TLDR
- Arthur Hayes warns that Tether’s interest rate strategy could lead to USDT insolvency if markets move against it.
- Tether holds $9.86 billion in Bitcoin and $12.92 billion in precious metals, with significant exposure to these assets.
- Hayes predicts a 30% drop in Bitcoin and gold could wipe out Tether’s equity, leaving USDT potentially insolvent.
- Tether appears to be betting on Federal Reserve rate cuts, hoping Bitcoin and gold prices rise as interest rates fall.
- Tether’s cash holdings are reportedly lower than its liabilities, raising questions about its financial stability.
Arthur Hayes has raised concerns over Tether’s interest rate strategy. He warns that the company’s position could face severe risks if markets turn against it. Hayes specifically highlights the potential impact of a Federal Reserve rate cut.
Tether’s latest attestation report shows significant exposure in Bitcoin and gold. The stablecoin issuer holds $9.86 billion in Bitcoin and $12.92 billion in precious metals. Hayes warns that a 30% drop in these assets could wipe out Tether’s equity cushion, potentially rendering USDT insolvent.
Arthur Hayes Warns Tether’s Fed Bet Could Backfire
According to Hayes, Tether appears to be betting on future interest rate cuts by the Federal Reserve. The strategy involves buying Bitcoin and gold, expecting these assets to increase in value as rates fall. However, Hayes believes that if the Fed doesn’t act as expected, Tether could face a major financial setback.
He describes this as a massive interest rate trade.
“They are buying gold and BTC that should in theory moon as the price of money falls,” Hayes wrote on X.
He believes this strategy could be catastrophic if the market moves against Tether.
Hayes also highlights the potential risks of Tether’s cash holdings. He questions why the company’s cash assets are reportedly lower than its outstanding liabilities.
“What am I missing here?” Hayes asked, challenging Tether’s financial transparency.
The larger issue, according to Hayes, is the risk of insolvency. He states that if the value of Tether’s Bitcoin and gold holdings drops by 30%, the company would likely be insolvent.
“Then USDT would be in theory insolvent,” he concluded, raising alarm over the company’s financial situation.
A number of users have defended Tether’s strategy, pointing to the fact that these Bitcoin and gold purchases come from profits, not newly issued USDT. However, Hayes is unconvinced, stating that the overall liquidity of Tether’s holdings may not align with its reported liabilities.
Tether Cuts 30 Jobs Amid Mining Shutdown
In other Tether news, the company confirmed the closure of its mining operation in Uruguay. Tether had initially ventured into crypto mining, but the company decided to wind down the operation. The decision followed failed electricity pricing negotiations with local providers.
Tether is also letting go of 30 out of its 38 staff members in Uruguay. The company plans to shut down the entire operation in the country.
Despite this setback, Tether’s reserves remain substantial. The company has a total of $181.22 billion backing its circulating tokens. Tether holds $112.42 billion in U.S. Treasury bills, its largest asset category.
Tether also maintains $17.99 billion in overnight reverse repurchase agreements. The company holds $6.41 billion in money market funds, adding to its total asset base. However, with growing scrutiny, Tether’s financial strategies may continue to face challenges.
The ongoing questions about the stability of Tether’s reserves, including its Bitcoin and gold bets, show that scrutiny over its solvency is intensifying. As Hayes pointed out, any wrong move could cause a major financial crisis for USDT.
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