Doom To Fail: Tether Shorts Pile In As Hedge Funds Seek To Profit From Crypto Winter

Reynaldo Marquez

3 years ago

2 mins read

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The crypto ecosystem is still dealing with the fallout caused by the collapse of the Terra ecosystem, the company behind stablecoin USDT, Tether, is being targeted by hedge funds. Confirmed by Paolo Ardoino, CTO at Tether and crypto exchange Bitfinex, via his Twitter account.

According to the rumors, hedge funds have been opening short positions on Tether (USDT) and have been actively seeking to create panic in the crypto industry to affect the stablecoin. Peg 1:1 to the value of the U.S. dollar, these entities might be trying to replicate the events that crash LUNA and UST.

These digital assets were at the epicenter of the Terra ecosystem, the latter operated as an algorithmic stablecoin pegged to the U.S. dollars until it crashed losing over 90% of its value. According to Ardoino, hedge funds might try to profit by creating the conditions for a similar crash with USDT:

I have been open about the attempts from some hedge funds that were trying to cause further panic on the market after TERRA/LUNA collapse. It really seemed from the beginning a coordinated attack, with a new wave of FUD, troll armies, clowns etc.

The outcome would be different, as Tether’s CTO explained, these hedge funds would allegedly try to trigger a massive capital outflow from the stablecoin and destabilize its price. Ultimately, if the price of USDT drops, the short players would “buy back tokens at a much lower price”.

These entities, Ardoino said, have been allegedly spreading Fear, Uncertainty, and Doubt (FUD) on the stablecoin, such as the rumors that claim Tether is not 100% backed by real assets, and that it was exposed to fail investments. The Tether CTO denied once again denied the rumors:

Tether had/has in fact >= 100% of the backing, never failed a redemption and all USDt are redeemed at 1$. In 48 hours Tether processed 7B in redemptions, averaging 10% of our total assets, something almost impossible even for banking institutions.

Crypto total Tether USDT — Crypto total market cap trends to the downside on the 4-hour chart. Source: Tradingview

Can Tether Follow LUNA/UST And Lose Its Pegged?

In that sense, Ardoino put into question the “billions” in short positions taken by these hedge funds. The executive claims USDT is a battle-tested stablecoin that has outlasted several crypto bear markets, and even companies considered “the holy heroes of our industry”.

As Bitcoin and the crypto market trend to the downside, Tether’s (USDT) total market capitalization saw an almost 20% drop. However, the stablecoin operates with a very different mechanism than that of Terra’s LUNA-UST and seems unlikely to follow the same path.

USDT has always caused controversy in space, but it has operated for almost a decade. The company behind the stablecoin has been improving on its government contacts, its transparency, and adding more assets to back USDT.

Related Reading | TA: Bitcoin Dips Could Be Limited, Why 100 SMA Is The Key

As a pseudonym analyst said on Twitter, this doesn’t mean the stablecoin could never fail, but it does seem to suggest the “FUD on USDT seems overrated”.

The majority of Tether clients (based on USDT issuance amount) are well-known market makers and trading firms such as @AlamedaResearch, @CumberlandSays, @jump_, etc.

89.5% of total USDT issuance was sent to market makers of Big CEX such as Binance, FTX, OKX, Bitfinex, etc. pic.twitter.com/qQ4DHAIfuF

— alphanonce Intern (@alphanonceStaff) June 22, 2022

Reynaldo Marquez

A literature major, Reynaldo Márquez has been deeply immersed in the crypto industry since 2017. His journey began with translating articles for various crypto news outlets, a role he took on with zeal. In 2018, amidst a challenging market, he embraced his first writing assignment, demonstrating his unwavering commitment to the nascent industry and the promise of change it bears for many people worldwide.
In March 2021, he joined the prestigious crypto news outlet NewsBTC and Bitcoinist, where he not only reported on the latest crypto news but also had the privilege of interviewing some of the industry's most influential figures. A year later, his dedication and hard work were recognized, and he was promoted to Managing Editor, a position he currently holds with pride.
He believes in honesty, good communication, hard work, and the power of cryptocurrency and its potential to transform people's lives, especially those alienated by the legacy financial system. Born in 1992 in Venezuela, Reynaldo is familiar with how governments and central banks can negatively affect people, their everyday lives, and their futures by creating inflation and erasing their hopes for a better future. Thus, like many Venezuelans, he embraced this new technology to help him and his family navigate difficult times.
In another life, Reynaldo would have pursued a career as an investigator, most likely tracking down the origins of the Cyberpunk movement with the publication of William Gibson’s ‘Neuromancer.’ The intersection between fiction and reality, with the materialization of Bitcoin in 2009, would have allowed him to dive deep into the crypto sphere as something more than a financial phenomenon but also a cultural shift in society that was brewing since the XX century, and maybe even sooner, in the XIX century with the publication of Henry David Thoreau’s ‘Civil Disobedience.’
But that’s for another life. In this one, Reynaldo has been trading to improve his trading skills. Since 2023, he has been trying to learn Python to create successful strategies and find ways to execute them. It is a difficult task, which continues to keep him busy today and will most likely continue to keep him busy in the near and long term.
In his free time, he enjoys lifting heavy objects, reading, watching movies, and listening to his favorite music. Some of his favorite authors are Walt Whitman, William Faulkner, Allen Ginsberg, James Baldwin, Raymond Carver, Ray Bradbury, George Orwell, Mario Vargas Llosa, Reinaldo Arenas, Rafael Cadenas, and many others. Lately, he has been primarily interested in reading about dystopic societies, a topic that deeply resonates with the crypto industry.
Since 2023, he has lived in Spain with his wife. He loves the weather, the food, and the people and their culture. They both expect to travel much more within the country they now call home and beyond its border. He hopes to retire with his wife, maybe in a quiet place near a beach, but most likely in a city close to a library and a university with his kids and, hopefully, grandkids.

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