US hedge fund Fir Tree attempts to short tether: report

New York-based hedge fund Fir Tree Capital Management has reportedly placed a short bet on tether, citing question marks over the level of reserves backing the popular stablecoin.

The rationale for Fir Tree’s trade centers around the commercial paper owned by Tether Holdings, the organization behind the tether stablecoin, Bloomberg reported on Friday, citing unidentified investors in the fund.

Tether’s most recent attestation report showed the company’s holdings of commercial paper, a form of short-term debt issued by corporations, reduced from $30.5 billion to $24 billion in the fourth quarter of 2021. The stablecoin issuer is required to publish public attestations about its reserves as part of a settlement with New York regulators.

Fir Tree’s short bet thesis is reportedly based on the expectation that Tether’s commercial paper holdings will suffer a significant decline in value thanks to China’s ongoing real estate crisis. As such, the $4 billion hedge fund expects the bet could pay off within the next 12 months.

The hedge fund is hardly the first to consider shorting tether. In response to Bloomberg’s report, Jeff Dorman, chief investment officer at crypto asset manager Arca, tweeted a link to a research report from July 2021 where he concluded that, “While everyone wants to play George Soros and break the Bank of England, actually making money doing this is nearly impossible and highly unlikely.”

Tether’s reserve backing continues to be a subject of much speculation in the crypto space with US Congressman Warren Davidson recently calling the situation “a time bomb.” Tether currently commands 45% of the total stablecoin market supply, according to The Block’s Data Dashboard.

Fir Tree didn’t immediately respond to an email from The Block seeking comment.