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.
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.
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.