Despite its undeniable success and the strength of its USDT stablecoin, Tether remains the eternal crypto giant that everyone loves to bash. The latest example is a worst-case scenario imagined by Arthur Hayes in relation to its diversification into gold and Bitcoin.
Tether: could diversification into gold and BTC render USDT insolvent?
The development of the cryptocurrency sector has already given rise to a few giants, including the undisputed leader in the stablecoin market, Tether, and its USDT, currently valued at $185 billion, representing more than 60% of the market share.
This position has been achieved despite repeated criticism of its high level of centralization and the perceived opacity of its reserve management. As a result, the company has enjoyed success and profits while at the same time being excluded from leading regulatory jurisdictions such as the European Union and the United States.
This paradox has given rise to much speculation about its actual strength, or its ability to guarantee the solvency of its USDT stablecoin. This latest question has been raised again by investor Arthur Hayes, in response to what he identifies as the “beginning of the first rounds of a huge trade on interest rates.”
Indeed, the co-founder and former CEO of the BitMEX cryptocurrency exchange platform believes that Tether’s latest quarterly report highlights a strategy by the company to counter the possible Fed rate cut, “which would crush interest income” from its reserves, which are largely exposed to US Treasury bills.
In response, they are buying gold and BTC, which should theoretically explode in value as the price of silver falls. But a decline of about 30% in these positions would wipe out their capital, and then USDT would theoretically become insolvent.
Arthur Hayes
New FUD against Tether, according to its CEO Paolo Ardoino
With this publication, Arthur Hayes seems to be announcing the imminent insolvency of USDT associated with the current decline in Bitcoin and the correction triggered by the price of gold since its last peak, due to Tether’s diversification policy, which is supposed to guarantee greater stability.
A new attempt at FUD against Tether, according to its CEO Paolo Ardoino, organized by “certain influencers who are either bad at math or incentivized to promote [its] competitors.” And with good reason, as its latest quarterly report also points out that “Tether will continue to maintain a cushion of excess reserves of several billion dollars and total Group equity approaching $30 billion.”
This worst-case scenario is also questioned by Joseph Ayoub, former head of crypto research at Citi, after “spending hundreds of hours writing research on Tether.” He explains how the reported assets differ from those of the company and how Tether stands out as “one of the most efficient cash-generating companies in the world” with only 150 employees.
All of this allows us to estimate the value of their equity at somewhere between $50 billion and $100 billion. Even though they have indicated that they are looking to raise $20 billion for 3%, which would value them at around $500 billion. This is unlikely to happen, and it is probably overvalued, but it remains very valuable equity capital.
Joseph Ayoub
A simple attempt to manipulate the market?
All these denials call into question Arthur Hayes’ claims, which are considered alarmist to say the least. This is especially true when you consider his repeated attempts to steer the market to his advantage, combined with a clear desire to see “the mainstream media go wild over it.”
Could this instead be a strategy designed to trigger a more significant decline in the crypto market, with the aim of finding a good entry point? This is a possibility that has been clearly considered by the founder and CEO of the analysis firm CryptoQuant, Ki Young Ju:
Translation: I am currently poorly positioned, and I want crypto prices to fall so that I can buy at lower levels.
Ki Young Ju
This is a serious question.
