For stocks I agree, but here tether isn't ever going to go much above $1, right? So the downside of shorting is just that it ties up a lot of capital, right?

Counter-party risk is the issue. The only places you might be able to short for real dollars will require you post up collateral for your short. Then once the wheels fall off they'll declare bankruptcy and keep your collateral.

'declare bankruptcy' is optimistic. More likely is that they disappear completely/fake their own death in a weird jurisdiction/get killed by gangsters/go to prison for child porn, etc.

Exchanges don’t just say it; they declare it ;)

Wouldn’t you be paying for time decay on any short positions?

Time decay happens on options. You pay interest on the tether you borrow.

Thanks, this clarified what’s going on for me.

That means you’ll still be paying interest for whatever period you’re holding the position, which really isn’t that bad depending on the rates. However, not to detract from the thread I would think other concerns like market irrationality and delisting still applies.

If you short the futures I don't think you'd be as affected by delisting of the spot, but the price calculation at settlement time could be dicey

Not just at settlement, if one of the index exchanges goes insolvent and the price of BTC goes parabolic, it may push your short position past your brokers assigned personal risk tolerance for your account and they'll liquidate you. You'll be right, but broke.

I don't think FTX has any policy on this matter other than that they will liquidate you if you are sufficiently under-collateralized. A move in the price of an unrelated asset would not cause you to be under-collateralized.

I'm referring to a real SEC regulated broker like InteractiveBrokers which allows you to buy and sell /BTCG1 futures. The price of the /BTCG1 future is calculated based on a blended average of the spot price at a bunch of other exchanges (the "Bitcoin Reference Rate" or, humorously, BRR).

The current maintenance margin for a /BTCG1 contract is 40%. You're required to have enough margin to cover 40% of the notional value of the contract which is 5 BTC, roughly $100,000.

Let's say you only have $200,000 of margin. A parabolic move towards infinity in the BRR due to insolvency in some of the exchanges involved in the calculation may double or triple the price of BTC. Further, the high volatility may increase the margin requirements beyond 40% and up towards 100%. This means you're going to get a margin call, and you either post collateral or get rekked.

Not sure how FTX works.

Sure, that's shorting BTC in an attempt to short Tether. I agree this is a terrible idea.

Don't short the spot.

It costs like a penny per year to short Tether quarterly futures at one venue.