Hedge fund Fir Tree bets big with short of stablecoin Tether

Fir Tree Capital Management is making a substantial short bet on Tether, the stablecoin that is heavily monitored by regulators.

The $4 billion hedge fund founded by Jeff Tannenbaum constructed a way to short Tether in an asymmetric trade, meaning the downside risk is small and the potential to make money is high, according to the company’s clients. That’s a feat that other companies struggle to figure out.

Tether is the largest stablecoin, cryptocurrencies whose value is pegged to fiat currencies such as the US dollar. The goal is to avoid the wild volatility that plagues Bitcoin and other digital tokens. Stability is achieved by backstopping each currency with real dollars and other assets such as corporate debt.

Still, questions remain about whether Tether has the reserves to support the $80 billion in coins dollar for dollar. In addition, the US Treasury Department, the Federal Reserve and other regulators have urged lawmakers to let them supervise stablecoin issuers in the same way as banks.

Fir Tree is betting its short bet could see a payday in 12 months and its stance against Tether revolves around the mint’s roughly $24 billion worth of high-yield commercial paper, much of which the company believes is linked to Chinese currency. real estate developers.

China’s real estate sector is in crisis, led by China Evergrande Group, the world’s most indebted real estate developer, moving towards government-driven restructuring. While Tether has said it doesn’t own Evergrande paper, Fir Tree expects some of the paper it does own to lose value, leading to a potentially large drop in reserves, the investors said.

Fir Tree began looking at shorting Tether in July and doing research, including hiring outside experts, the investors said. She is considering setting up a separate fund with the sole purpose of shorting Tether if there is sufficient client interest.

Genesis Global Trading Inc., a crypto brokerage, has helped some asset managers attract Tether shorts by lending the stablecoin itself or structuring put options. The company has no opinion on Tether and serves customers who are buyers of the stablecoin.

The company has been able to facilitate transactions amounting to “hundreds of millions” of dollars in face value on both sides, given the size of the Tether market and its central role in crypto liquidity, said Joshua Lim, head of the derivatives trading at Genesis.

“We’ve seen a wave of incoming interest from institutional counterparties in Tether trading across a variety of categories: yield seekers who are comfortable holding stablecoin risk and looking for returns, asset managers looking to voice their opinion on the quality of reserves that the stablecoin and market makers who want to hedge their tail risk for the link,” said Lim.

This story was published from a news agency feed with no text changes. Only the headline has been changed.

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