Arthur Hayes Warns: Tether's Risky Bet on Fed Rates Could Endanger USDT

Summary: Arthur Hayes, co-founder of BitMEX, has raised alarms about Tether's precarious bet on interest rates which may jeopardize the stability of USDT. By analyzing Tether's attestation report, he notes that significant declines in Bitcoin and gold holdings could lead to insolvency. Hayes believes that Tether's strategy relies heavily on expectations for Federal Reserve rate cuts, impacting their income from fixed-income assets.

Key Takeaways

Arthur Hayes warns that Tether's current interest rate strategy poses risks to USDT's solvency.
A 30% decrease in Tether's Bitcoin and gold assets could wipe out its equity.
Tether holds $9.86 billion in Bitcoin and $12.92 billion in gold.
Hayes questions the sustainability of Tether’s strategy and anticipates increased scrutiny from large holders and exchanges.
Tether is shutting down its mining operations in Uruguay due to failed electricity negotiations, resulting in staff layoffs.

Arthur Hayes Tether USDT

Hayes Raises Concerns Over Tether's Financial Strategy

Arthur Hayes has expressed concerns that Tether is engaging in a risky interest rate strategy. He recently shared insights from Tether's attestation reports, pointing out that a substantial downturn, specifically a 30% drop in their holdings of Bitcoin and gold, could eliminate the equity backing USDT.

According to Hayes, Tether's investments amount to $9.86 billion in Bitcoin and $12.92 billion in gold. He elaborated on X (formerly Twitter) that Tether appears to be betting on potential cuts to Federal Reserve interest rates, an action that could severely reduce their income derived from U.S. Treasury bills and other fixed-income products.

Hayes Challenges Tether’s Financial Calculations

“The Tether team seems to be in the early stages of a significant interest rate speculation,” Hayes commented. “Their strategy involves purchasing gold and Bitcoin, anticipating that these assets will surge as interest rates decrease.”

He elaborated further, noting that if Tether's combined positions in gold and Bitcoin were to drop by around 30%, it could lead to insolvency for USDT. “In such a scenario, USDT would theoretically be insolvent,” he highlighted.

Hayes anticipates that larger USDT holders and exchanges will demand real-time access to Tether's balance sheets to assess any potential solvency risks. “Get your popcorn ready; I expect mainstream media to have a field day with this,” he added.

In response to Hayes' remarks, a user on X provided a defense of Tether's position, asserting that their purchases of Bitcoin and gold were made from profits and excess reserves instead of newly minted USDT. “They only issue new tokens when there is demand, using accumulated surplus for Bitcoin and gold,” the user explained.

Still, Hayes debunked this rationale. “That was my assumption, too. But if that’s the case, then why are their cash assets, as they define them, lower than their total liabilities? What am I missing here?” he replied.

Tether’s Mining Operations in Uruguay Cease

In a related development, Tether has announced the closure of its mining operations in Uruguay due to unsuccessful negotiations over electricity pricing. As a result, the company will lay off approximately 30 of its 38 employees in the region as operations cease.

Currently, Tether maintains total reserves of $181.22 billion, which back the circulating USDT tokens. Notably, U.S. Treasury bills represent the largest asset category, amounting to $112.42 billion. Additionally, Tether possesses $17.99 billion in overnight reverse repurchase agreements and $6.41 billion in money market funds.