Thread by @LastBearStandng

🚨🚨 Evergrande Update - this time with Tether.
Boy-oh-boy have things gotten interesting...

Caveat up front: this is a theory that has begun circulating in bits and pieces. Below I've tried to summarize the argument and evidence. But its definitely worth a read: 👇👇

2. Its fair to call me strong skeptic, but if you told me three days ago that Tether was providing backdoor financing for the Chinese property sector, I would call you crazy. But my opinion has pretty quickly changed. Sometimes truth is stranger than fiction.

3. By now everyone knows all about the Tether reserves – notably they claim 50% of their reserves are “commercial paper”. Many including myself assumed this CP was just some sort of loan between Tether and the exchanges. But its notably that Tether has emphatically denied this.

4. Tether’s legal game is to say positive true things, while not revealing the bad, true things. so the @dee_bosa CNBC interview yesterday was incredible. Categorically affirming that the CP is real, AA rated Intl CP but refusing several direct questions on whether its Chinese

5. So lets assume they truly do have CP. Its also a pretty direct conclusion to draw that if it wasn't Chinese, and if the borrower wasn't questionable they would be quick to say so

6. This actually gives credence to the idea Tether isn’t just buying BTC itself, since its likely they would have tried to pare down their USDT circulation as soon as it topped in April if they wanted to keep the game alive.

7. Keep in mind CP is short term, very cheap funding for highly creditworthy companies, so rates are incredibly low and borrowing amounts does not fluctuate, and meanwhile Tether’s reserves have exploded. No one in US/EMEA has heard of them

8. Yet this is so odd for many reasons:
-$30bn in 6 months is fuckton of money. Who could need to borrow so much from a new lending channel?
-CP interest rates are nothing – is Tethers game really making a 10bp spread?
-What reputable borrower would do business with Tether?

9. OK – So who in international world needs $30bn of new money, is AA rated or has AA rated subs or banking affiliates, is willing to pay very high interest rates for it and is desperate/shady enough to work with Tether? Well… that’s where things get interesting

10. Reuters reports last week that developer have $550bn of CP outstanding – Evergrande had $32b but author notes actual figure could be much higher and is likely off B/S. reuters.com/business/china…

11. Article describes CP has been a legal loophole which provides short term off B/S funding through affiliates and shell companies, which up until now did not need to be disclosed to regulators. China regulators have just now demanded all developers to report their CP monthly.

12. Ok - At this point, we have a plausible connection but still feels far-fetched… Well here is a whole lot more smoke:

13: Curiously Tether printer continued unbated even long after BTC peaked in mid-April. In fact $15bn more tether was printed between mid-April and its peak in early June – just at the time Reuters reported about Evergrande CP defaults on June 7: reuters.com/world/asia-pac…

14. It would be a chicken-or-egg question to know whether liquidity issues at Evergrande could have impaired Tethers collateral, or a cutoff of Tether financing caused the liquidity issues at Evergrande, but that point is moot.

15. Reuters also notes Evergrande affiliated bank Shengjing Bank is under investigation for alleged it illegally loaned up to $20 billion to Evergrande via direct and indirect channels.

16. JPM Fucking Morgan doesn’t write $20bn loans– so how in the world does a relatively unknown mid-size Chinese bank get that kind of dough, and why is such lending “illegal”? Possible this was over the course of many years, but its smokey indeed

17. Then on July 1st, Fitch comes out with note stating directly that stablecoins – specifically Tether – could disrupt credit markets due to is commercial paper issuance. fitchratings.com/research/fund-…

18. On June 25th, Boston Fed president on stablecoins “I think there's a financial stability concern that a future crisis could easily be triggered as these become a more important sector of the financial market” bostonfed.org/news-and-event…

19. Yellen and Powell in the past weeks each have urged the need to “act quickly” on stablecoins. This is written off as regulators late to the punch but Tether has been around for a while with nearly no focus AND these people all know that USDT isn’t in US money markets at all!

20. Jim Cramer (lol) calls USDT a ticking time bomb two weeks ago saying that he has “Chinese sources” that suggest this paper is Chinese. In order for him to come out and say this publicly my guess is he has a pretty reliable birdie

21. All of this remains conjecture. A lot of smoke, but no smoking gun. But it connect so many dots in a way that it can’t be totally dismissed, namely:

22. Where does Bank of Crypto put its billions?

Who's issues $30bn in AA Intl CP willing to pay anything?

Why did Tether printer stop in June at the same time as Evergrande liquidity dries

Why is Fitch labeling Tether as a systematic risk

Why China now demanding CP info

23. Again – its certainly possible Tether is buying other Chinese bank or developer CP or making up the CP concept entirely. But consider the implications if true: The crypto universe may be riding on the back of China’s collapsing property developers

24. Again – If true – one of these is the borrower and one of these the creditor. Each one on their own could be systematically important.

Update:

reuters.com/markets/rates-…

(h/t @yoloption)