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Comment by darawk | Hacker News Reader

There's no reason arbitrage should push up the price of Bitcoin. Tether exists to normalize arb opportunities between exchanges. That's what it was created for. There is indeed a real question as to whether or not Bitfinex has issued more Tether than it has in reserve, or whether or not they will actually pay people out for their Tether tokens. But there is no 'arbitrage feedback loop' driving the price rise.

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It only works that way if you trust Tether and the exchanges. Given how shadowy the big ones are, I'm not sure that's a good idea.

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.

If you don't mind my asking, how long had you held for?

About 4.5 years? Bought some on Coinbase when I saw them at SXSW a few years back then promptly forgot about it. Pretty sure I'm gonna be one of the few "casuals" who manages to take any money away from BTC when this is all said and done...

Yes, but there is no evidence that that is happening. Bitcoin has a $200B market cap. There is only approximately 800 million usd worth of Tether on the market. It's easy to make up stories about what might be happening, but just because it's possible something is happening doesn't mean that it is.

You are underestimating the extent to which a finite $200M injection can make it seem like the price is skyrocketing for exogenous factors and therefore yield real money coming in. Classic pump and dump strategy.

I'm no expert but mulling it over.... If Tether is big enough that the price of BTC is effected by it, such that investors feel they can cash out and that is part of their risk calculation, then a tank in Tether would also cause a drop in BTC.

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.

If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether.

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.

> If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether.

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?

If Tether is garbage, the only way to get your money out is by converting Tether to something worth real money.

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.

>If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether.

The Tether:Bitcoin rate would rise, but I’m not sure that the Bitcoin:USD price would follow suit.

>If someone is able to buy Tether on credit, and the credit is actually backed by BTC then there could be a loop.

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.

But is $845m enough to pump the entire crypto market by billions in market cap? Maybe there are secondary effects here, like increasing peoples confidence in crypto because of a false sense of liquidity, or something like that.

Market cap defined as price * total supply is a fallacy because it does not account for liquidity. Order books are fairly [0] thin even at the larger exchanges that you only need to buy/sell a few thousand BTCs to have a significant impact on price. If you consider the potential of wash trades it gets even easier. Bear in mind that up to 1/3 of all bitcoins mined could have been lost[1] and only a small amount of actively traded anyway.

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/

> Tether exists to normalize arb opportunities between exchanges. That's what it was created for.

What things are created for and how they actually behave often diverge.

Sure. Not claiming it can't have secondary effects. But there's no argument been presented that establishes that it does.

Does not the claim, that Tether is not actually backed by dollars, also double as an argument that it would be difficult for it to behave as intended? - i.e. to the extent that the former may be correct, the latter is likely?

Claiming that it doesn't behave as intended is not equivalent to claiming that it pumps the price of Bitcoin.

Wasn’t it _actually_ created to allow export of funds after the parent exchange was banned by the US and Taiwanese banking systems?

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