Crypto-focused hedge funds are increasingly shorting U.S. dollar-pegged stablecoin tether (USDT) amid a bleak market outlook nearly a month after the implosion of the terraUSD (UST) stablecoin, the Wall Street Journal said in a report on Monday.
“There has been a real spike in the interest from traditional hedge funds who are taking a look at tether and looking to short it,” Leon Marshall, head of institutional sales at Genesis Global Trading, said in a statement. Marshall added the positions were worth at least “hundreds of millions” of dollars.
Genesis and CoinDesk are independent subsidiaries of Digital Currency Group.
Some funds are shorting USDT as a bet against the broader economy as the U.S. Federal Reserve raises interest rates to curb 40-year-high inflation. Others are concerned about the quality of the assets backing tether, according to the Journal's report.
Stablecoins like tether are backed by fiat currencies and equivalent asset investments such as commercial paper, bank deposits, bonds, gold and cryptocurrencies, according to issuer Tether Global.
The stablecoin market has taken a hit since UST’s implosion in May with investors redeeming huge amounts of USDT. In mid-June, investors pulled $1.7 billion from tether in one week, as reported.
Tether’s market capitalization has fallen by over $20 billion since mid-May, CoinGecko data shows.
Tether officials, however, have denied such risks exist. In June, Tether said rumors of its portfolio being “85% backed by Chinese or Asian commercial paper” were “completely false” and likely perpetrated by those looking to generate “additional profits from an already stressed market.
In April, a Tether spokesperson told MarketWatch that short sellers seem to be involved in a “clever scheme to raise capital from those less knowledgeable, by leveraging on disinformation with the end goal of collecting a management fee.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.