served as the counterparty for the majority of conventional hedge firms that shorted Tether. Digital Currency Group, the parent business of Genesis, is now having financial problems.
According to Leon Marshall, Genesis’ director of institutional sales, in June 2022:
There has been a real spike in the interest from traditional hedge funds which are taking a look at tether and looking to short it.
What Motivates Hedge Funds To Short USDT?
These conventional hedge funds choose to short Tether due to several financial health rumors. Because of the company’s lack of openness, there have been rumors that it has internal liquidity issues.
Everyone has questioned Tether’s hazy finances, from on-chain investigators to crypto industry leaders. For making false financial representations, regulators also assessed millions in fines.
Terra UST and FTX’s failures have increased concerns about USDT’s stability, leading some to believe it may be the next to fail.
Tether Criticises Of Short Sellers’ Position
However, the company has claimed that it has no issues and would continue to honor redemptions. Executives at Tether have referred to the numerous financial rumors as stress testing.
When asked about the hedge funds that were betting against it, a representative for the company claimed that they were engaged in a cunning plot to generate money from unsophisticated investors by utilizing false information to obtain a management fee.
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Given its prominence in the market, the collapse of the stablecoin lead would be catastrophic for the entire crypto industry. The most widely used asset and the biggest stablecoin by share value is USDT.