While questioning the level of reserves backing up Tether (USDT), a New York-based hedge fund Fir Tree Capital Management has reportedly placed a short bet on the stablecoin. The move was a surprise to many crypto investors since stablecoins are rarely known to make considerable market price movements and thus the term "stable coins."
The basis for Fir Tree’s trade is based on Tether Holdings’ commercial paper. Tether Holdings is the organization behind the tether stablecoin.
According to a recent report by Tether, the Tether Holdings’ commercial paper, which is a short-term debt issued by various corporations has declined from $30.5 billion to $24 billion by the fourth quarter of 2021. As part of a settlement with New York Regulators, Tether Holdings is required to make public its reserves.
Why the short trade on a stablecoin?
Fir Tree reportedly believe that Tether’s commercial paper holdings shall loose value following China’s crisis within the real estate sector. The hedge fund expects the bet to pay off within the next 12 months.
Fire Tree seem to have taken advantage of the crisis surrounding Tether’s reserves. There has been a lot of controversies on Tether’s reserve backing.
US congressman Warren Davidson lately called the situation with Tether a “time bomb.” And if it is the case it would be a catastrophe for the crypto market since Tether commands about 45% of the total market supply of stablecoins around the globe.