Crypto Hedge Funds, Traders Short Tether After UST’s Implosion: Report

According to one trader, the bets are valued at least "hundreds of millions" of dollars in notional value.

Crypto-focused hedge funds are increasingly shorting U.S. According to a story published by the Wall Street Journal on Monday, the dollar-pegged stablecoin Tether (USDT) is facing a grim market outlook over a month after the crash of terraUSD (UST). "There has been a significant increase in interest from typical hedge funds trying to short tether." Marshall, Leon, Genesis' head of institutional sales, said in a statement. Marshall went on to say that the positions were worth "hundreds of millions" of dollars. The Digital Currency Group has two subsidiaries: Genesis and CoinDesk. Genesis stated that short positions grew following UST's multibillion-dollar meltdown. Prices of the algorithmically-controlled stablecoin fell to a few cents in late May, sparking a chain reaction in the crypto sector that impacted well-known crypto lenders and trading firms.

As the US Federal Reserve hikes interest rates to combat 40-year-high inflation, some investors are shorting USDT as a bet on the wider economy. According to the WSJ, some are concerned about the quality of the assets underpinning the tether. Stablecoins, such as Tether, are backed by fiat currencies and analogous asset investments such as "commercial paper," bank deposits, bonds, gold, and cryptocurrencies, according to Tether Global. Since UST's demise in May, the stablecoin market has suffered a blow, with investors redeeming massive quantities of USDT. According to reports, investors withdrew $1.7 billion from Tether in a single week in mid-June. According to CoinGecko statistics, Tether's market valuation has dropped by more than $20 billion since mid-May.

Funds like Fir Tree Partners and Viceroy Research LLC have already bet against Tether, citing the asset's lack of transparency and audited reserves.

Tether officials have, however, denied such risks exist. Tether asserted in June that allegations about its portfolio being "85% backed by Chinese or Asian commercial paper" were "absolutely incorrect" They were most likely distributed by those seeking "extra advantages from an already stressed market." According to a Tether spokesperson in April, short-sellers appear to be employing a "smart approach to obtain funds from people less informed by relying on disinformation with the ultimate goal of earning a management fee."