Arthur Hayes warns Tether's Bitcoin and gold bet exposes it to major downside risk

Key Takeaways

• Arthur Hayes suggests Tether is in the early stages of a massive interest-rate trade, betting that Fed cuts will hurt Treasury income but send Bitcoin and gold higher.
• He argues that a major drop in Bitcoin and gold positions could wipe out Tether’s equity.

BitMEX co-founder Arthur Hayes argues that Tether is positioning itself for an upcoming Fed rate-cut cycle by shifting a greater share of its reserves into Bitcoin and gold.

Hayes wrote on X on Saturday that Tether’s most recent attestation suggests the firm is preparing for a rate-cut environment, which would reduce returns on Treasuries but could drive up the price of Bitcoin and gold.

However, the analyst cautioned that a sharp decline in those riskier assets could strain Tether’s equity cushion and reignite long-running questions about USDT’s solvency.

According to the latest reserve report, Tether holds around $181 billion in assets to back USDT. The bulk of this is in cash and liquid securities, including Treasury bills, repo, and money market instruments.

Other holdings include nearly $13 billion in precious metals, close to $10 billion in Bitcoin, and more than $14 billion in secured loans, along with several smaller investment categories.

Tether was recently assigned a “weak” stability rating by SP Global Ratings after boosting its holdings of riskier assets, including Bitcoin, within its reserves. SP noted that this approach increases the likelihood of undercollateralization in the event of heightened crypto market stress.

In response, Tether said the SP’s rating framework is outdated and does not reflect the scale of its daily settlement flows.