Tether invested 75% of its reserves in high-risk assets such as commercial papers, government bonds, and commodities. If there were cuts in investments in USDT, this would lead to the sale of other cryptocurrencies.
Caitlin Long is the founder and CEO of American Bitcoin bank Avanti Financial Group. She said that the current situation of stablecoins could be directly related to the fall in Bitcoin’s price.
The businesswoman talked about a recent report from Tether (USDT) on how it manages its users’ reserves. She stated that it could have led to a massive sale of cryptocurrencies since May 12th. No one knows yet the data but Long considers that it caused “a negative surprise”. According to her, it details that Tether invests 75% of its reserves in commercial papers and other high-risk assets.
She believes that investment advisers to cryptocurrency funds will advise cuts in Tether to reduce risk exposure. If investors’ portfolios had a 5% or 10% cut in USDT, this would lead them to sell other cryptocurrencies to reduce the overall risk.
Furthermore, Long said that credit risk rose the probability of default and the severity of losses. That suggests a higher risk that Tether is worth less than USD 1, amid a market correction. This would take the cryptocurrency markets even lower, as already happened on several DeFi platforms that made cuts in USDT.
This is not the first time that Tether and the management of the reserves that support the cryptocurrency receive questioning. Members of the community even reiterated it at the beginning of April after a new report from the company. However, it is public knowledge that they invest these reserves in high-risk assets such as commercial papers, government bonds, and commodities. This situation leads the businesswoman to say that the “new questions” that may arise will need new answers.
Long highlighted that this decision was deliberate as Tether now has access to stock markets. In contrast, there were “partial explanations” for these issues on previous occasions. “Why take so many risks with users’ reserves? Why add more controversy?” she questioned.
Caitlin Long Predicts the Future of Stablecoins
On her Twitter account, Caitlin Long continued to express her opinion on Tether’s behavior. She said that this could lead cryptocurrencies to remain tied to corrections of the market or, even worse, the crash of stablecoins.
According to the businesswoman, it would be completely possible to avoid the latter. She also stressed that it is necessary to take care of users’ money.
Long made it clear that she will continue to defend Tether as an important technology and a bridge with the US dollar. The businesswoman has expressed her support for the commercial regulation on cryptocurrencies, which confirms it.
However, she said that she cannot defend Tether’s choices about its investments. She also disagrees with the fact that they have not disclosed data on the risks that they have taken. She considers that it is a wasted opportunity and something negative for the cryptocurrency industry.
By Alexander Salazar
