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Tether investors are not seeing ‘a whole lot of utility’ amid crypto fallout: Reporter

Semafor Business & Finance Editor Liz Hoffman joins Yahoo Finance Live to discuss the state of tether and how it's faring amid the crypto market meltdown.

Video transcript

DAVE BRIGGS: All right, today, our Jennifer Schonberger interviewed SEC chairman Gary Gensler about the crypto collapse. Here's what he had to say.

GARY GENSLER: There's about 10,000 of these crypto tokens. And then there is not just dozens, but maybe hundreds of service providers, broker dealers. They might call themselves exchanges. Some might call themselves other things. You might think of them as the casinos, where wherein the investing public is looking for a better future. And because most of these tokens are securities, that means that the storefronts, if you wish, or the casinos, need to come into compliance with their time tested laws.

DAVE BRIGGS: More from that interview later in the show, but in the weeks following the FTX collapse, the question has turned to when, not if, the next domino falls, and whom it might be, how widespread will the damage be. Is there any longer such thing as an actual stablecoin? Well, Liz Hoffman is a writer at semafor.com. She's been reporting on this story. Liz, good to see you. How stable is the stablecoin Tether?

LIZ HOFFMAN: So far, it's mostly held up. And we should explain the stablecoin, the idea is that it's tied to something. Its price is pegged to something else. Most of them are pegged to the US dollar, but there are some that are pegged to euros or gold. And the idea is that you give them your money, they give you a stablecoin, and when you want it back, you can get it back at exactly that $1 peg.

So these things should trade kind of like money market funds, right at $1, and if they start to, quote unquote, "break the buck," that's when things get [INAUDIBLE]. Tether has dipped under it a couple of times. It's regained its ground, for the most part, since the FTX collapse. But the real concern about Tether is the assets that it holds. But what did it do with customers' money once it got it, and how liquid is that cash? Could they get it back if they needed it? And everything is seizing up across the crypto ecosystem.

SEANA SMITH: Yeah, and Liz, that's a big question. I know you dug deep into this, just in terms of what this could potentially mean, how big of a risk this does mean, or this could be, for investors. So what did you find?

LIZ HOFFMAN: So Tether, the last sort of disclosure they made was in September. And they had about $69 billion of assets. The vast majority, 82% of which, was in things that look pretty liquid, things like treasuries, cash, some reverse repurchase agreements, but things that, if they are what they say they are, should mostly be fine.

The problem is that when you get redemptions, you have to sell the stuff that you can sell. And so over time, the less liquid parts of the balance sheet, what you're looking at there, the other investments, which appear to be mostly equity stakes in crypto startups, secured loans-- again, they're lending against tokens-- that stuff is much harder to sell.

And so if there's a lack of confidence, and you start to see real reserves come out of that company, people wanting their money back, they're going to have to sell the stuff they can sell, which means the stuff they can't start to make up a larger percent of what they own.

DAVE BRIGGS: And to that point, investors have pulled 4 billion out since late October. Why? And what's been the impact?

LIZ HOFFMAN: Well, in part, everyone is just freaked out, right? This was a-- the FTX collapse is just a real life existential moment for confidence in the crypto ecosystem. The other thing, though, is that there's a couple of reasons you might want to own Tether. Certainly, if you're just bearish on crypto and you like the space, but it's also sort of a token that you can use within crypto ecosystems. You get some trading benefits. Sort of, it's a pretty easy way to move around.

You might think about it, if you go to a video game-- video arcade and get a bunch of tokens, they're helpful to have. There's just a lot less of that happening right now, right? A lot of people have just been totally scared out of the crypto business or sitting on their hands. So there's not a whole lot of utility. There's not real reason to own Tether if you're not doing a lot of crypto trading.

And you're not getting really compensated for the risk of whatever else is on their balance sheet, whereas you can put your money in treasuries and get 4% these days. So it's really a push and a pull that people really got scared and driven out, but also if you're not playing in the arcade, there's not a whole lot of reason to own a bunch of tokens.

SEANA SMITH: Well, Liz, let's do a scenario here. What if it fails? Talk to us just about the ripple effect, how concerning that would then be for the entire crypto industry.

LIZ HOFFMAN: Thether is hugely popular. If you think about it like a stock, it's got a market cap of-- in the $60 billion range. Obviously, not quite as big as some others with Bitcoin and Ether, but it's big, and it's held in a lot of places, and it is the collateral for a lot of loans. It's a thread that, if you start to tug on it, could unravel very quickly. I should say, outflows have stabilized in the last couple of days. They have said very publicly that they are perfectly solvent, perfectly liquid, that they will be fine.

But I think if you look at FTX, I want to be a little careful because there's some underlying behavior at FTX that's problematic. When confidence comes out of these systems, it just comes out all at once, and you end up with what looks to most laypeople like a run on the bank, and it just happens incredibly fast.

SEANA SMITH: Liz, when you take a look, I guess, if people are interested in crypto, don't really know where to put their money, a little bit spooked about everything that's played out within that industry over the last several months, from your reporting, I guess, where would you identify the safest places to be at this point?

LIZ HOFFMAN: I try very hard not to give financial advice, particularly in crypto. Look, Bitcoin has held its value better. I mean, we all remember a time a year ago, it was 50,000, 60,000. It's now around 16. And it was, I think, a little over 20 before FTX went under. But that seems to be-- people have, more or less, gotten their head around that there will be some, more or less, permanent value there. So that's held up pretty well. Ether has held somewhere between 1,000 and 1,500 for a while. So those seem to be the winners in all of this, but as we've seen, the stuff can just change so quickly.