The founder and CEO of Avanti Financial argues that Tether’s recent disclosure of stablecoin reserves may have contributed to the latest decline in cryptocurrencies.
In a series of Twitter posts by Caitlin Long statedthat Tether Holdings Limited’s backing of Tether (USDT) reserves was not invested in “short-term, less risky and liquid securities”, but in credit assets “of unknown quality.”
1/ SOME THOUGHTS on #stablecoins & the #crypto selloff, which are probably connected.
HUGE news last week & it matters far more than @elonmusk or @binance news. A long thread 👇: pic.twitter.com/itRfCfY1d3
— Caitlin Long 🔑 (@CaitlinLong_) May 15, 2021
The CEO of Avanti noted that traders may have felt the need to sell other cryptocurrencies to reduce their overall exposure, given that stablecoin could crash other cryptoassets amid a credit market correction.
“If Tether remains a de facto credit hedge fund by investing reserves in this way, markets can confidently predict that the price of BTC and other cryptocurrencies is likely to have a high correlation with credit markets.” stated Long. “They will be corrected at the same time.”
Long added that authorities may decide to tightly regulate stablecoins following the Tether report, but the cryptocurrency industry could benefit from regulatory clarity:
“One of the best solutions for the industry right now is to get stablecoins on the radar of US regulators, especially the Fed and the SEC. Stablecoins are very important bridges between cryptocurrency and the US dollar. ”
As of March 31, 2021, Tether holds 76% of its reserves in cash and cash equivalents – this includes short-term deposits and promissory notes. Of this figure, the largest share falls on bills – 65%.
Long argues that any potential repercussions in the markets “could be completely avoided” if Tether had invested more in Treasury bills – currently 2.94% of total cash, cash equivalents, other short-term deposits and commercial securities – rather than in riskier assets.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
