Tether’s Reserve Challenges
Fear, uncertainty, and doubt (FUD) have always been prevalent in the cryptocurrency market, and Arthur Hayes, co-founder of BitMEX, is back to address these issues. Hayes, a well-known figure among cryptocurrency investors, recently discussed the Tether reserve attestation report, highlighting emerging risks from his perspective.
In a controversial recent post, Hayes focused on the changes in Tether’s positions due to the Federal Reserve’s interest rate cuts. He mentioned that the company is shifting its U.S. Treasury holdings towards gold in anticipation of declining revenues. Hayes detailed his interpretation of this move as Tether buying gold and Bitcoin (BTC) in response to a potential devaluation of money due to the Federal Reserve lowering interest rates. This shift is strategic to cope with expected revenue drops from interest rate reductions.
A significant decrease of around 30% in their gold and BTC positions would theoretically wipe out their equity, potentially causing a default for USDT. Hayes emphasized the need for investors and exchanges to access real-time Tether balance sheets to evaluate solvency. He predicted mainstream media would fervently cover this issue, focusing criticism on those supporting this stablecoin.
Tether finances its BTC and gold acquisitions using profits from newly issued USDT. However, Hayes raised a question on cash assets appearing less than outstanding liabilities according to Tether’s own definitions, suggesting a potential oversight in understanding the situation.
Cryptocurrency FUD
The issue with Tether is perplexing given their reserves supposedly back the USDT supply. With 180 billion USDT in circulation against 181 billion dollars in reserves, it appears isolated from risk. Yet, fluctuations in gold and Bitcoin prices could create gaps in reserves. Bonds and funds represent assets close to 140 billion dollars, while precious metals and BTC exceed 20 billion dollars. Considering the recent dip in BTC’s price, these numbers might be lower.
Greg Osuri commented, “Tether has 174 billion dollars in debt and 139 billion dollars in cash assets, resembling a ticking time bomb. I would exit USDT to ensure safety.”
Tether may soon release a statement, distinguishing between its reserves and other investments and net profits. To dispel this FUD, proactive measures are expected within the coming hours, potentially with the new BDO report arriving tomorrow. Despite this, Tether’s reserves appear robust against potential bank runs, capable of sustaining redemptions, as demonstrated during the FTX collapse.