More Hedge Funds Are Betting Against Tether as Crypto Melts Down (wsj.com) 74
Short sellers have been ramping up their bets against tether, the world's largest stablecoin, amid a broad market selloff that has called into doubt the financial health of some crypto companies. From a report: In the past month, more traditional hedge funds have executed trades to short tether through Genesis Global Trading, one of the largest crypto brokerages for professional investors. These trades are worth "hundreds of millions" of dollars in notional value, said Leon Marshall, Genesis's head of institutional sales. He declined to be more specific. "There has been a real spike in the interest from traditional hedge funds who are taking a look at tether and looking to short it," Mr. Marshall said in an interview.
Tether is a stablecoin, which are virtual currencies that are supposed to be pegged to the dollar or other national currencies, and it is the most widely traded in the world. Tether's market cap stood at about $67 billion on Friday, according to CoinMarketCap data. Genesis, which doesn't take a view on tether, said the short trades are almost exclusively put on by traditional hedge funds in the U.S. and Europe, while crypto firms -- especially those based in Asia -- have been happy to facilitate the other side of the transactions.
Tether is a stablecoin, which are virtual currencies that are supposed to be pegged to the dollar or other national currencies, and it is the most widely traded in the world. Tether's market cap stood at about $67 billion on Friday, according to CoinMarketCap data. Genesis, which doesn't take a view on tether, said the short trades are almost exclusively put on by traditional hedge funds in the U.S. and Europe, while crypto firms -- especially those based in Asia -- have been happy to facilitate the other side of the transactions.
Doubtful (Score:1)
Any place that allows a short trade against Tether (or allows any tether trading period) will be insolvent the moment that trade pays off so nobody making the bet will get paid.
Re: (Score:2)
How does that work, exactly? Let's say I lend you 1 share of Tether so you can short sell it, and in return you give me a $1 fee. You then sell that share at $3. Later you buy that share back at $1 and return that share to me. It seems to me that we're both ahead of where we'd have been by $1. The people who purchased the share at $3 are out $2, but that would happen no matter how they purchased the stock.
Re: (Score:2)
Because Tether is not backed by an equivalent amount of USD. When Tether collapses there won't be enough (if any) USD to go around. Unless of course you're OK with being paid in worthless Tether.
Re: (Score:1)
The point, though, is that the short seller gets money at the beginning of the transaction. The description above is pretty accurate. The short seller pays the asset owner a small fee, and sets aside enough money in an escrow account to buy back the asset. They then sell the asset at the going price, which basically pays back the money set aside in the escrow account. So they're out the fee they paid the asset owner and have their potential profit locked up in an escrow account.
If the asset goes up in v
Re: (Score:1)
That's not how shorting works at all, geez.
Re: (Score:2)
That's not how shorting works at all, geez.
It's a pretty accurate description, but if you need a better source: https://www.investopedia.com/t... [investopedia.com]
Re: (Score:2)
That's not how shorting works at all, geez.
It's a pretty accurate description, but if you need a better source: https://www.investopedia.com/t... [investopedia.com]
rgmoore probably should have said "margin account" instead of "escrow account".
Re: (Score:2)
Collateral is necessary, not leverage. "Margin accounts" is not a universal thing but depends on jurisdiction.
Re: (Score:2)
Collateral is necessary, not leverage. "Margin accounts" is not a universal thing but depends on jurisdiction.
Good point.
In the USA, margin accounts are required by law for short selling because the shares sold are "borrowed" and therefore on margin.
But not everyone goes by the USA's rules.
Re: (Score:2)
If the price of the underlying asset (tether here) goes up, the short-seller will have to provide more cash/securities to back the trade.
In the case of a tether short,
Re: (Score:2)
Describing collateral held by a third party as escrow for the sake of the discussion seems fair to me. Buying Exxon doesn't seem like a good idea at all, you'd want something that correlates but with a limited downside (or is XOM also some other coin?).
Re: (Score:2)
Exxon-Mobile pays nearly a 4% annual dividend and is a stable security. That might cover the costs of borrowin
Re: (Score:2)
When the margins get like that what you're doing is, you're gutting the company. Because what they're going to do is in order to get the stock price where it needs to be to make that happen or to get away with the stock split they're going to start firing employees left and right and selling off all their assets.
Normal S
Re: (Score:1)
Shorting is a bet that a stock price is overvalued not that a company is going to fail. Without shorters covering you'll get far more immediate collapses. Covering provides liquidity when stock prices fall and set floors. You have little no know understanding of capital markets.
Re: (Score:2)
Well, sure, but those prices were just for illustration. What I'm trying to figure out is why does the poster think companies that offer trading services would go insolvent? As far as I can tell, the only party risking insolvency that wouldn't have happened otherwise is the short seller, in the case where the stock price rises.
Re: (Score:2)
Truth in advertising? (Score:3)
Tether claims to have securities to back their coin. If they really do, then betting against them is pointless. If they don't...well, it won't be the first coin to turn out to be based on BS.
It probably won't take long to find out which is true...
Re: (Score:2)
Re: (Score:1)
Naked CEOs? Eeewww, not on a Monday, please.
Re: (Score:2)
Tether is 'audited' by their friendly auditor that audits no one else. Super duper legit.
So there's a couple of good YouTube videos (Score:3)
The main thing to understand about tether is that if you want to get your dollars back from the company that owns tether directly instead of going through one of the excha
Conflicted (Score:2)
Re: (Score:2)
I'm not touching crypto until Tether is gone (Score:1)
The questions around Tether are too many for me to feel comfortable having any money in crypto, I still like the idea of BitCoin and Ethereum, but I am pretty sure Tether will collapse, and if it does it's going to drive prices a lot lower as people are forced to exit crypto, or just run.
Re: (Score:1)
The problem is that if they're only partially backed, or backed with assets that can decline in value, they can wind up in a situation where they don't have enough assets to cover the coin they've issued. That creates the logic of a bank run. If everyone decides to take their money out at once, they'll reach the point of not being able to pay people back because they have more coins issued than dollars to pay them back. The firs
The Tether is not that Tether (Score:1)
Things like Tether have inherent risk of the value of the asset they are backed by, changing in substantially different ways than crypto itself does.
However note I said Tether specifically, the actual Tether that exists today is what I do not trust and the failure of which will drive crypto down because it would force sales of BitCoin. The Tether that exists does not have good disclosure on what actually backs it, just assurances from them all is well.
Re: (Score:2)
Tether makes no sense to me. Why go through the song and dance of having a dollar based cryptocurrency, when I can just use existing payment methods? For a store of value, it makes no sense either, because (AFAIK, and I could be wrong) there are more units of Tether than dollars behind them, which can mean a good run on the currency can make the currency worthless, especially if/when it goes under $1 per unit.
If I wanted a currency to use (not an "investment" but a virtual currency something like Showbiz
Re:I'm not touching crypto until Tether is gone (Score:5, Insightful)
That's because you're thinking about the users of Tether. Tether wasn't created because it's useful: it was created because it allows the company behind it to trade it's cryptocoin (worth nothing by itself) for actual money, under the guise of maintaining a financial reserve. This is, effectively, an interest free loan of billions of dollars. Best case scenario, the issuer can invest those billions and make huge returns (which is why even Tether itself admits that most of it's coin is not backed by cash, but by various securities). Worst case, the founders run off with the money to an extradition-free country (probably this will happen if/when the coin collapses).
Fundamentally this is the same way banks or Paypal or mobile payment systems make money: you give them money, which they can use in turn to make money. Difference is, those businesses all provide a useful (or at least convenient) service, and have extensive regulation and oversight. Tether has none of that. It's basically an unregulated bank.
Re: (Score:2)
Re: (Score:2)
It isn't a complicated subject. Entities that deal in the cryptocurrency markets need an on/offramp to dollars that isn't constantly depositing from/withdrawing to an actual bank account. As a crude example, lets say you are a used car salesman that day trades in shitcoins. Price goes up, you want to take gains, so you trade laterally to Tether. Price goes down, you trade that Tether for more shitcoins.
There are plenty of other uses, not all having to do with defi markets or other cryptomarket shena
Re: (Score:2)
I think a lot of the crypto stuff comes from the fact that the US has a pretty awful financial system, at least as far as actual people are concerned. The most useful form of payment is credit card, which costs a few percent and takes days or more to settle, and is expensive to accept.
Even so, the crypto types are fond of relying to criticism with things along the lines of "unlike the US, many places don't have a convenient and stable banking system." I'm not sure where exactly they mean, since most places
Re: (Score:2)
Re: (Score:1)
Hedge funds have destroyed countries out of sheer power of the operations at play. They can crash almost anything. Actually, the almost bankrupted Tesla which came to be quite a successful company. They almost destroyed Netflix as well.
Re: (Score:1)
sure, it's fun to trade but let's stop treating it as anything other than a gambling token.
its been a decade and crypto has not solved a single problem in the world other than how to pay for illicit substances or launder money (and it's even failing at that one)
in fact all its done is create problems for the rest of the world to clean up after. an absolute shitshow of an ordeal and one of the most hyped concepts to fall flat on its stupid fucking face. just a decade of resources and human energy amounting
Re: (Score:1)
If you look at crypto's life, it tends upwards, or plateaus, but doesn't crash because people will step in to bail things out. BTC goes below 20k, some whales step in and prop it up. It is at the point where it seemed to have reached "too big to fail" status, because someone will always step in to keep it propped up?
What could possibly go wrong for it being an investment?
You're looking back and seeing the previous bottoms in hindsight and then assigning meaning to them. That may not have the predictive value you're implying.
Re: (Score:1)
They won't go up or down in value, they will either hold value or cease to exist in which case you're going to lose all your money, doesn't matter which side you're on, there is nothing left.
If it goes to zero the shorts get to keep all the money they already received from selling short. "Nothing left" is a short seller's wet dream.
Re: (Score:1)
The person shorting does not get any money until their position is closed. I'm afraid you don't understand how markets work either. Let me guess, big into crypto?
Re: (Score:1)
The person shorting does not get any money until their position is closed. I'm afraid you don't understand how markets work either. Let me guess, big into crypto?
Where does the money go from the short sale? Money was paid by the buyer at the time of the sale. Where is it?
I bet they know the truth about Tether's assets (Score:1)
Tether has stridently denied that it is backed heavily by Chinese real estate developer bonds, but as Tether skeptics in the crypto space have pointed out there are only two commercial debt markets big enough to feed Tether "no questions asked." Those are the US and Chinese markets. If it were US debt, they'd likely not be too shy about revealing that.
A LOT of the Chinese paper floating around now is junk bonds from their developers. That whole industry is going bankrupt. If it can be believed, the Chinese
I don't think Crypto's tightly integrated... yet (Score:2)
I do think crypto bros _want_ it tightly integrated, and our bribing a pair of US Senators to declare their (very obvious) securities to be "commodities" so that they can evade SEC oversight. If that happens it's going to be a nightmare, because we'll have an unregulated securities market.
Right now though I don't think it's gonna happen, because neither
In related news (Score:2)
Voyager Digital, a crypto broker, has issued a notice of default [marketwatch.com] to Three Arrows Capital, a crypto hedge fund. The fund defaulted on a $667 million loan to Voyager.
The hedge fund is exploring ways to raise capital, including selling assets or getting a buyout from another firm [reuters.com]. For its part, Voyager says it's operating as usual, though clients are now only able to withdraw $10K per day, down from the previous $25K.
Looks like the hedge fund bet wrong as the recent selloff in BTC and other crypto have taken
Re: (Score:2)
Goodness. Can you imagine if your brokerage account was primarily funded by a loan to some crypto hedge fund, whose investments were primarily in Luna and Solana, whose investments were primarily in...a greater fool strategy.
It's early to declare a crypto crisis versus a correction. But the crypto problems of late does seem to be more than a passing similarity to the 1980's saving and loan crisis in the US. Though I feel quite certain no crypto firms will be getting government bailout money.
The bet still needs a sucker (Score:2)
Re: (Score:2)
No, you just borrow Tether and use it to buy something you believe is better. The person you borrow it from is willing to take the trade because they believe Tether is stable, and they want to earn interest. The terms of the loan are payment of principal and interest in Tether. Since the short believes Tether is junk, they figure they can easily repay the loan in the future (at pennies on the dollar) while retaining whatever they used the borrowed Tether to buy.
So no, you don't need anybody else who beli
Re: (Score:2)
use it to buy something you believe is better
This is the part that requires finding someone who wants the terrible thing.
Re: (Score:2)
How? The opinion of the other guy doesn't enter in to the transaction. It transacts at market. Let's say you buy a car. You might be buying it because you think the USD is going to collapse, or you might not. The car dealer is going to sell you a car at market rates. His opinion on the direction of the USD doesn't enter in to that transaction. If he thinks USD is collapsing, he still has to sell you a car at market rate (and will then flip the USD to gold or something ASAP). If he thinks a depressio
Re: (Score:1)
Don't "shorts" still require someone paying you for the Tether before you buy it? That requires finding someone who wants the terrible thing before you can start the bet.
If the price isn't zero that means there are buyers, doesn't it?
Re: (Score:2)
I could set the price of my next nose-booger at $100 but that doesn't mean there's a buyer.
Re: (Score:1)
The price is how much someone's willing to accept to part with an asset, not how much someone's wiling to pay. Ideally the two are the same, but not necessarily so.
I could set the price of my next nose-booger at $100 but that doesn't mean there's a buyer.
That's the ask. The bid is what someone is willing to pay. If there's a bid there's a buyer.
That *could* be a low-risk short (Score:4, Insightful)
Not sure how this stable coin is supposed to work, but in the event where it starts to trade above $1, the organization that wants to keep it stable can easily lower the price (mint more, etc.). The hard part for these stable coins is preventing runs on the "bank" which can drive the coin close to zero.
So this could actually be a very low risk short, with minimal chance you'd have to cover at a loss since the people running the coin have a vested interest in it not getting too pricey, and of course the payoff if they turn out to be insolvent.
I don't know enough about it all to put money on it though. I'm sure I could be wrong in some way that would be very dangerous for your finances; so don't take advice from some nincompoop on the Internet, because I'm not offering it.
Re: (Score:2)
Re: (Score:2)
A short isn't a volume trade. It's a bet made with someone who has already traded. It's does nothing more to lower a price (which is based on market expectation) than buying a share does to raise prices.
And you can't buy your way to victory, you can only convince others to buy.
Basically you're causality is incorrect.
Re: (Score:2)
A short means I borrow a stock, currency or whatever, from someone else with the promise to return it. Effectively you still "own" it because it's a long position, but I'm selling it while you own it; it's similar to the M1 vs M0 money supply. But you're wrong to say shorts cna't force a currency down; this is exactly what happened when George Soros [investopedia.com] shorted the British pound; this was a legendary trade that made him a billionaire.
Crypto shorters are shorting currenc
Re: (Score:1)
Lets assume that for every 100 tether they have issued, they have 95 dollars worth of assets (they claim to have at or above 100 dollars worth of assets for each 100 tether, but lets assume that they do not).
If the price of tether drops below 95 cents- say to 90 cents- then they can simply begin buying tether from the market at 90 cents each. For every 100 tether purchased for 90 dollars, they get to destroy that 100 tether and take 95 dollars of assets out, a profit of 5 dollars. They could continue this
Re: (Score:3)
Re: (Score:2)
Or, the interest earned during the time holding the riskier assets, which so far have not defaulted, ate away at the shortfall.
Tether has made its owners rich. I assume they will not want to stop that. In present conditions they can earn 2% on Treasury bills and need to pay out zero, if they are fully backed.
Re: (Score:2)
Volatile/risky assets aren't a good choice to purchase with deposited fun
Re: (Score:2)
Bored already (Score:2)
Gamestop 2.0? (Score:2)
I wonder if these big funds shorting Tether really have enough cover. Mmm. Just a thought...
Calling something âoestablecoinâ won (Score:1)
Stablecoin - really, I mean, really?? What is stable about it? Just who insures it so to always pay out every redemption request?
Anyone who is still claiming anything relating to or having the involvement of crypto, under any name, is legitimate, is nothing more than a con artist looking to recruit the next greater fool⦠prove me wrong! Come on, lets hear from you crypto experts!
Re:Calling something âoestablecoinâ won (Score:2)
Re: Calling something stable coin wonâ(TM)t m (Score:1)
You Said: âoeIf the asset were legitimately backed by US dollarsâoe - key word there is âoeifâ - but its not, and never could or would be. Just calling it that wonâ(TM)t make it so.
A bank buying bonds that are backed by something like their own assets or U.S. dollars has no equivalence to anything in the world of crypto scams⦠how people get into and fall for these scams is beyond my comprehension⦠its like, what do these people not see? Stupidity deserves to h
Re: (Score:2)
"We're going to invest your deposits in super-risky things. If those go up in value we will get rich and return your money and thanks for the interest free loan. If those investments blow up we will flee with your deposits."
Probably would not be a successful enough scam to make the news.
Safe short - good investment (Score:2)