2022 witnessed the collapse of several altcoin projects. However, Tether (USDT) was one of the projects that many expected to fail and survived. Traditional hedge funds believe the USDT collapse is imminent and are shorting the stablecoin. Throughout 2022, several hedge funds have bet against Tether. These include Fir Tree Capital Management, Viceroy Research, Valiant etc. took place. Apart from these, there are more hedge funds. Here are the details…
Short selling positions increase for popular altcoin
Bloomberg reported in March 2022 that Fir Tree, a hedge fund with $4 billion in assets under management, took a short selling position against Tether. The hedge fund even stated at the time that it was willing to create a separate fund that shorted Tether if there was enough customer interest. Additionally, Viceroy Research has bet that Tether will fail.
Viceroy is a short selling company that previously bet against German company Wirecard AG before it crashed. According to co-founder Fraser Perring insists there is a problem with Tether. “We know all of our shortcomings, they messed something up,” he says. Valiant, a San Francisco-based short seller that trades in early 2022, has exited its position, citing collateral risk.
Companies used Genesis as counterparty
Other short sellers remain skeptical of short selling Tether due to counterparty risk. Andrew Left, founder of Citroen Research, said, “I don’t short sell Tether – I couldn’t find the middleman. “If anyone can show me a way to do this with Goldman Sachs as a counterparty, I’m in,” he said. Most traditional hedge funds that short on Tether used Genesis Global Trading as a counterparty. Genesis’ parent company Digital Currency Group is currently facing liquidity issues. In June 2022, Genesis’ head of corporate sales Leon Marshall said:
There has been a real surge in interest from traditional hedge funds looking to short-sell Tether.
Why do hedge funds short sell USDT?
The decision of these traditional hedge funds to short on Tether is driven by a lot of speculation about their financial health. As we reported as Kriptokoin.com, the firm’s lack of transparency has led to rumors that there may be internal liquidity problems. Everyone from on-chain detectives to crypto executives has questioned Tether’s opaque financial situation. Regulators have also fined millions for misleading financial statements.
Meanwhile, the failure of the algorithmic stablecoin Terra UST in May and the collapse of FTX in November put further pressure on USDT. Many people now think that USDT will be the next project to fail. However, the company stated that it does not have any problems. Tether executives described a lot of speculation about its financial condition as stress testing.
A spokesperson for the firm said that when talking about hedge funds betting against it, it was “in a clever scheme to raise capital from the less knowledgeable by taking advantage of disinformation whose end goal is to collect a management fee.”