Short Sellers Swarm Tether

Short squeeze deja vu? The Wall Street Journal is reporting that some investment firms, including Fir Tree Partners and Viceroy Research LLC, are initiating substantial short positions against Tether, which is a cryptocurrency with a prescribed value pegged to the U.S. dollar. The WSJ is citing individuals familiar with the matter.

There have been a handful of funds that have initiated positions with Genesis Global Trading Inc., according the the company’s co-head of trading and lending.

Tether is the largest “stablecoin” that is currently in circulation. There is currently ~$82 Billion worth of Tether in circulation. Crypto traders will oftentimes use Tether as ways of initiating trades rather than using bank accounts, wire transfers, or other fiat means. Tether has remained fairly robust in its operation. The stablecoin hasn’t traded below 0.999 cents. With its value being pegged to the U.S. dollar, it appears to have withstood the test of time and the ruthless nature of the shorts. Get rekt, bears.

However, the details surrounding the inception of Tether and its story are incredibly convoluted. The Tether tokens are issued by the Hong Kong company Tether Ltd, which happens to be controlled by the owners of Bitfinex. Bitfinex is a crypto exchange that operates within the British Virgin Islands. They have an interesting reputation and history, but we won’t get into that too much here.

According to a Tether spokesperson, “Tether manages a portfolio of conservative, diversified, liquid assets.” They had also claim that their reserve-fund assets exceed all current liabilities. Although Tether has apparently promised to produce full audits of its reserves, and has yet to do so. It wasn’t until an $18.5 Million settlement where Tether would reveal “in only broad terms” what their holdings are each quarter.

Ostensibly, a company with “conservative, diversified, and liquid assets” wouldn’t be so hesitant to release information regarding its holdings, especially when the $82 Billion portfolio is the size of a big money-market fund. If the coin is backed by cash reserves and secure financial instruments, Tether shouldn’t really be that concerned with providing more details surrounding them.

According to the aforementioned firms believe that Tether’s commercial paper holdings are from Chinese commercial property developers, whose sector has been ransacked within the past 6 months, with their bonds being downgraded in lieu of excessive debt levels from the sector and overall insecurity (although the PBOC definitely said they’d backstop the RE market in the event of failure…nice).

Tether has presumably withstood the test of time, although further details and investors’ disbelief in the stablecoin could ultimately lead to its demise. Massive short positions and decreased investor confidence within the stablecoin could lead to just an insane run that would just absolutely upend the price of Tether. While I hate to rejoice in the bearish nature of any market, I think I could make an exception in this case as the details surrounding Tether are about as clear as mud. I can’t believe I’m saying this, but I think I’m rooting for the shorts, here.