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0 CommentsFir Tree Capital Management, a $4 billion New York-based hedge fund, is shorting Tether as the largest stablecoin in crypto faces down scrutiny from regulators and fears over ties to the Chinese debt market.
According to Bloomberg, Fir Tree has constructed a way to short Tether in an “asymmetric trade.” That means the risk is minimized, and the potential to generate profit remains high, the firm’s clients reportedly say.
The hedge fund is also reportedly betting that its decision could generate a profit within 12 months. The firm’s concerns center around the stablecoin provider’s $24 billion in high-yield commercial paper, which the firm also believes is linked to Chinese real estate developers.
Chinese real estate has been facing down a debt of its own, led by China Evergrande Group, whose liabilities exceeded $300 billion in December 2021, when it missed a debt payment deadline.
Meanwhile, the Tether company says it does not own any commercial paper linked to Evergrande, Bloomberg reports that Fir Tree expects some of the commercial paper Tether does own will lose value.
At the same time, investors say this could cause a potentially large drop in the reserves held by Tether.
The hedge fund is hardly the first to consider shorting Tether. In response to Bloomberg’s report, Jeff Dorman, chief investment officer at crypto asset manager Arca, tweeted a link to a research report from July 2021 where he concluded that “While everyone wants to play George Soros and break the Bank of England, actually making money doing this is nearly impossible and highly unlikely.”
Tether’s reserve backing continues to be a subject of much speculation in the crypto space with US Congressman Warren Davidson recently calling the situation “a time bomb.” Tether currently commands 45% of the total stablecoin market supply, according to The Block’s Data Dashboard.
Tether’s quarterly assurance opinion, published last month, showed a 21% decrease in commercial paper holdings over the last financial quarter.
