Tether, the issuer of USDT, has long been considered one of the most stable assets in the crypto market, but a recent report suggests that a crash in the Bitcoin price could jeopardize the stablecoin’s solvency. Arthur Hayes, co-founder and CIO of BitMEX, has revealed that a portion of USDT’s reserves is allocated to BTC, potentially exposing it to heightened market volatility.
Bitcoin Price Crash To Threaten Tether USDT Stability
In a recent report shared on X earlier this week, Hayes outlined market risks that could have a devastating impact on Tether’s USDT. The BitMEX founder explained that the stablecoin issuer has been executing a large-scale interest rate trade, likely betting on a Federal Reserve (FED) rate cut.
He stated that the stablecoin issuer has accumulated significant positions in Bitcoin and gold to hedge against falling interest income. As a result, Hayes has warned that if Tether’s positions in both gold and Bitcoin were to decline by roughly 30%, it could wipe out its entire equity, theoretically putting USDT at risk of insolvency.
Since stablecoins are typically backed by the US dollar, the crypto founder has stated that a severe drop in Tether’s reserve value could trigger panic amongst USDT holders and crypto exchanges. In such a scenario, they might demand immediate insight into the stablecoin issuer’s balance sheet to gauge solvency risk. Hayes has also suggested that the mainstream media could further amplify the concerns, creating widespread market alarm.
Analyst Fires Back Against Hayes’ USDT Claims
Following Hayes’ statements on X, Tether’s USDT has come under scrutiny, with crypto analysts debating the resilience of its reserves. A former Citi Research lead, Joseph Ayoub, challenged Hayes’ claims, arguing that even if Bitcoin and gold prices were to crash 30%, a USDT insolvency remains highly unlikely.
He highlighted that the BitMEX co-founder had missed three key points in his post. Ayoub noted that Tether’s publicly disclosed assets do not represent the entirety of its corporate holdings. According to him, when Tether issues USDT, it maintains a separate equity balance sheet that is not publicly reported. The reserve numbers that are eventually disclosed are intended to show how USDT is backed. At the same time, the company maintains a balance sheet for equity investments, mining operations, corporate reserves, possibly more Bitcoin, and the rest distributed as dividends to shareholders.
Ayoub also described Tether’s core operations as highly profitable and efficient. He stated that the company holds over $100 billion in interest-yielding treasuries, generating roughly $10 billion in liquid profit annually while operating a relatively small team. The former Citi research lead estimated that the stablecoin issuer’s equity is likely valued at between $50 billion and $100 billion, providing it with a substantial cushion against losses in its crypto and gold holdings.
Finally, Ayoub disclosed that Tether operates like traditional banks, maintaining only 5-10% of deposits in liquid assets, while the remaining 85% are held in longer-term investments. He also noted that the stablecoin issuer is significantly better collateralized than banks, adding that with their ability to print money, bankruptcy is virtually impossible.
Featured image from Shutterstock, chart from Tradingview.com
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