The holdings had a notional value of at least "hundreds of millions" of dollars, according to one trader.
Nearly a month after the collapse of terraUSD (UST), crypto-focused hedge funds are progressively shorting the U.S. dollar-pegged stablecoin Tether (USDT) due to the gloomy market outlook, according to a report from the Wall Street Journal on Monday.
Leon Marshall, head of institutional sales at Genesis, said in a statement that there has been a "real uptick" in demand from conventional hedge funds wanting to sell tether.
The positions, according to Marshall, were valued at least "hundreds of millions" of dollars.
Digital Currency Group's subsidiaries Genesis and CoinDesk are separate entities.
After the multi-billion dollar collapse of UST, according to Genesis, short holdings grew.
In late May, prices of the algorithmically regulated stablecoin fell to a few cents, damaging the danger of contagion in the cryptocurrency industry and affecting well-known crypto lenders and trading funds.
As the U.S. Federal Reserve increases interest rates to combat inflation that is at a 40-year high, some funds are betting against USDT as a wager on the overall economy.
Others are worried about the quality of the assets supporting tether, according to WSJ.
According to the company that issues stablecoins like Tether, these assets include "commercial paper," bank deposits, bonds, gold, and cryptocurrencies.
Since UST's collapse in May, the stablecoin market has suffered as a result of significant USDT redemptions by investors.
According to reports, investors withdrew almost $1.7 billion from Tether in only one week in the middle of June.
Since mid-May, according to CoinGecko statistics, Tether's market valuation has decreased by more over $20 billion.
The absence of audited reserves and the obscurity surrounding the asset's true backing are two reasons why funds like Fir Tree Partners and Viceroy Research LLC have previously bet against Tether.
Tether representatives, meanwhile, have disputed that such hazards exist.
Tether said in June that claims that its portfolio was "85% backed by Chinese or Asian commercial paper" were "absolutely incorrect" and were probably spread by someone hoping to make "extra gains from an already pressured market."
According to a MarketWatch interview with a Tether representative from April, the short-sellers seem to be engaged in a "smart technique to acquire cash from people less educated, by leaning on misinformation with the eventual objective of earning a management fee."