Hedge fund Fir Tree Capital Management shorts largest stablecoin Tether
Friday, hedge fund Fir Tree Capital Management which has $4 billion hedge fund
asset under management founded by Jeff Tannenbaum, has constructed a way to make
sizable, short against the largest stable coin Tether (USDT). The clients of the
firm said the position was structured as an "asymmetric trade," which
means it led to minimizing the downside risk and generating profit remains high.
Last July the hedge fund firm started short positioning on Tether USDT according to the report and did research including hiring third-party experts, the investors said. The company noted that much of the concern centers around the stablecoin provider’s $24 billion worth of high-yield commercial paper that is backing the coin and as per the firm’s belief is tied to Chinese real estate developers. Some of these Chinese real estate are in financial trouble as it's going through a debt of its own led by China Evergrande Group, which is the world’s most indebted property developer that is moving toward a government-driven restructuring. In December 2021 liabilities exceeded $300 billion as it missed a debt payment deadline. Therefore, if that commercial paper loses value, it could result in a sharp drop in both Tether's reserves and its price. As per the report, the trade Fir Tree is betting that its decision will pay off within 12 months. If there is enough client interest shown, the firm may also set up a separate fund to short tether. This may lead to a potentially large drop in the reserves held by Tether as per investors' reports.
Last month, Tether’s latest quarterly assurance opinion was published which showed that over the last financial year there was 21% decrease in commercial paper holdings. In 2021, in the month of May, Tether released a breakdown of its reserves which was the first time since 2014. Reportedly, for the company, 76% of the stablecoin’s reserves were held in cash or cash equivalents.
Other firms put on Tether shorts
Crypto broker Genesis Global Trading Inc. helped some asset managers put on Tether shorts by lending or structuring put options. The company has no opinion on Tether. It provides service to clients who are buyers of stablecoin.
Tether is the largest stablecoin, cryptocurrencies whose value that pegged to fiat currencies such as the U.S. dollar. There lies wild volatility on Bitcoin and other digital tokens that needs to be avoided. Backstopping each coin with actual dollars and other assets such as corporate debt stability is achieved.
CBW - External Analyst