WSJ: Short Sellers Bet Against Tether
Yesterday's Wall Street Journal featured the piece, "Short Sellers Bet Tether, Crypto's Central Bank, Is Vulnerable to a Run." They tell us, "A few investment firms, including Fir Tree Partners and Viceroy Research LLC, have placed substantial bets in recent months that the price of tether will fall, according to people familiar with the matter. Tether is the most popular currency for trading bitcoin and is supposed to have a fixed value pegged to the U.S. dollar. Some hedge funds arranged short sales of tether with Genesis Global Trading Inc., one of the larger crypto brokerages for professional investors, said Matt Ballensweig, Genesis's co-head of trading and lending.... With about $82 billion tether in circulation, tether is the largest so-called stablecoin, a digital asset linked to the dollar and backed by reserves of cash or other financial instruments. The short sellers follow a pack of regulators, lawmakers, prosecutors, plaintiffs attorneys and amateur sleuths who have spent months, or years, in some cases, attempting to unearth details about a cryptocurrency whose usage has far outpaced its transparency." The Journal says, "Short sellers are betting that the $82 billion portfolio that underpins tether's value, now the size of a big money-market fund, is at risk of losses that the parent company hasn't disclosed, according to some of the people familiar with the short positions. The Tether spokesperson said that the company takes transparency seriously. 'Tether manages a portfolio of conservative, diversified, liquid assets,' Tether said. It said that its reserve-fund assets exceeded their liabilities. Regulators, lawmakers and other critics have accused tether of being too opaque. Tether Holdings Ltd., its parent company, has promised a full audit of its reserves for years but never produced one. It took a yearslong investigation by New York's attorney general, and an eventual $18.5 million settlement of accusations that Tether misled clients, for Tether to reveal what it holds in only broad terms each quarter through its accounting firm. To prevent more disclosure, even of mundane matters like the name of its chief investment officer, Tether has gone to court to block public-records requests about its business." They add, "Some short sellers believe that a chunk of Tether's commercial-paper holdings, which totaled $24 billion at the end of 2021 and made up a little less than one-third of Tether's reserves, came from shaky Chinese property developers. A faltering Chinese real-estate market and concerns about developers' excessive debt levels have led to selloffs and ratings downgrades in their bonds. Tether said that it has consciously reduced its commercial-paper holdings since its settlement with New York's attorney general, including a 21% drop in the last three months of 2021. In response to questions about credit exposure to Chinese property developers, Tether referred to a January report from crypto exchange Coinbase that looked at what Tether has disclosed about its commercial paper. That report said that even if Tether 'had owned any short-term liabilities associated with weak sectors, such as Chinese real estate, it would no longer be in its portfolio, as rating agencies have downgraded much of that debt to sub-investment grade over the past year.' One short seller also sees trouble in Tether's holdings of money-market funds and Treasury bills. That firm learned that an affiliate of Deltec Bank & Trust Ltd., a Bahamian bank where Tether does business, sought to invest billions of dollars in outside hedge funds that invest in highly liquid securities, people familiar with the matter said. That money, much of which the short seller believed came from Tether, could be locked up in those funds for months or years, meaning Tether would have a hard time getting it back in a timely manner to meet a wave of redemption requests, the people said. Tether declined to comment on Deltec's dealings with hedge funds."
