An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
bloomberg.com
bloomberg.com
> STOP! and think about what this author has revealed. Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. So long as such a scheme emerges naturally out of the system design, the design is fatally flawed and must asymptotically compound grow to an infinite exchange rate (impossible and unsustainable by definition), or it must ultimately collapse.
> Thus, the author has demonstrated a basic inherent flaw to crypto-currencies that can not be repaired other than by legal estoppel. Legal estoppel will never occur because jurisdiction is off-shored and proving a case by case would generate infinite litigation along with each estoppel creating a crash. This in itself would kill the cryptos as surely as the fatal flaw itself will.
> It is meaningless to argue WHETHER the author's speculation as to Tether's actions are fraud. The ONLY question is if his identifying of the nature of the available arbitrage can exist in reality. If it can, crypto is dead. No other conclusion is available.
https://seekingalpha.com/article/4129543-bitcoin-one-way-go-...
What things are created for and how they actually behave often diverge.
If Tether is backed by loans and not hard cold cash that's a risk and effects the value.
If someone is able to buy Tether on credit, and the credit is actually backed by BTC then there could be a loop.
I'm not sure about the likelihood of this but if Bitfinex is overleveraged somehow then anything is possible. At least I think that was the argument.
Conceivably, a crisis with Tether could affect confidence in the entire cryptocurrency ecosystem, which would put downward pressure on the Bitcoin exchange rate.
It's not clear which of these factors would dominate, so it's not clear what would happen to exchange rates.
But currently Tethers trade 1:1 for USD on multiple exchanges, so markets aren't showing evidence of lost confidence.
That might be the outcome, however:
- If there would be the slightest bit of panic btc transactions would be congested for days.
- If people would loose money by Tether their btc margin positions would be getting closed.
- Because they loose faith in one crypto they would by another?
We saw this in Mt. Gox. When USD withdrawals failed and people suspected Mt. Gox was insolvent, the only way to get money out was to buy BTC and withdraw that. The Mt. Gox exchange rate inflated because everyone knew dollar balances on Mt. Gox were worthless.
If Bitfinex is insolvent and Tether fails, we'll probably see panic selling across the market as people start fearing Bitcoin is a giant tulip scam.
The Tether:Bitcoin rate would rise, but I’m not sure that the Bitcoin:USD price would follow suit.
Indeed, one of the BFX employees accidentally let it out that Tethers are not backed by USD but perceived value of cryptos held by the exchange.
https://mobile.twitter.com/bitfinexed/status/935333097377329...
Anybody claiming that a loop does not exist has to be in some kind of denial.
A good parallel would be that Tesla is valued by the market at 500+ billion, but it's impossible for all shareholders to sell their shares for 500 billion because there are no buyers with 500 billion in cash waiting to buy Tesla stocks, and if anyone tried the price will crash after the first few percent has been dumped.
[0]:https://www.bitfinex.com/order_book [1]:http://fortune.com/2017/11/25/lost-bitcoins/
It appears this kind of arbitrage is designed to push up the price of BTC -- as long as the price keeps going up, people aren't going to withdraw. Once we start to see a sell-off though, the exchanges will stop being able to pay in USD pretty quickly.
My thought is that every time Tether/Bitfinex sees a sell-off happening (which, being an exchange, they can) they issue a bunch of new Tether, push the price higher, and take the money of some more suckers entering the market by selling BTC. If true, this is basically just a ponzi scheme.
Without evidence to the contrary, this is the safest assumption at least. I cashed out a few days ago regardless; but I do think there's a big crash coming. I don't think cryptocurrency is inherently bad, just that Bitcoin is all hype.
USDT is tethered to USD.
A tether is like a fixed (pegged) exchange rate[1], where there is an arbitrage opportunity. But that's not BTC-USD.
[1] https://en.wikipedia.org/wiki/Fixed_exchange-rate_system
Contracting a reputable firm to conduct an in-depth audit and publicly releasing the results would also be a useful step.
"After Wells Fargo severed ties, Tether won’t name its banks"
"On Dec. 2, Bitfinex released a quarterly report announcing it would no longer serve U.S. customers because it’s too expensive to do business with them. This followed Wells Fargo & Co.’s decision earlier in the year to end its role as a correspondent bank through which customers in the U.S. could send money to Bitfinex and Tether’s banks in Taiwan. Bitfinex and Tether filed suit against Wells Fargo, but later withdrew the case."
"However, Ronn Torossian, a spokesman for Bitfinex and Tether, refused to identify their current banks unless a reporter signed a non-disclosure agreement, an offer that wasn’t accepted."
Likelihood of a problem x the cost of the problem happening = how much you should worry/care/act
When someone asks 'how sure you are' about something and you say 'really sure', unless you pull out a slide deck with numbers and graphs, that's an emotional estimate, and has no bearing on the precautionary principle. We naked apes get tripped up by this because we are used to dealing in social interactions, where your intuition works pretty well. Statistics, not so much.
You loan your friend your car when you're pretty sure that they won't wreck it, scratch it, make it smell like pork rinds. A business is not your friend. There's no social capital at play. Without that social capital you would never lend your car to a business. You don't owe them the benefit of the doubt nor do you reap a non-monetary benefit from doing so. Only when there is such a benefit (community building, networking, etc) would you even consider doing so.
I have certainly defended companies in forums because I felt they represented some part of a world I wanted to live in. That's my social capital in that case. The best way to predict the future is to create it, and I had a small part in that. I participated.
But in this case if you're wrong, instead of losing out on a toy, or a pillow that is always the exact right temperature, or a fridge that always has chocolate milk in it, you're going to lose money, face, and probably that world you hoped for. There's been enough shenanegans that the confirmation bias that kicks in if Tether is allowed to continue to grow and turns out to be a pyramid scheme has a real potential to have deleterious effects on the whole concept.
How willing are you to back Tether if it means there will never be a similar company that is actually legitimate? What are the objective odds of that outcome at this point? If you really want this world, you should be demanding transparency from everyone you support in this space at this point.
Cryptocurrency markets are dominated by highly rational traders with deep pockets.
Just because a bunch of newbies are buying 0.002 BTC on Coinbase doesn't change that fact.
Highly rational traders with deep pockets do care. Getting hand-wavy talking about "irrational markets" doesn't adequately explain why Tethers trade at parity to USD.
I don't know what's going on with Tethers, honestly, it's not something I've followed very closely; so this may not be a problem at all (and if it's not, I would assume the people involved would be eager to get an audit done and results published so the money train can keep rolling). I'm just saying that unless you believe strongly that Tethers are backed 1:1 by USD, it would be irrational to hold Tethers, even for a short time.
I found it worrying that when the guy they interviewed tried to move his Tethers to another exchange, he couldn't find enough takers (and Bitfinex wouldn't let him exchange for dollars either). So, the argument that Tethers trading at roughly $1USD across exchanges is "proof" that Tethers are sound is shaky, at best. If you can't sell more than a handful of Tethers without crashing the market for Tethers, it's not actually the market setting the price. Something else is going on...something that would be illegal in a regulated market.
I get that I guess it's not easy for someone in a major city or whatever.
An unsustainable price of bitcoin will lead to the collapse of other exchanges since people cashing out on these exchanges requires enormous amount of real money.
This will create a situation where the price of bitcoin in Bitfinex is higher than other exchanges by a big gap. This is not the case, actually the opposite is true: Bitstamp, Gdax, and Gemini prices where higher for substantial durations in the last few weeks.
You can only artificially pump the price to an unsustainable high for a very short period of time (2013/mtgox) or have this market restricted (no withdrawals/deposits, etc...). However, this is not the case. You can withdraw/deposit to bitfinex and their coldwallet shows 1.6bn usd worth of bitcoins.
TL;DR: The author fits the "butt-hurt" category, refuses to accept the reality and tries to find non-real argument for his hypothetical flash crash.
Disclosure: I currently hold no Bitcoin but some bitcoin cash positions. I also think the market is in a bubble. But a bubble with real people dollars flowing in.
For example, if suddenly everyone wants to sell BTC, the price would drop, at which point the exchange could buy the BTC at a much lower price, or not buy at all?
(unless they commit fraud, massively purchase BTC without having the actual money to back it, then not be able to wire money out of our accounts?)
You acknowledge that the quoted Buy Price Conversion Rate may not be the same as the Sell Price Conversion Rate at any given time, and that Coinbase may add a margin or “spread” to the quoted Conversion Rate.
However I'm a bit confused by:
> An unsustainable price of bitcoin will lead to the collapse of other exchanges since people cashing out on these exchanges requires enormous amount of real money.
To cash out, other people need to buy, typically with fiat currency, so it's unlikely that their bank accounts would empty overnight? (assuming no fraud, bugs, not running the exchange at a loss, etc)
Isn't the problem that an exchange can [pretend to] credit your account to the tune of $n million, use your bitcoin to sell for that amount, then keep/use the proceeds of the sale.
This is what traditional banks do with fractional reserve banking, except here the fraction of your bitcoin held is zero ;0).
Also, if bitcoin plummets you're probably not going to be happy when the exchange says "oopsies, our bad, that transaction failed, here's your bitcoins back".
hahaha, regulation. That is hilarious
Is this a parody?
Am I reading that right?
> Even IF Tether is NOT running a fraud
I once tried to write an article for Motley Fool (for ~$50) and they kicked it back to me and said I didn’t have enough stock tickers in the article.
It seemed that only spelling and referencing a bunch of stock tickers are what they care about (probably due to SEO). In the end, I didnt re-submit my article because I didn’t want my name on it.
This purported mechanism needs a more thorough explanation from the author before it can seriously considered. How, exactly, does this arbitrage opportunity work?
I see how this would affect the price of bitcoins in tethers, but not how it would affect the price of bitcoins in USD (unless the market, as a whole, conflates the two).
Also, where do these alleged arbitrageurs redeem their tethers? As I understand it, the corporation that issues tethers was cut off from doing international wire transfers, thus rendering tethers irredeemable.
Every market participant knows that Tether doesn't prove their reserves, and yet the market exchange rate to USD stays in a tight band between 0.98 and 1.02 across multiple exchanges.
If the market doesn't trust Tether, then it should trade at a deep discount to USD, not at parity.
Similarly, the conventional wisdom says cryptocurrencies are in a massive speculative bubble. The negative sentiment on Bloomberg, WSJ, NYT, Twitter (not to mention HN) far outweighs the fanboys.
This is the most unregulated free market we've ever seen with many exchanges in many countries, person-to-person facilities like https://localbitcoins.com, margin trading, short selling, futures, options, etc.
If everyone knows the whole thing is a Ponzi-bubble-hype-scam, why isn't that information reflected in the markets?
There must be missing information that would make this make sense.
And currently bitcoin’s in an unusually large bubble, so there are lots of people buying into it who’ve never previously had experience of it. I see ads for, basically, “get rich quick with bitcoin” every day now. The people clicking those are not the world’s greatest critical thinkers; if the site on the other end says “buy tethers with our affiliate code to BUY BITCOINS AND GET RICH”, they’ll do it.
There are sufficient people buying tethers at face value, from the company, to keep parity. And I don’t think there’s really a facility to short sell them (that might change things a bit)
It's still a market, so market logic should apply.
> get rich quick with bitcoin
I see the same shit with real estate.
> sufficient people buying tethers at face value
It's a market. Smart money can sell tethers. When there's information that all market participants know, the market price should reflect that information.
Or, a "crash" as defined a dramatic plunge rather than a downturn over time is usually some kind of feedback loop where prices falling creates expectations that prices will drop even further and so on, often if the market is mostly driven by greater-fool-theory herd behavior.
How many levels of deranged libertarianism are you on? The market never makes mistakes?
> I see the same shit with real estate.
Right, and the real estate market spectacularly imploded and took the global economy down with it when it turned out the market was wrong. Is that your point?
> When there's information that all market participants know, the market price should reflect that information.
It should, but it empirically does not. "The market can remain irrational longer than you can remain solvent" - i.e., smart investors know that you don't bet against a bubble, even if you're 100% right that it is a bubble, unless you have very deep pockets, because you can't know how long it will continue to grow (and thus how much money you'll lose) before it pops.
Even if you know it's a bubble, the rational thing to do is to ride with it, make as much many as you can and try to get out at the right time. Hence bubbles can exist and grow even if every participant knows what's going on.
And that, famously, _never_ crashed.
Housing prices crashed after most of the negative voices capitulated and bought into the speculative fervor, until there were no more buyers.
Today, nearly everyone's gut instinct is that cryptocurrencies are scams, frauds, bubbles, Ponzis and tulips.
Popular sentiment has been negative for years. How will this thing unravel before the majority capitulates?
On the other hand, a large secular demand will always exist for housing. The same is not true for bitcoin.
For completeness, "housing crashed when lots of people who had bought housing on credit turned out to be unable to service the debt and couldn't sell to someone else for more than they paid"
That italicized part is what caused the downward spiral, and that's the part that's relevant to Tethers and cryptocurrencies.
Most people with worries about escalating real estate prices had capitulated and bought in before the crash. With no more buyers, the self-reinforcing cycle went into reverse.
With cryptocurrency, the vast majority of wealthy people already think it's a scam, bubble, Ponzi or fraud. Unclear how a bubble can form when most people think it's a bubble.
I think that bitcoin prices are being primarily driven by long-term speculation - if everybody hoping to flip BTC for overnight profit exited the market tomorrow, it wouldn't make that much a difference in the end. Wouldn't surprise me if I am wrong though.
I don’t think that many people are really holding onto tethers all that much; who has tethers to sell? Bitfinex itself?
What even is the market? If it's the people in it, and they're smart, why did they buy subprime loan investment instruments and nuke the housing market and lose all their money?
A democracy where people vote with their money. Since their is significant risk involved, said people are assumed to do at least some due diligence/research before placing their "votes." And for that reason people have confidence that markets are right/smart, because why would so many intelligent people put themselves at enormous risk by placing their confidence in a bad investment?
Of course if the original investors get rich, eventually this leads to ignorant people (i.e. people who have not done their research) jumping in and the smart market becomes something else.
I know I am oversimplifying
I only ask because most of what I've been reading has assumed the market is irrational.
One issue, is that they just revealed this arrangement. The Tether website makes it look like you can both buy and redeem tethers through an online wallet on that site, but apparently nobody has done so.
The core issue is, that despite promising to do so, Tether has not released an audit proving that they only issue new tethers on receipt of dollars.
If in fact they are issuing them unbacked, they can easily fake demand for Bitcoin. Tethers are transferable via block chain between exchanges, and are used by exchanges without access to real US dollar banking to conduct trade in (nominal) across cryptocoin-USD(T) pairs.
It’s unclear whether there have been any significance redemptions of tethers for dollars. There have been ~$800m tethers issued this year.
you can trade bitcoin for cash balances at various exchanges but actually withdrawing those balances is subject to miniscule daily/monthly withdrawal limits and if there's a run on the market those exchanges will almost certainly collapse. there's no significant over the counter market. you can swap your bitcoin or tether for other crypto currencies but none of those have independent exchanges/markets. the best you can probably do with them is trade them back for bitcoin.
if you're a market participant who thinks things are a scam your best option is to withdraw what you can while you can and do everything you can to prop up the price until you are liquidated
Trading is dominated by smart money -- whales, arbitrageurs, etc. Coinbase may have a lot of newbies buying 0.002 BTC, but these aren't the ones trading Tether.
Whales and arbitrageurs have many facilities for withdrawing national currencies. They've completed the AML/KYC process. They have access to multiple banks in multiple countries.
If the smart money knows Tethers are fractional reserve, if they know cryptocurrencies are bubbling, wouldn't they withdraw?
Wouldn't the smart money put downward pressure on exchange rates?
And if the market is that illiquid, a little downward pressure would be magnified into even more severe price drops.
Since that's not happening with Tether, BTC or ETH, there must be another explanation.
Maybe the smart money knows something that isn't obvious to the rest of us.
Afaik Bitstamp doesn't have any withdrawal limits for verified users.
If Satoshi rocks up with 1 meeeelion BTC, if faith evaporates, the bid price could well be zero.
So, IMHO, the most likely possibility is simply that your market is inefficient.
This assumes that the price of bitcoin will go down but the rest of the system (exchanges, tether, mining, etc.) will stay intact.
As long as people want to short bitcoin there will be lots of demand for tether at a little over a dollar that the tether company will be happy to supply. These people will balance out anyone who wants out of tether in the short term, and it's impossible to lever your "tether goes down" position.
In the future, when people decide to turn around and sell in bulk for a little under a dollar, tether might not be able to make good, particularly if they were holding their balances in bitcoin instead of USD like they claim.
Bitcoin shorters might be willing to gamble that they can move faster than the tether market will collapse in that situation and not be the bagholder.
There's no way to short "the whole mess" aside from just not getting involved in the first place or trying to get your money out while you can.
Interesting observation.
Most people here are say fractional-reserve Tethers are inflating the exchange rate of other cryptocurrencies.
But that doesn't really make sense, because buying cryptocurrencies means selling Tethers, pushing down the exchange rate for Tethers. But Tethers are trading 1:1 for USD, so something doesn't add up.
You say that Tether demand is strong because traders are selling Bitcoin, and that's propping up the exchange rate of Tether.
So what happens if a Tether fraud is revealed and traders want out of Tether -- does the Bitcoin exchange rate go even higher?
See https://en.wikipedia.org/wiki/Gresham%27s_law where Tethers are the "bad money" causing traders to hoard Bitcoin, the "good money".
"Shorting" means borrowing bitcoin and then selling the borrowed bitcoin. What you've described is simply selling bitcoin for USDT, unless I'm missing something.
Since nobody-ish lets you borrow for bitcoin margin trades you have to "borrow from yourself" (already own bitcoin) and be long-bitcoin in the long run for that to make any sense.
But if you're a to-the-moon true believer that also thinks that bitcoin is in a bubble and going to make a temporary correction you could make a ton of bitcoin by being right... if you can actually make the trades and not get screwed by a counterparty.
"so they move into tether hoping to buy back in after bitcoin goes down without having to do the expensive/difficult bitcoin-usd move."
How does this help them avoid an expensive bitcion-usd move? They will still have to buy btc with tether and then do a transaction for USD incurring blockchain fees.
Sentiment of people not in the market (readers of WSJ, etc) doesn't really affect the price all that much. They didn't want to buy bitcoin at $4 they don't want to buy it at $14,000.
For mature markets, short sellers might do such a thing. But bitcoin is hard to short and the market is so irrational its risky to try. The CME might fix the former, but it won't fix the later.
Either that, or because too much irrelevant information is present, combined with an inability to separate the wheat from the chaff. In other words, it also quite frequently happens that the necessary information is there, hiding in the midst of all the noise.
> Jan Ludovicus van der Velde is CEO of both Bitfinex and Tether, Torossian said by email on Dec. 3. A LinkedIn page for someone named J. L. van der Velde, who identifies himself as Bitfinex’s CEO, says he speaks Dutch, English, German, Italian and Chinese, attended National Taiwan Normal University from 1985 to 1988 and was previously CEO of PAG Asia Inc
I'm continually amazed that people will put $1,000s of dollars (or coins, or whatevers) in the custody of an entity whose location they can't even identify, let alone locate.
The only thing I can see stopping them from running off with whatever assets they currently do have are either:
- They're extremely profitable.
- They're broke.
- They're scared of mafia style entities following up where regulation hasn't.
* Think of other bitcoin exchanges
* Think of betting companies
The unfortunate thing is time and again same old story is presented about either:
how the company releasing the coins will act as lender/buyer of last resort or
how "markets" will prevent the peg from going out of whack.
The former logic forgets about how it puts a lot of power in hands of one company and leads to questions, like Tether.
While latter logic forgets markets are not efficient. And sometimes it can remain irrational longer than someone can remain solvent.
This whole thing is not a maths problem but an economics and market microstructure problem, two apparently least understood topics in cryptocurrency circles.
One only needs to read about Long-Term Capital Management to see how flawed this is.
[0] 'Liar's Poker', Michael Lewis
[1] 'When Genius Failed', Roger Lowenstein
For a 'light reading intro to finance' trilogy, add 'A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation', by Richard Bookstaber.
It's cool, I just submitted a paper on LTCM yesterday. AMA?
I think you could find 1% of cryptocurrency traders that believe any theory you care to name.
Can somebody explain how that effect would get priced into the market? I can't think of another commodity like that.
US did this moving off the Gold standard as well. I guess these backing commitments are useful for some stability? But it won't entirely eliminate risk, so instead of relying on the wild swings of the market you're now relying on a single institution's trustworthiness / solubility.
Take the risk you're willing to accept and hedge the others? A market for all kinds I guess! Either way, this model feels like it's already been run at scale a few times.
Because normally for every 1 dollar deposited inside, bank can give away 5 dollars worth of credits to other people. (the ratio changes in every country probably).
So accusing a virtual currency corporation with "you don't own all that money you claim" applies to a real, physical currency banks. I guess.
It does mean that a short-term run (e.g. if all depositors request all of those 5 dollars back) can be a problem, but it's a problem of liquidity (you have enough assets to pay all of them back, but they aren't available right now), not one of missing assets. Tether, on the other hand, has not properly shown that they have enough assets to buy back 100% of tethers to USD at a 1-to-1 rate; we don't expect them to hold 800m dollars in large bags of cash, but we'd expect them (just like a "real physical currency bank") to show that they hold 800m of assets backing this.
The claims others have on you must be balanced by claims you have on others, otherwise you're defrauding your depositors; and if you want to accept money from the public, your words can't be taken at face value but need to be verified (and publicly supported) by trusted, independent external auditors.
That's not the reason they can't pay everyone back in that scenario.
Even if they could only loan out the dollars that were deposited, it would still be the case that if all account owners wanted to get their money at once, they wouldn't be able to because the money is loaned out.
The only way it could be possible that everyone shows up at once, withdraws all their money, and actually gets it (without the bank borrowing it from another bank) is if the bank has all of the money sitting in a vault doing nothing.
And this is a game theory sort of question, too:
If this is true: now, what?
Probably at some point, bitfinex will become insolvent and shutdown withdrawals entirely. Not sure what will happen then-- probably the price of bitcoin collapses in a general panic.
And I don't know who else. I think this is bigger than Bitfinex.
This is impossible with Bitcoin. Bitcoins can only be created via mining, Bitcoin mining is a proof-of-work crypto currency. Crypto's typically use proof-of-work or proof-of-stake in order to have value.
Tether, on the other hand, seems to have no proof-of-work or proof-of-stake at all and just claims to have a 1:1 ratio of their currency to dollars. Seems there is some skepticism around this claim of a 1:1 ratio.
If Tether, was found out to be a fraud I think it would have minimal impact on real Crypto currencies that use proof-of-work or proof-of-stake. The only negative impact would be the people that exchanged a real Crytpo for Tether might be burned and decided not to use/accept Crypto at all, which could impact the larger Crypto market a bit, but IMO I don't think it would shake it too badly, unless of course the main stream media took the story and click baited it with crappy headlines and poorly written articles that would falsely come to the conclusion that such a artificial pump is possible with real Crypto.
With bitcoin you cannot manipulate the supply, therefore you can't magically create $800M out of thin air.
> bitcoin has no intrinsic value, just a exchange rate with other things
1. It has proof-of-work, which gives it value 2. Supply of the coin and demand for the coins determine the price.
The only thing that can vary widely is the demand, the supply cannot be fucked with (unlike fiat currency). It is impossible for whole bunch of new coins to suddenly appear out of thin air. There is no way to artificially inflate the supply.
The value dictates the amount of PoW needed, not the other way round.
"I burned a bunch of electricity and created a cryptographically provable magic token".
There is no value here beyond exchanges with the other bitcoin speculators around you. The value you describe is no different to the value of a pixel on the million dollar homepage.
There will be a point where the emperor is revealed to have no clothes and when you try to extract actual value from the bitcoins that you are holding (i.e. sell them), you will find there is nobody who wants to buy.
Although if you like, I'll trade for beanie babies. I've got rare ones, nobody else has these. They only made a few.
1. Create accounts for customers. Balances are private and not connected to wallets
2. Keep Bitcoins used to cover the accounts in a single bank wallet.
3. Rely on the observation that customers won't withdraw all their Bitcoins at the same time and use bank wallet for trading in the bank's name.
This is basically how every normal bank in the world operates, except that the amount of money the have to keep in reserve is heavily regulated so that this scheme does not turn into an infinite pool of money. There is no such regulation for cryptocurrencies.
If you cannot increase supply in response to a higher price driven by higher demand, prices will increase even more
See this Econ 101 chart [1]:
Y axis represents price, x axis represents quantity. The lines represent simplified supply and demand curves (Wikipedia can explain why they are shaped as they are)
Initial supply and demand is represented by supply "s" and demand "d". Their intersection gives us initial price "p1" and quantity produced "q1".
If demand increases from "d" to "d2", normally suppliers would produce more to meet the new demand. So the price would increase to "p2" and quantity increase to "q2". So even here you get a price increase
But with supply constrained assets like bitcoin, you can't increase quantity supplied to q2. So the only way the market can absorb new demand is by a further price increase. Basically more people want a good, but more can't be made, so sellers rationally realize they can charge more. In the chart, the new price would be the point where the dotted vertical line above q1 intersects with d2
Someone makes 1M of counterfeit US Dollars using their own printing machine and puts it in a suitcase, and they exchange that suitcase with you, and in return you give them 1M of bitcoin in their digital wallets.
Now do you understand the thread?
The price of BTC on other exchanges (which had no direct trades from that bot) was still affected and it went up across the board on all exchanges.
So the value of BTC can be manipulated...
Why do people think that it's impossible for exchanges to do fractional reserve with bitcoin?
A bitcoin bank would work the same way. You deposit bitcoins by sending them to the banks wallet. They put a number in a database saying that you have 20 bitcoins in your account. If you then withdraw it, you will get a random selection of bitcoins they have in their wallet.
What's the Big Fish to do?
a) Quietly keep pressure on the exchange, taking the money as it comes, while not putting any back into the exchange.
b) Make a big stink, bring in lawyers, write press releases and bring down the exchange, possibly destroying any opportunity of getting the money back.
Speculation: When Mt Gox froze withdrawals and closed it either triggered or participated in a massive correction. If Tether allegations are true, I would speculate increased volatility in a bearish direction. It should start with rising volume on USD exchanges and shrinking volume on USDT exchanges as traders withdraw BTC, USD/USDT volatility on Kraken, BTC/USD and BTC/USDT price diverging across exchanges. Chicago futures if they open will set the reference price. If BTC anchor price is volatile alts will probably get hurt. KRW fiat rates will probably be affected. If it dips in the long run it could be a good buying opportunity.
USD 814M accumulated over a year, legit vs not legit?
You don’t really need to think hard, who is these 30 mil, 30 mil deposit? If you divide by a year, they need to have an average 2.2 millions of deposit a day. That’s just to Tether. That’s a lot. Just moving these amount of money in any country will put your account in question.
Will you do it if their T&C doesn’t guarantee withdrawal? A bank actually need a govt to issue deposit insurance for it to work? People are depositing 2.2 millions without any deposit insurance, with shady T&C?
I mean you can believe in it, but I’m definitely skeptical.
This [1] is a really solid explanation on how one of them, Dai from MakerDAO, works.
[1] https://medium.com/cryptolinks/maker-for-dummies-a-plain-eng...
For one thing, the idea that dollars are stable is illusory. And the volatility we see in BTC these days is largely due to the ratio of speculation to storing value in its usage pattern.
So if you buy 500 Dai with Bitcoin today, and the price of Bitcoin goes up, you simply have more Dai to spend, and if the price goes down, you have less to spend, but all the while Dai was pegged to USD and the exchange was going on behind the scenes.
Two factual quibbles with the article, in case you can offer insight:
The example about doing a bet using Ether does not make sense, because chances are the smart contract would collect collateral for the bet at the time it was made, with the idea that upon resolution of the outcome the collateral would be used to pay off the bet. So if I bet 1 ETH on the superbowl outcome, 1 ETH is collected from me and from my counter-party, and then after the game finishes the smart contract awards 2 ETH to the winner.
The other issue has to do with commerce. What's the difference between a store marking prices in USD and also accepting payment in BTC vs marking prices in Dai?
During checkout, if I'm paying with BTC I'll see how much BTC my purchase will cost. If the price in dollars is more useful to shoppers than the price in BTC, then merchants will denominate in dollars. Dai would seemingly just involve a predefined method of doing the exchange rate math (and fees), but I'm not clear on why this is really a significant advantage.
People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm
There's little glory or money in being critical of Bitcoin and cryptocurrencies. But there is a great deal of money and attention for hyping them. That means anybody new to the topic receives an unbalanced information diet, deepening the problem.
Even if I were a Bitcoin fan I'd be concerned about this; bubbles misallocate resources and cause a lot of damage when they pop. The taint can last a long time. E.g., it took Florida decades to recover from their 1920s land boom.
"An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value."
Seems like a reasonable description of bitcoin to me
I have yet to see a well thought out, rational, specific description of the intrinsic value of bitcoin. If it is the case that people think it will either be zero or a trillion market cap, that suggests to me that people aren't thinking seriously about the real world end game for bitcoin and thus that there's is no solid bounding of the potential intrinsic value
Bubbles are formed by people who think they are being rational, but in fact are not. One sign that you aren't being rational is when you don't think critically, quantitiavely, specifically and probabalistically about possible future states
Bitcoin has pivoted away from being a currency. Bitcoin is now a store of value, like gold.
this article does a much better job than i just did: http://www.businessinsider.com/economist-jim-rickards-bitcoi...
and heres an intersting history of gold: https://www.investopedia.com/articles/investing/071114/why-g...
Not sure how any of this is on its face "irrational".
have you thought through the likelihood that one of the binary scenarios you describe doesnt actually happen, but in fact that a gray area wins out: for example, bitcoin may continue to exist as it does now, as a fringe speculative asset class with vaguely defined but high potential. it may stabilize into the go-to currency for money laundering, funding illegal activities, etc. it may serve as a stable currency for a subset of the digital economy that just likes the libertarian appeal of bitcoin. if you look at where bitcoin is now, and try to draw a straight line to the future, it seems to me that youd intersect one of these scenarios rather.
if you havent thought these things through, but still invest, you are being irrational
edit: maths
Pretty much any investment thesis involves guesswork at some point. That doesn't make investing irrational.
The end game for any currency is a market cap of zero, with a long enough t -> infinity.
> or in the trillions.
Nonsense. That's like saying that the total market cap for vkou's collectible post-it-notes may be in the trillions.
I also think there are reasonable cases where Bitcoin ends up with a modest non-zero value. It's not a bad technology for a narrow slice of the cross-border money transfer market, and people could make it more useful if they wanted to. But those outcomes are much less likely if they're a giant crash.
I also just remembered that I questioned it too on Twitter, after seeing some hype from Andreessen, and he promptly blocked me.
>There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money
Then it's not backed by anything, is it?
Where have I seen this before?
In .com - companies were creating value, and we all assumed people would pay for 'email' - turns out consumers would not - so many businesses failed, and there was a stampede out of equities.
All of this coin and ICO fraud, including 'regular company' valuations of 300x P/E rations - is absurd.
In 2000 - the bubble was popped with a little bit of an interest rate hike that caused major funds etc. to scramble, causing a stampede.
Markets are definitely emotionally positioned for a black-swan event to cause a scramble.
The markets have to correct for all this sketchy/possible fraud going on.
Tether trading volume over the last 24hrs is $803,868,000 (https://coinmarketcap.com/currencies/tether/#markets)
At most tether can make up 11.8% of BTC's daily trading volume. If tether tanks, then it seems that worst-case BTC could suffer a 10% drop in demand, ceteris paribus.
Please tell me if there is a flaw in this logic. Seems like there is a valid critique about BTC being boosted by tether, but that doesn't come anywhere close to explaining the exponential growth of value in BTC.
Checkout the live charts and forecasts at https://bitbank.nz
You can sell to USD but can't withdraw overnight and deposit in the morning so you're exposed to counterparty risk which in the crypto sphere is enormous.
Only safe position is to be out of this market currently.
Can someone explain this to me
http://000fff.org/uploads/bitcoinprice.png
The flat-lines. I have seen it several times. Is is because of lack of data of trading or lack of trading or what's making the price flatline like that?
My guess is that the reason we see the horizontal lines is because let's say someone places a large sell order (say 1000 Bitcoins) at $11600. It takes a few minutes for the market to absorb it. The price stays flat until the entire order is bought.
I have had bitcoin since early on so I am aware of increased trading volume.
Thanks for the explanation.
But, fortunately, disabling auto-playing in Firefox is actually not that hard. about:config, then set "media.autoplay.enabled" to false. Done.
or you could just use uMatrix and whitelist sites where you want video to play
https://addons.mozilla.org/en-US/firefox/addon/disable-autop...
When I encounter interesting articles on such anti-user sites, I don't bother browsing the site, I use a script to extract the article and rehost it on a public pastebin. I'd rather avoid them at all, and that wouldn't even be necessary if everyone used atom/rss feeds.
see example for this one: https://0x1a4.1337.cx/o_27/
You can blacklist bloomberg.com & co from your browser with extensions such as https://addons.mozilla.org/en-US/firefox/addon/blocksite/
I'd understand if they ask not to rehost their content tho.
In my country banks moved away from their social propose lending, and they just take high commissions for everything (eg. ATM commission for seeing how much I have in my account) and buy state bonds with deposits money, they advertise credits, but they don't actually credit businesses they credit people who don't need a credit and have enough real estate guarantees to pay the loan in full, so they won't lose interest profit.
For the larger economy, there's no reason to expect Bitcoin would promote general economic health/growth more than national fiat currency.
I wouldn't trust private company that claims to back crypto currency 1-to-1 with USD, but doesn't back these claims with numbers in any way. The fact that they are not legally obligated to do so doesn't change that.
Then we can assume the money does not exist, and that it's an $800M fraud.
- Skepticism about the tether reserves is FUD,
- meaning that we should believe it is there.
- But we cannot ask for proof of an easily verifiable claim that the money exists, because certainty that it exists is a trade secret.
Is this an accurate reflection of your position?
That has the effect of adding 800M of fakeness, which may not be a big deal given the market caps of these cryptos, but perhaps more importantly it has the effect of weakening faith in the crypto project.
> “There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money.”
They must be spreading FUD about themselves, right?
- Тедер is backed 1:1 with USD.
- 800M of Тедер exists
So, what is the problem?
- My LLC has the USD, trust me. But I won't prove it. Because I don't have to.
- Also, my terms state we make no agreement that we will honor the backing.
So does that sound like something you would invest in?
I have never used Bitfinex, and do not own any USDT.
"Our bank is totally solvent, honest" doesn't work during a bank run. Real banks show their books to regulators.
They absolutely have not refuted them. In fact their continued refusal or inability to do so is (weak) evidence in support of the claims.
Sorry, but that's hurting the conversation.
So yes it is FUD. In this case it is good FUD. And in this case Bitfinex can easily quell it, but chooses not to which doesn't bode well for them. Could tether be perfectly legit backed by solid reserves? Yes. But this must be verified.
There were always be scammers peddling garbage backed by lies. It's getting boring.
What's even more boring is posts like yours which add to the meaningless noise. If you don't enjoy a subject on an article, don't bother reading it. There are tools which let you alter the content on HN such as [1] [2]
https://bitshares.org/technology/price-stable-cryptocurrenci...
You can see it has not been as stable as USDT but it has certainly been hovering around $1 USD:
I don't care if they get hacked, so long as they don't get hacked during that small 10 minute window when my funds are sitting on their wallets.
By comparison, I've been waiting for 1 month and a half to get my account verified on Bittrex (to enable withdrawals). Ticket #347145
You can get USDT out but what do you do with it if you want USD?
I mean, any half competent startup should be able to rig up a system allowing deposits and withdrawals of cryptocurrencies only AS LONG as no real world banks are involved.
The weak spot of all crypto exchanges has been banking regulations.
Disclaimer: I've never put any of miniscule BTC holdings on exchanges when I saw how shakey MTGox was looking.
The only quick and workable solution seems to be localbitcoins.