Tether’s recent audit has revealed the possible reasons behind its latest aggressive buyouts. Specifically, buying gold and Bitcoin ($BTC) in massive amounts denotes its significant strategy when taking into account likely rate cuts by the U.S. Fed. As per Arthur Hayes, the founder of BitMEX, the latest audit of Tether presents its high bet on Bitcoin ($BTC) and gold as it anticipates a potentially upcoming Federal Reserve rate cuts. Thus, with this move, the platform is hedging against the likely cuts as they could slash its interest income.

Tether Doubles Down on Gold and Bitcoin Amid Anticipation of Fed Rate Cuts

The market statistics suggest that, to counter the possibility of rate cuts by the U.S. Fed, Tether is aggressively buying Bitcoin ($BTC) and gold. Additionally, Arthur Hayes has warned that a thirty percent dip in the respective gold-$BTC holdings could result in the wipe out of the equity of Tether. Hence, this raises the questions about the solvency of Tether’s native stablecoin, $USDT.

The reserve breakdown points out that Tether currently holds a cumulative $181.2B in total assets that back the fiat-denominated tokens thereof. Additionally, approximately $140B is sitting in cash equivalents as well as short-term deposits, taking into account $112.4B in U.S. Treasury Bills. At the same time, $78B stands in overnight reserve repurchase contracts. Moreover, smaller allocations take into account $6.4B in money market funds, $47.9M in Treasury Bills outside the U.S., and $30M in total bank deposits.

Arthur Hayes Warns of Insolvency Risk for $USDT in Case of Failed Hedge

According to Arthur Hayes, the strategy of Tether hinges on the possibility that Fed’s likely rate cuts will raise the prices of Bitcoin ($BTC) and gold. Nevertheless, he has warned that the respective bet exposes the platform to a huge downside risk. Therefore, a decline in asset prices, in the case of a failed hedge, could lead to equity erosion, rendering $USDT insolvent. Ultimately, such a scenario, while still speculative, has increased demand for more transparency from exchanges and institutional holders.