Despite its undeniable success and the clout of its USDT stablecoin, Tether remains the perennial crypto giant that everyone loves to bash. The latest example: a doomsday scenario imagined by Arthur Hayes regarding its diversification into gold and Bitcoin.
Tether: Could Diversification into Gold and BTC Make USDT Insolvent?
The growth of the cryptocurrency sector has already given rise to several giants, including the undisputed leader of the stablecoin market, Tether, and its USDT, currently valued at $185 billion—representing over 60% of the market share.
A position it has secured despite frequent criticism regarding its high level of centralization, as well as the management of its reserves, which is considered too opaque. As a result, the company continues to accumulate successes and profits while simultaneously being excluded from major regulatory jurisdictions such as the European Union and the United States.
A paradox that has sparked widespread speculation about its true strength or its ability to guarantee the solvency of its USDT stablecoin. This latest line of questioning has been brought back into the spotlight by investor Arthur Hayes, in light of what he identifies as the “beginning of the first rounds of a massive interest rate trade.”
Indeed, the co-founder and former CEO of the cryptocurrency exchange platform BitMEX believes that Tether’s latest quarterly report highlights a corporate strategy aimed at countering a potential cut in Fed rates, “which would crush the interest income” from its reserves, which are heavily exposed to U.S. Treasury bonds.
Tether’s latest quarterly report mentioned by Arthur Hayes
In response, they are buying gold and BTC, which should theoretically skyrocket in value as the price of silver falls. But a drop 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 post, Arthur Hayes appears to be predicting the imminent insolvency of USDT, linked to the current decline in Bitcoin and the correction triggered by the price of gold since its last peak—all due to Tether’s diversification policy, which is supposed to ensure greater stability.
A new attempt at FUD against Tether, according to its CEO Paolo Ardoino, orchestrated by “certain influencers who are either bad at math or incentivized to promote [its] competitors.” And for good reason: its latest quarterly report also notes that “Tether will continue to maintain a reserve buffer of several billion dollars and the Group’s total equity approaching $30 billion.”
A doomsday scenario also called into question by former head of crypto research at Citi, Joseph Ayoub, after “hundreds of hours spent writing research on Tether.” Indeed, he explains how the reported assets differ from the company’s actual assets and how Tether stands out as “one of the most cash-generating companies in the world” with only 150 employees.
All of this allows us to estimate the value of their equity somewhere between $50 billion and $100 billion. Even though they indicated they were seeking to raise $20 billion at a 3% valuation, which would value them at around $500 billion. That probably won’t happen, and it’s likely overvalued, but it’s still very valuable equity.
Joseph Ayoub
Just an attempt to manipulate the market?
So many denials that call into question Arthur Hayes’ claims, which are considered alarmist to say the least. All the more so when considering his recurring attempts to sway the market in his favor, coupled with a stated desire to see “the mainstream media go wild over this.”
Are we not rather witnessing a strategy designed to trigger a more significant decline in the crypto market, with the aim of finding a good entry point? A possibility very clearly considered by the founder and CEO of the analysis firm CryptoQuant, Ki Young Ju:
Translation: I’m currently in a bad position, and I want crypto prices to drop so I can buy at lower levels.
Ki Young Ju
It’s a serious question.
