Crypto market still under pressure
Tether is being targeted by short sellers
Tether CTO is combative
There is still no calm on the crypto market. Cryptocurrencies have gone downhill rapidly in the last few weeks. There are various reasons for this. On the one hand, the negative mood on the stock market is also spilling over into the crypto universe, and on the other hand, the collapse of the algorithmic stablecoin Terra has triggered panic selling on the volatile crypto market. Actually, the stablecoin should always be based on the value of a US dollar with the help of a sophisticated system that is based on the interaction with a second cryptocurrency LUNA. In May, however, things collapsed: the peg to the US dollar had to be abandoned, and many investors faced total loss.
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This is how Tether works
Against this background, it is not really surprising that another stable coin, Tether, is attracting the attention of investors. Because the Tether USDT is also always tied to the US dollar. However, this binding is not guaranteed by an algorithm as with Terra. Here, the company Tether states, each token is deposited with a dollar equivalent as a reserve, so that a USDT is always paid out. In the course of the Terra collapse in May, however, Tether was also affected, so that the value of a coin dropped to 95 cents at times. A short time later, however, the cryptocurrency managed to stabilize again.
More hedge funds bet on Tether falling
Nevertheless, Tether has now increasingly come under the scrutiny of hedge funds betting on a collapse of the stablecoin. One of them is Genesis Global Trading, an institutional crypto broker, Leon Marshall, head of institutional sales at Genesis, admitted to The Wall Street Journal. He said there would be “hundreds of millions” of dollars in shorting against Tether: “There has been a huge increase in interest from traditional hedge funds looking at Tether and wanting to short it,” Marshall told WSJ. In particular, hedge funds from the USA and Europe are interested in this type of trade. On the other hand, crypto companies, especially those from Asia, would ensure that the trades take place.
This drives hedge funds to go short
Two reasons would motivate hedge funds to increasingly short tether, reveals Marshall. On the one hand, the short selling is due to the generally negative mood on the markets. The high rate of inflation and rising key interest rates are causing institutional investors to increasingly withdraw from risky assets in order to protect themselves in the face of the current uncertainty. Second, there are hedge funds that question the quality of the assets Tether owns to back its stablecoin. Tether has always kept a low profile as to what these reserves actually look like and where exactly they are located. However, the company announced that it had commercial paper, bank deposits, precious metals, government bonds and cryptocurrencies at its disposal. Last year, Tether had already clashed with the New York Attorney’s Office over the reserves. Ultimately, the conflict ended in a $18.5 million settlement that Tether had to pay.
Tether CTO fights back
Shortly after the WSJ article on hedge fund shorting on Tether was published, Tether CTO Paolo Ardoino tweeted.
1/
I have been open about the attempts from some hedge funds that were trying to cause further panic on the market after TERRA/LUNA collapse.
It really seemed from the beginning of a coordinated attack, with a new wave of FUD, troll armies, clowns etc. https://t.co/hhcsgHV1Ow– Paolo Ardoino (@paoloardoino) June 27, 2022
In it he expressed the assumption that hedge funds would try to spread further panic in the wake of the Terra crash in order to benefit from falling prices. Ultimately, however, this strategy will not work: “Ultimately, these hedge funds that have borrowed and shorted billions of USDt will have to buy them back. What will happen then? Tether is the only stablecoin that has proven itself during the baptism of fire under extreme pressure”.
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