Tether probably started exactly as they describe. At some point someone got a smart idea that just storing that USD in bank accounts is stupid, let's invest that to something more profitable. BTC is quite obvious choiuce of investment here.
All is good until someone figured out that if BTC goes down, we are technically insolvent.
Luckily there is a way out, as long as there are people taking USDT at its face value. Keep on printing USDT and using that to purchase BTC so that the price stays high/goes up. There is a limited amount of BTC, so there is a backstop here, you have all the bitcoin of the world as your assets and amount x of USDT on your liabilities. At that point you can say that hey, if someone wants to convert their USDT to USD, it is easy, just buy some BTC with maybe 1 million USDT/BTC, and by the way, our just opened USD/BTC currency pair seems to trade at 999 000 USD/BTC, so you can convert your money that way.
And USDT holders did not even understand that they were fleeced badly, but just should have kept their BTC investments in the first place.
Now, admittably, there is a small catch in this plan. What if people lose trust on USDT? Well, god news is that at that point, USDT issuer has on their accounts a significant sum of BTC (and unless they are complete idiots), a significant sum of USD. So it is likely that they figure out a solution for themselves that may include linving rest of their lives on some remote paradise island. USDT and BTC investors, then again, may not be so lucky...
You are in my opinion exactly right. But the implications are huge and it likely means that the whole cryptocurrency market is sort of fucked, and we are just waiting for the music to stop at this point.
8 months before the 2007-2009 CDO crash, there was rumors among my smart fiends that things were heading south and there were huge hidden liabilities that the banks couldn't handle. At first, you think they are conspiracy guys, but eventually I came around and saved myself a lot of money. It was against a situation where if things went up, one was okay, but if things went down you found out some people couldn't meet their obligations in a really big way: https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
I feel like we are in the same situation. Informed people are putting together the pieces but the music hasn't yet stopped.
Bitfinex and some other exchanges list their crypto prices in USDT and most people trading on their platform probably don't realise this is not dollars. So there's your guaranteed demand. As long as those buyers HODL there is no pressure on USDT.
If they are people who are being defrauded into believing that they are selling bitcoin for USD when they are actually selling it for USDT, then yes we should be worried because fraud is a crime.
Tether story is extremely interesting in the crypto world because it goes against everything crypto currencies like bitcoin were supposed to be:
- it's completely centralized, a single actor emits tethers.
- it's completely opaque as it relies on the trust that the actor that emits tethers actually has the money to back the claim that 1 tether == $1, yet you cannot redeem a tether for a dollar directly. Bitfinex TOS even say that they don't have to give you dollars for your tethers, I'm not making this up.
Tether is shrouded in secrecy yet crypto traders happily trade them, despite the fishy history of bitfinex a company no respectable bank wants to make business with. How can anyone think this is going to end well?
> Bitfinex TOS even say that they don't have to give you dollars for your tethers
That bit's not entirely true. I believe it was but hasn't been since Jan 1. The actual wording is
"Tether will not issue Tether Tokens for consideration that is other Digital Tokens (for example, bitcoin), and will not redeem Tether Tokens for other Digital Tokens; only money will be accepted upon issuance, and only money will be provided upon redemption"
There are various other caveats requiring you not to be a criminal etc but that's fairly standard boilerplate.
> data suggests that Tether may not be minted independently of Bitcoin price and may be created when Bitcoin is falling
That should be obvious during normal Tether operation - price movement corresponds to increased liquidity. When funds move to dollars, Tether creates tokens to defend the price, otherwise the sell side of the tether pairs will dry up, forcing their price over 1$ where they would cease to be a stable useful unit.
This market driven creation of tokens is the main way tethers are created today. It's an open question if the Tether corporation has enough assets between it's bank accounts and exchange accounts to redeem the outlays - especially the exchange accounts are problematic, since they are of unknown liquidity. So Bitfinex might owe 1 billion dollars to Tether, but Tether might be in fact unable to cash them and unwilling to do so due to the close corporate relation.
But this "report" is a statistical farce from someone who doesn't understand anything about how it's supposed to work.
> Tether creates tokens to defend the price, otherwise the sell side of the tether pairs will dry up, forcing their price over 1$ where they would cease to be a stable useful unit.
This makes sense as to why they have to create Tether during rushes out of cryptocurrency, in order to stablize the price of Tether, but Tether seems to print whatever they want, whenever they want. That behavior is suspect as normally printing behavior is constrained by financial factors behind such a company. Central banks of smaller countries have tried to peg their local currencies against USD and other such things, but it often breaks those small country central banks when there are big price fluctuations.
I am of the opinion that USDT is not backed by USD but they are basically running a hedging operation, probably primarily invested in cryptocurrencies, in order to cover their expected risk exposure. That all works until a black swan event happens and then we realize that USDT is just a mirage and it is forced to unpeg from USDT (and don't fool yourself that it will appreciate once it is unpegged.)
Basically if you accept this claim that this is how USDT operates then it is a buffer against BTC falling as it injects money into the system at specifically those times.
And then because USDT is also backed by the same cryptocurrency (at least in part, I am pretty sure it isn't backed by actual USD) that it tends to prop up, we are into a incentuous circle that could potentially be popped.
It is scary as fuck that a lot of exchanges deal completely in cryptocurrencies and then also USDT as the only "real currency", but itself is also probably funny money.
I feel like I must be crazy because it seems like so much of this is a house of cards with USDT at the center of it.
> I, and many others, suspect Tether is being used to effectively counterfeit hundreds of millions of dollars of perceived value, which are being immediately reinvested into Bitcoin to keep it from collapsing.
A simple figure to put this in perspective: there are currently $2,248,665,722.36 (that's $2 billion) Tether in circulation, which are all supposed to be backed 1:1 by USD.
I strongly believe that USDT isn't fully backed by USD. They have repeatedly said it is but I do not believe it.
Now we have a bit of proof that Tether has been lying or misleading via this Bitfinexed employee?
If it is backed by one or more cryptocurrencies that is better than nothing, but it means that there is significant risks that in a large market correction in cryptocurrency the backing of USDT can vanish from underneath it.
Back in the dotcom bubble nearly every company was causing the market to go up because they were all spending VC. It was sort of an fragile ecosystem because no one was making money, but everyone was spending it, and then the music stopped and a good portion were wiped out.
The music could stop and USDT could run into significant issues.
I am reminded of the movie The Big Short. I do think there is a bet here (like many others), but how to actually realize it and also how long will it take for this to be exposed?
"The Market Can Remain Irrational Longer Than You Can Remain Solvent"
The picture in that tweet (IMO) only states that a lot of people who get their hands on USDT didn't buy them with USD but with crypto (on any of the big no FIAT exchanges like Binance, Bittrex, etc).
This can at some point create a price difference between USDT and USD that people who do have access to redeem Tether will arb - the people buying USDT on these exchanges are driving up the demand for USDT. IMO seeing anything else in that comment is conspiracy (which might or might not be true, but you can't read that out of the comment).
>> this Bitfinex employee comment suggests it could be other cryptocurrencies
If it's other crypto then surely the backing of tether is at-risk in any market crash just as much as any other crypto-currency. Surely that entirely defeats the whole point?
Do you consider it credible that they have received, this year so far, somewhere between 5 and 10% of the entire volume of fiat currency that has so far been put into cryptocurrency in its entire history so far ? And between 10 and 20% since tether was launched? Without much in the way of formal banking arrangements?
I don't really. And the more you look at their activities the more suspect it looks, tether magically appearing in their hundreds of millions to prop up the markets when they look like falling further, it all looks very, very much like market manipulation and lies.
> Do you consider it credible that they have received, this year so far, somewhere between 5 and 10% of the entire volume of fiat currency that has so far been put into cryptocurrency in its entire history so far ?
Yes I do: if we look at the top exchanges volume wise according to coinmarketcap[1] we can see that 5 out of 10 exchanges only support USDT as anything resembling any type of FIAT, and another one has a direct market for USDT into USD (Kraken).
Number 2 on the list is an exchange (Binance) that was launched less than a year ago and does (according to their own data) 3.5 billion USDT in daily volume and according the tether blockchain owns over 500 million tether (technically their users own them).
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So yes I do believe a ton of money is flowing into the tether ecosystem (mostly to these new exchanges that don't do FIAT like Binance, Bittrex, Poloniex, Huobi, etc).
So you believe in all honesty that fees and exchange activity amount to 850 million dollars of brand new fiat deposits to the tether company in the last three weeks alone? From exchanges that don't offer actual USD facilities?
This seems absolutely unbelievable to me, and will continue to do so until there is proof of above-board dealing. As it is we have the opposite - the auditors who were previously in the picture have discontinued their relationship with Bitfinex and Tether.
Those p-values aren't very convincing since I don't see any multiple-hypothesis-testing correction. There's probably still a couple that are significant, but you can't test 24 hypotheses and impress anyone with a p<0.05.
Here's a thought - Bitfinex has been one of the largest exchange. Today's coinmarketcap says they had 500 million in volume. Assuming 0.11% charge that is nearly 50k in fees today or 15 million a month. And this is just in bitcoin. I assume that they are doing equally good in other pairs too. So, if someone is funding them with an eye to become the biggest player in the market like Uber, Amazon etc, this might be feasible.
Or they can be taking out a line of credit on the future cash flows from the exchange fees.
Without knowing the full picture this might be just speculation on whether they have the money.
The unwinding might come from their funding (or line of credit) running out. At least that is my theory.
>> Here's a thought - Bitfinex has been one of the largest exchange. Today's coinmarketcap says they had 500 million in volume. Assuming 0.11% charge that is nearly 50k in fees today or 15 million a month.
This month alone they have created 850 million in tethers, with complete opacity about where they might come from. I don't believe that's funding, I think it's printing tethers from nothing.
Many have speculated that a good portion of the volume on bitfinex is wash trading by insiders, who are presumably not paying the same trading fees as everyone else.
in my opinion, the un-tethering will almost certainly come when the market stops valuing 1 USDT at 1 USD.
No amount of crypto handwaving can create fiat balances at actual financial institutions, so this will likely happen when new money coming into the space dries up to the point where it's no longer enough to cover the costs that have to flow out, e.g. from people cashing out and miner's electricity bills.
Here is bitfenix's cold wallet. It is a single address that contains BTC worth 1.6 Billion USD. Bitfenix has had enormous banking problems. I think the most likely answer is that they are backing tether is btc. As they print more tether and/or btc goes down, the amount of btc they have separates from their liabilities.
Purely on the theoretical and speculative level lets go through this. Consider that someone wants to "cash out" their tether. They put it up for sale at 1 USD. Now either the people behind tether buy it at 1$, or it goes to someone who's offering 0.99$ in the hopes it'll be sold later at 1$ (eg. the rate falls). But you say, how can the people behind Tether afford to buy it if they haven't actually been backing their issued Tether?.... Well the answer is it's just one dollar we are talking about, they have plenty of cash, they can afford to give you a dollar to maintain the exchange rate.
But what then when everyone tries to get out at the same time? Well then in the case that they aren't lying, they can just use the USD backing the Tether to maintain the exchange rate. If they are lying, then we see a run on the bank and everything collapses. They get out fine because they were manipulating the market and made tons of cash moving first on BTC, then on the alt-coin of the day, and got out before the downwards tendency caused everyone to want to cash out.
Essentially market manipulation in it's finest, a Ponzi-scheme with people printing their own currency to pump-n-dump not just on one entity, but the entire crypto-space. That's one hell of a story!
What will most likely happen in the event of a run on tether is that all cryptos will rise exponentially on bitfinex as people try to cash out using anything they can, and they’ll crash everywhere else as bitfinex and their users attempt to cash out their cryptos before everything falls over.
Is there any evidence that any USDT/USD trading pairs (of which there are very few) actually allow you to sell USDT and withdraw USD?
You can, presumably do a USDT->BTC->USD set of transactions, but as long as USDT is artifically kept at ~1:1, this is a money losing scenario due to exchange and transaction fees (at least compared to if you could directly go from USDT->USD).
The reason tether boomed lately, is that the crypto market has boomed.
The reason tether has added plenty of $100m USDT while the price is going down, is that people have been selling lately.
People are selling on different exchanges that supports USDT and have no crypto/USD pairs. This creates massive demand for USDT as lots of people are selling. This means that there is an actor who is buying all these cryptos with USDT.
If USDT was fake, and given the size of the crypto market we should see a significant premium on the price on USDT exchanges. However, the inverse is happening. Prices are in Sync. Prices on USDT exchanges are almost always lower, although it is less than 1%.
So whether USDT has 1:1 backing in real dollars or are using other assets: These assets are very well backed. The price has dumped 20-30% in a single day lately and USDT has yet to diverge. The price has dumped over 50% from the top and the price has yet to diverge.
Based on that, you should forecast a massive rally in the coming weeks/months. People who panic sold are very unlikely to withdraw the USDT (both because of the restrictions and because they probably wants to buy lower). I could see bitcoin price going to 40-60k very soon.
PS: This is not financial advice. Trade at your own risk.
>> The reason tether has added plenty of $100m USDT while the price is going down, is that people have been selling lately.
This makes no sense, other than unless you agree that the mass USDT issuance is indeed an attempt to manipulate the market and prevent a crash.
Usually what would happen if people want to sell is the price of BTC or whatever altcoin they want to sell would have to come down to where the buyers want to buy. Instead it looks like Bitfinex are conjuring up tethers from nowhere and propping up the price.
>> If USDT was fake...
We wouldn't necessarily see anything until confidence in USDT ws somehow damaged. That hasn't really happened yet.
Pardon my ignorance here, but are they (Tether) not doing what the established banks are doing with Gold, as in paper money being backed with something of value, normally precious metals? Not saying it's right, just trying to work out if it's a similar sort of situation.
Paper money was once backed by gold, but today it's backed by "nothing." In reality that nothing is some combination of the GDP and the military might of the nation states that issue it.
Paper money is not backed by anything in any of the countries at the moment. You're forced to pay taxes in the native currency, and in some countries you're forced to pay for products/services in the native currency.
Tether are not showing that they have any backing, is the problem, and they're using the currency they create to buy crypto-assets on their own exchange. It looks like they're doing it to try to hold up the price of Bitcoin.
The reason you can't redeem Tether is KYC, and AML laws.
Tether the company doesn't want to deal with small accounts.
What you have in a token tether is a share of an offshore account.
It could be all fake, but knowing how much crypto exchange are making in fees, they are making more than enough money.
They don't need to create a ponzy.
Now if they release an audit, some govs would be interested to pressure some banks.
Tether probably started exactly as they describe. At some point someone got a smart idea that just storing that USD in bank accounts is stupid, let's invest that to something more profitable. BTC is quite obvious choiuce of investment here.
All is good until someone figured out that if BTC goes down, we are technically insolvent.
Luckily there is a way out, as long as there are people taking USDT at its face value. Keep on printing USDT and using that to purchase BTC so that the price stays high/goes up. There is a limited amount of BTC, so there is a backstop here, you have all the bitcoin of the world as your assets and amount x of USDT on your liabilities. At that point you can say that hey, if someone wants to convert their USDT to USD, it is easy, just buy some BTC with maybe 1 million USDT/BTC, and by the way, our just opened USD/BTC currency pair seems to trade at 999 000 USD/BTC, so you can convert your money that way.
And USDT holders did not even understand that they were fleeced badly, but just should have kept their BTC investments in the first place.
Now, admittably, there is a small catch in this plan. What if people lose trust on USDT? Well, god news is that at that point, USDT issuer has on their accounts a significant sum of BTC (and unless they are complete idiots), a significant sum of USD. So it is likely that they figure out a solution for themselves that may include linving rest of their lives on some remote paradise island. USDT and BTC investors, then again, may not be so lucky...