Tether, a crypto pair with a value pegged to the US dollar and a popular stablecoin, has seen recent mix-ups that have led to many questions about its future.
Under a poor market situation, nearly a month after the terraUSD (UST) stablecoin imploded, crypto-focused hedge funds have been seen progressively shorting USDT. They’ve been betting on the price of bitcoin and other cryptocurrencies going down.
These hedge funds have been cashing in on the recent market decline. During this time, USDT’s market cap has fallen from over $80bn to about $65bn today.
USDT Market Capitalization, Source: Trading view
According to data, the number of open short positions on USDT has increased by over 30% in the past month. The increase in short positions comes as the price of bitcoin and other cryptocurrencies fell sharply over the past month. Bitcoin for example, was down by over 50% since hitting its all-time high of $64,000 in mid-June.
The Reason And Consequences Of The Short Sell
Reports started circulating that hedge funds were shorting USDT following the news of the terraUSD (UST) stablecoin implosion. These funds were betting against USDT because they believed that the price of bitcoin and other cryptocurrencies would fall if tether was forced to sell off its US dollar reserves to meet customer redemptions.
Another motive for the hedge is because of the allegations that Tether has not been truly backed by USD audited reserves. On the other hand, Tether officials have denied that such dangers exist. Tether debunked rumors in June that its portfolio was “85 percent backed by Chinese or Asian commercial paper,” calling them “completely false” and probably generated by people attempting to capitalize on an already overheated market.
Tether Finally Regains Peg
The open interest (OI) for USDT-USD perpetual futures shot from $105 million on May 10th to nearly $300 billion on May 12th as de-pegging worries rose, this is according to CoinMarketCap data.
“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,” Leon Marshall, head of institutional sales at Genesis Global Trading, said in a statement.
Furthermore, since the fall of UST in May, the stablecoin market has taken a significant hit as investors have redeemed large quantities of USDT. According to reports, investors withdrew $1.7 billion from tether in one week in mid-June.
Tether, however, has regained its peg recently, with the market capitalization stabilizing, hedge funds have been therefore forced to walk away. Tether (USDT) has done this after 68 days of being delinked from the dollar and trading at a discount, making it the ecosystem’s most reliable stablecoin. On July 19, according to Kaiko’s research, the USDT finally had a correlation with the dollar.
On the other hand, after the market situation improved and USDT regained its peg, the value of tether’s outstanding supply started to increase again. The market capitalization of USDT also began to stabilize at around $65 billion.
USDT 24-Hour price chart, source: Trading view
In conclusion, it appears that the hedge funds shorting USDT have lost a lot of money on their trades. The market situation has also forced many of these hedge funds to close their short positions on USDT. It is likely that the hedge funds that are still shorting USDT are feeling the squeeze as the price of bitcoin and other cryptocurrencies continue to price cut.
Do you think Tether`s price will continue to surge despite recent occurrences? Let us know in the comment section.
