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Comment by econner | Hacker News Reader

Tether is supposed to be backed 1:1 by US dollars and function as a non-volatile way to move money across exchanges. It's market cap is ~$815M. Lots of people believe that Bitfinex, the creator of Tether, is not actually holding $815M to back it. Instead they believe Bitfinex is creating Tether out of thin air and could be using it to inflate the price of Bitcoin.

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How would them issuing tether out of thin air inflate the price of bitcoin?

By trading tether issued out of thin air for BTC.

Why would anyone want to exchange their Bitcoins that are worth over $10,000 each on Coinbase (and can be converted to real dollars) for some tokens that are backed by nothing?

Tether are, ostensibly, backed by $1 in a bank somewhere.

Having a dollar token is very useful, since you can move in and out of crypto trading positions into a stable store of value, good old USD.

Converting to real money takes a long time so you can't react to the market, and is also taxable and often has other fees on top.

> backed by $1 in a bank somewhere.

Are we sure about this?

No, that’s the point, no one is sure about this. For a token that’s supposed to be redeemable in USD, the tether is extremely opaque.

Yeah you took out the word ostensibly when you quoted me.

Converting to another coin is also taxable. Similar to selling a stock.

It’s used to move large amounts of dollars between exchanges that don’t want to deal with the regulations involved in moving large amounts of dollars.

In my experience, no one has a satisfying explanation for this. Nor why this would affect the USD price of bitcoin.

Also you can trade among yourself and create the illusion of hot market, suck a lot of people in, and use the funds from these people to stay afloat.

Bitfinex can become insolvent, which means people cannot cashout their usdt's. Prices may crash.

Good place to park your gains when the market's volatile.

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