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

The positions are worth at least “hundreds of millions” of dollars in notional value, one trader said.

AccessTimeIconJun 27, 2022 at 11:40 a.m. UTC
Updated Apr 9, 2024 at 11:44 p.m. UTC

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.

Genesis said short positions increased after the multibillion-dollar implosion of UST. Prices of the algorithmically controlled stablecoin plunged to a few pennies in late May, causing contagion risks that affected prominent crypto lenders and trading funds.

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.

Funds like Fir Tree Partners and Viceroy Research have previously bet against tether, citing the opacity about the asset’s actual backing and the lack of audited reserves.

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.”


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Shaurya Malwa

Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.