First Mover Asia: How Traders Are Shorting Tether Stablecoins; Bitcoin Falls but Holds Above $20K

Hedge funds are increasingly betting against USDT in anticipation of it losing value amid concerns about the coin’s reserve backing and systemic risks; ether drops.

AccessTimeIconJun 30, 2022 at 9:30 a.m. UTC
Updated May 11, 2023 at 4:41 p.m. UTC
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Good morning. Here’s what’s happening:

Prices: Bitcoin and ether decline; other major cryptos in the red.

Insights: Hedge funds are betting against USDT amid concerns about the stablecoin's backing and systematic risks.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.


Bitcoin (BTC): $21,199 -0.4%

Ether (ETH): $1,108 -3.4%

Biggest Gainers

Asset Ticker Returns DACS Sector
Terra LUNA +34.6% Smart Contract Platform
Dogecoin DOGE +4.7% Currency
Shiba Inu SHIB +2.1% Currency

Biggest Losers

Asset Ticker Returns DACS Sector
Polkadot DOT −4.5% Smart Contract Platform
Stellar XLM −4.5% Smart Contract Platform
Solana SOL −4.4% Smart Contract Platform

Bitcoin and Major Altcoins Decline

Say this about bitcoin over the last 10 days. It's been stubborn, clinging fiercely to its perch above $20,000, the support level that has grown increasingly important for investors gauging the current crypto winter's staying power.

The largest cryptocurrency by market capitalization was down a fraction of a percentage point over the past 24 hours but still resilient at about $20,200, even amid the latest angst-provoking industry news, including a report of an order by a British Virgin Islands court for the liquidation of crypto hedge fund Three Arrows Capital. Bitcoin has dropped four consecutive days and dipped for a few short spells below $20,000 earlier on Wednesday before rising.

"The news cycle has been pretty awful for crypto markets," Oanda senior analyst Edward Moya wrote in an email, adding: "Concerns are growing that the collapse of Three Arrows Capital could trigger further market contagion."

Ether, the second-largest crypto by market cap, was changing hands at about $1,100, down over 3% for the same period and about 13% from its high last week when cryptos surged on encouraging comments from U.S. central bank chair Jerome Powell. Other major cryptocurrencies spent their day in the red, most of them significantly so, with BTT off more than 7% at one point and GRT and APE, each down over 4%.

In a slight twist from its pattern throughout much of the year, cryptos veered from major equity indexes, which were flat on Wednesday after Powell said inflation could continue to rise, a result of the disruptive impact of the COVID-19 pandemic, and reaffirmed the Fed's commitment to address price pressures even at the expense of recession.

Three Arrows debacle continues

Powell's comments offered little comfort for crypto investors already wrestling with the ongoing Three Arrows debacle. The firm has suffered heavy losses in the recent sharp downturn and faces the possibility of insolvency after incurring at least $400 million in liquidations. Crypto brokerage Voyager Digital (VOYG.TO) issued a default notice to 3AC this week after the fund failed to make required payments on loans of 15,250 bitcoins and $350 million in USDC. Voyager's shares plunged after it disclosed its exposure to 3AC.

3AC has been an active investor in the digital asset industry in recent years with investments across non-fungible tokens, decentralized finance, layer 1 blockchain firms and crypto companies.

Meanwhile, a CoinDesk report found that private and publicly listed crypto miners have racked up debts anywhere between $2 billion to $4 billion to finance the construction of their gargantuan facilities across North America and faced hard decisions about how to survive. And a report by financial services giant Deutsche Bank said the free fall of crypto markets could continue because of the system’s complexity.

Oanda's Moya was pessimistic about bitcoin, noting its struggle "to hold onto the $20,000 level" and "the risk" of miners having "to unload some of their holdings as they’ve overcommitted with [graphic processing units]."

"The big transition to a proof-of-stake (POS) for the Ethereum blockchain is a game changer that could hurt miners who financed a lot of hardware," Moya wrote. "If bitcoin breaks below the recent low around $17,500, there isn't much support until the $14,500 level."


S&P 500: 3,818 -0.07%

DJIA: 31,029 +0.2%

Nasdaq: 11,177 -0.03%

Gold: $1,818 -0.03%


How Traders Are Shorting Tether Stablecoins

Hedge funds are increasingly placing bets against tether (USDT) in anticipation of the U.S. dollar-pegged stablecoin losing value amid concerns about the coin’s reserve backing and systemic risks from within the crypto ecosystem.

The short positions are worth “hundreds of millions” of dollars, according to crypto trading fund Genesis and have gained since May’s implosion of terraUSD (UST). These include funds such as Fir Tree Partners and Viceroy Research, that have previously bet against tether, citing the issuing company's opacity about the asset’s actual backing and the lack of audited reserves.

“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 said earlier this week, as reported. Genesis and CoinDesk are independent subsidiaries of Digital Currency Group.

There are also concerns of traders being able to cash out U.S. dollars from tether. “Traders are naturally concerned about being able to cash out of tether,” said Jeff Mei, chief marketing officer at blockchain solutions provider ChainUp, in a Telegram message. “They are seeking safer and more transparent stablecoins such as USDC to transfer their assets to.”

But how are traders betting against a coin priced at $1? As per Paolo Ardoino, chief technology officer at USDT issuer Tether Global, the bets are occurring on futures tracking USDT and on liquidity pools on decentralized finance (DeFi) applications.

“Goal: create enough pressure, in the billions, causing ton of outflows to harm Tether liquidity and eventually buy back tokens at much lower price,” Ardoino explained in a tweet earlier this week.

Exchanges like FTX offer USDT futures to traders, allowing traders to bet on price gyrations as the token falls, or gains, fractions of pennies around the $1 level. Data shows the USDT futures product show over $65 million in trading volume in the past 24 hours, with open interest – or the number of unsettled futures contracts – hovering over the $400 million mark as of Wednesday.

On DeFi applications, shorts on USDT are possible by borrowing the tokens and exchanging them for USDC, another U.S. dollar-pegged stablecoin. The strategy here is that if and when USDT falls, the original loan can be paid back at a cheaper cost with the difference pocketed.

Data from DeFi lending protocol Aave shows the rate to borrow USDT is a yearly 2.48%. This means one would pay $2,480 a year on borrowing $100,000 worth of USDT. If USDT were to drop to, say, 90 cents, a trader could repay the loan with $90,000 worth of USDT, pocketing just over $7,500 after fees.

Traders shorting USDT say the asset could lose value if its reserve backing is proven false. The stablecoin is backed by fiat currencies and equivalent asset investments such as commercial paper, bank deposits, bonds, gold and cryptocurrencies, according to issuer Tether Global.

Shorters say Tether Global has been misrepresenting these reserve funds. Tether, however, denies such claims and maintains it holds “100% of the backing.”

Data shows massive outflows from Tether have already taken place in the past few months. In mid-June, investors pulled $1.7 billion from tether in one week, as reported. Meanwhile, Tether’s market capitalization has fallen by over $20 billion since mid-May, CoinGecko data shows.

Meanwhile, some like ChainUp’s Mei suggest short-selling tether isn’t necessarily a bad move.

“Short selling is a natural part of market price discovery. When there is a market downturn, many weaknesses that were previously hidden start to surface,” Mei said.

Important events

9 a.m. HKT/SGT(1 a.m. UTC): Australia and New Zealand Banking Group business confidence (June)

9 a.m. HKT/SGT(1 a.m. UTC): Non-Manufacturing PMI (June)

9 a.m. HKT/SGT(1 a.m. UTC): China NBS Manufacturing PMI (June)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Crypto's liquidity crisis continued to send shock waves across the industry. Mark Palmer, BTIG managing director and head of digital assets research, joined "First Mover" to share his analysis of Voyager Digital and the troubled crypto lender Celsius Network. Joe Orsini of Eaglebrook Advisors provided markets analysis and Chad Barraford, THORChain technical lead, discussed building blockchain interoperability.


FSInsight Accuses Three Arrows Capital of Running a ‘Madoff-Style Ponzi Scheme’: 3AC borrowed recklessly from just about every institutional lender in the business, a report from the research firm says.

Nansen Casts Blame for stETH 'De-Peg' on Terra: The report from the blockchain analytics firm also explains how Celsius and Three Arrows Capital helped foment their own declines.

Deutsche Bank: Crypto Free Fall Could Continue Because of the System’s Complexity: As bitcoin and other cryptocurrencies are speculative, high-risk assets, they are disproportionately affected by central bank tightening, the bank said.

Influencers Are Responsible for 92% of Crypto Ad Violations in India, Report Says: Violations included not carrying a required disclaimer or paid partnership tag on the ad, according to the Advertising Standards Council of India.

Citi Flags Crypto-Backed Real Estate Mortgages Amid Falling Market Conditions: The bank points to the rise of crypto-backed mortgages and financing of digital property purchases.

Longer reads

Said and heard

"The Horizon Bridge hacker has so far sent 41% of the $100 million in stolen cryptoassets into the Tornado Cash mixer. Mixers such as Tornado Cash are used to hide the transaction trail. However, Elliptic has used its Tornado demixing capability to trace all of the stolen funds through Tornado and onwards to other wallets. Users of Elliptic’s solutions can now screen wallets and transactions for links to the stolen funds – even those that have passed through Tornado." (Elliptic report) ... 1/ as an investor, board director, and customer of @compass_mining, i continue to be excited by Compass' vision to make mining accessible for a wide range of bitcoiners, from retail HODLers to institutions looking to operate their own infrastructure..." (Meltem Demirors/Twitter) ... MicroStrategy has purchased an additional 480 bitcoins for ~$10.0 million at an average price of ~$20,817 per #bitcoin. As of 6/28/22 @MicroStrategy holds ~129,699 bitcoins acquired for ~$3.98 billion at an average price of ~$30,664 per bitcoin. $MSTR" (MicroStrategy (MSTR) founder and CEO Michael Saylor)

CORRECTION (June 30, 2022, 09:25 UTC): Corrects name and title of Jeff Mei throughout.


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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.

James Rubin

James Rubin was CoinDesk's U.S. news editor based on the West Coast.

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