Regulators need to step up scrutiny on Tether amid fresh turbulence hitting the crypto industry, as some hedge fund firms are shorting the world’s third-most traded token, warned the CEO of a leading financial advisory and fintech.
“Following weeks of turmoil in crypto, there’s now another matter on the horizon: reports that some hedge funds are shorting Tether, the $66 bln stablecoin,” said deVere Group’s Nigel Green.
“If true, it suggests that they are hoping to cash in on bets of issues with the token. It signals that they believe recent turbulence in the market could drag Tether’s value below its flagged-up 1-to-1 exchange with the U.S. dollar.
“This scenario would be extremely damaging to the wider digital assets ecosystem,” Green said.
Tether (USDT) is a stablecoin, which is pegged to a currency, in this case, the U.S. dollar.
Stablecoins’ name highlights the idea that the peg supposedly makes them less volatile than cryptocurrencies such as Bitcoin or Ether, which can vary widely in value.
When a stablecoin is established, there is a reserve for the assets, which are held as collateral.
“How Tether is backed remains a mystery – there are no undisclosed audits. But due to its promise of 1-to-1 with the dollar, it should have at least $66 bln in reserves to support the coin,” said Green.
“With all the recent drama in the crypto market, we urgently need greater transparency. I am calling on Tether to reveal the extent of their holdings to finally put to bed the speculation, which drives fear, uncertainty and doubt.”
The deVere chief executive also called for greater regulatory scrutiny of the token and the wider industry.
“The U.S. Commodity Futures Trading Commission (CFTC) stated in its recent court filing against FTX founder Sam Bankman-Fried that digital assets like Tether are commodities. As such, they have the authority to ramp up their oversight on the token.”
“What’s needed is a strong regulatory framework to be established and approved at an international level,” said Green, a long-time advocate of the regulation of cryptocurrencies as digital currencies are set to play an ever-greater role in the international financial system.
“Such regulation will help protect investors, tackle cryptocurrency criminality, and reduce the possibility of disrupting financial stability, as well as offering a potential long-term economic boost to those countries which introduce it.”
He had earlier noted that one of the best ways to address some of the regulatory issues was via exchanges.
“Nearly all foreign exchange transactions go through banks or currency houses and this is what needs to happen with cryptocurrencies. When flows run through regulated exchanges, it will be much easier to tackle potential wrongdoing, such as money laundering, and make sure tax is paid.”
“As recent events underscore, greater transparency and regulation is urgently needed in the industry if the crypto ecosystem is to thrive and fulfill its massive potential,” Green concluded.