A $4 Billion Hedge Fund Is Shorting Tether's Stablecoin (decrypt.co) 41
Fir Tree Capital Management, a $4 billion hedge fund, is shorting Tether as the largest stablecoin in crypto faces down scrutiny from regulators. Decrypt reports: According to clients of the firm and reported by Bloomberg, Fir Tree has constructed a way to short Tether in an "asymmetric trade." In other words, the risk is minimized and the potential to generate profit -- the firm's clients reportedly say -- remains high. 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. While Tether -- the 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. Investors reportedly said this could cause a potentially large drop in the reserves held by Tether. Speaking to The Block last month on the financial risks posed by stablecoins, U.S. Congressman Warren Davidson called Tether "a time bomb." He added: "There isn't transparency or disclosure there. They acknowledge that they have commercial paper, but they don't disclose what exactly that is. That's where I think that a framework that compels disclosure does provide investor protection."
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. While Tether -- the 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. Investors reportedly said this could cause a potentially large drop in the reserves held by Tether. Speaking to The Block last month on the financial risks posed by stablecoins, U.S. Congressman Warren Davidson called Tether "a time bomb." He added: "There isn't transparency or disclosure there. They acknowledge that they have commercial paper, but they don't disclose what exactly that is. That's where I think that a framework that compels disclosure does provide investor protection."
This week in crypo (Score:2, Troll)
Blah blah blah. So much talk for so much nothing. I may have to be done with Slashdot for a while. Just too much of this non-news pollution.
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This is actually somewhat interesting, although in no way related to the fact of it being crypto related.
If someone has put their reserves into Evergrande, well, they are fucked. Evergrande as it currently stands is nothing but a dumping ground for the toxic portion of Chinese real estate investment, meant to load the sludge off to fools on the international market for the losses to be swallowed outside of the country. That the crypto crowd would be oblivious to such matters should be of no surprise to any
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Blah blah blah. So much talk for so much nothing. I may have to be done with Slashdot for a while. Just too much of this non-news pollution.
I just went long some popcorn!
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They don't accept auditing because they don't have to. Their volume is BTC and ETH together.
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Stablecoins aren't just supposed to be backed by real assets; they're supposed to be backed by stable assets, like cash and cash equivalents. The hedge fund in question thinks Tether has been putting their assets into less stable assets with a higher return, and that this is going to bite them when those assets lose value. The only really novel point here is that they think they've found a way of s
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Stablecoins aren't just supposed to be backed by real assets; they're supposed to be backed by stable assets, like cash and cash equivalents. The hedge fund in question thinks Tether has been putting their assets into less stable assets with a higher return, and that this is going to bite them when those assets lose value. The only really novel point here is that they think they've found a way of shorting Tether, so they can make money if it fails.
It's not clear to me how a stablecoin makes money aside from fees and interest on the asset.
With low interest rates you're not making very much sticking it in the bank. So acting like a mutual fund is a very tempting strategy. If you make good bets you're rolling in excess cash. If you make bad bets you declare bankruptcy and start over.
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Obviously they're staking some of it, and yes, probably in risky Chinese deals. It doesn't become a problem until people want to mass-redeem (which is not the same as selling) and they don't have liquidity to cover it.
It's not even liquidity. If people start redeeming at full value then the pile of cash needed to cover the remainder grows proportionally smaller.
And if they're mingling their reserves with Bitfinex... well a single company can lose money at shockingly fast speeds.
Basically, Tether is acting like a bank. Problem is, that unlike real banks they're not subject to much regulation and there's no depositor insurance.
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This is the essence of so much of crypto. They're trying to reinvent the existing financial system, but by calling everything by new names they hope to evade the regulations that have been put on those financial institutions. Since that regulation was largely put in place to stop abuses that harmed customers, evading it is mostly helpful to thieves and scam
Re: Just another scam (Score:2)
Garbage? (Score:2)
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I'm also curious, shorting stuff has always seemed extremely risky. I know sometimes the use options instead (puts) but those are also still risky. They think they have a big upside with little downside in a short scenario? That doesn't make sense in and of it itself, although tether is and has always been a scam.
Fuck (Score:2)
This is not good. We do *not* want Wall Street gambling on Crypto. We need to stop this. Right now. In 2008 they gambled on houses and it cost you and me trillions. The Millennials _still_ haven't recovered from it.
Imagine how bad the crash will be when the thing backing all their loans and securities is pretend dollars on windows PCs. How many layoffs, how many hours of unpaid overtime for the ones _not_ laid off, how much of our taxpayer dollars will go to "too big to fail" compan
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We do *not* want Wall Street gambling on Crypto.
That's for everyone else to do.
Re: Fuck (Score:2)
Read my post again, slowly. (Score:2)
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rsilvergun, I read a lot of your posts and this thread here really feels like you're sipping something out of a bottle tonight and letting loose the conspiracy cougar.
But, I ain't about to argue. Wall Street has positioned themselves such that not only are they too big to fail - but any idiot idea they ever think of is also too big to fail, no matter the outcome. So... cheers?
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Being able to bet on things being overvalued isn't such a bad thing. The 2008 crash was caused by over valuation which itself was caused by bad data, the rating of the debtors, which was created nefariously specifically to increase the value of the packaged loans. If someone had noticed and shorted sooner perhaps the crash could have been avoided. Or you know, if it was properly regulated.
Now here is a similar situation, hopefully one we're not all quite so exposed to. Lack of transparency, suspicious data,
Subprime borrowers ended up not being the problem (Score:2)
One odd/interesting thing is that the people who raised the red flags about subprime borrowers ended up being wrong about who was the problem. Subprime borrowers didn't actually end up defaulting at high rates. The people who defaulted at high rates were prime borrowers who had taken out mortgages for investment properties. (I collected a few links and studies on the topic here. [metafilter.com])
...which seems to suggest that we would've been better off with more loans to subprime borrowers buying a first house, and le
I think that's because (Score:2)
Crypto has no value (Score:2)
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Is that what you want? And if so, what for?
Some people stand to profit when a market crashes. If the housing bubble pops, don't tell me you're not gonna call up a Realtor and ask if they can find some sweet pre-foreclosure deals.
Speaking of how a down market can be a good thing, do you remember not too long ago when no one was buying oil because everything was on Covid lockdown? Damn, I miss those nearly empty roads and cheap gas.
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Based on the contents of the article, this "short" is nothing but an indirect way to short Chinese real-estate. Which probably won't work anyway. If it takes ~12 months for the USDT price to collapse, they won't even make much money thanks to the lending rates on Kraken.
It's just casino banking (Score:2)
Some people will bet on anything, and for a while, they look good. Easy come, easy go. The big problem is regular folks "investing" their hard earned cash, then losing it all, when the bets did not pay off. You can be damn sure the top guys have their profits safely invested, while they play games with their clients' money.
USDC anyone? (Score:1)
Always wondered why Centre.io's USDC got short shrift.
SMH.
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I 100% think Tether absolutely could collapse within 12 months and expect it to knock a good 50% or more off the entire crypto market.
This is what shorts are for (Score:4, Interesting)
The Tether short is much safer than most. Tether can't rise over $1.01 So you could probably short a billion Tether for less than 10 million a year (for Tether holders getting 1% interest is better than 0% for just holding it). If you guess wrong you lose 10 million, if you get it right you get 990 million. I'll go in for 100k on that risk.
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Hedge funds do NOT beat the market. (Score:3)
Typically they under-preform. Real hedge funds do not even try to beat the market.
Mainly because they are designed to maintain wealth not create it. Despite the idiots hating on them, they are not some special 'get rich' scheme that wealthy people have outlawed for the common folk.. That is just a fever nightmare of the extremists on the left (note, the extremists on the right call everyone communists, they are not better).
Instead, hedge funds are designed to ensure that people KEEP their wealth. That is why they so often engage in shorting and other bear strategies. You go to them because you are afraid the market will crash, not to become a millionaire. As they are doing something that is only needed by the wealthy, they do not bother with the additional regulations needed to let poor people invest with them.
Yes, a few idiots try use hedge funds to make wealth with them. Some Hedge Funds even beat the market. But that is not their intended purpose.
Look, wealthy people do a ton of evil in the world, but hedge funds betting against the market are not one of them. Call them out for not paying the taxes and fines. Accuse them of treating speeding tickets as the cost of owning a Ferrari rather than punishment. Demand they actually go to jail rather than pay off their victims.
But stop complaining about Hedge Funds. It just makes you look ignorant.
Seriously? (Score:2)
Tether Ltd. has never been forthcoming about their assets. I would be shocked if some hedge fund manager had finally nailed down what Tether Ltd. actually owns, and I would be equally shocked if Tether Ltd. stayed in Chinese real estate long enough to get completely wiped out; besides, Tether Ltd. is notorious for minting for USDT when it's not at all clear that they have any assets backing said USDT at all. There are no market forces tying the actual value of USDT to Tether Ltd.'s holdings. It trades at