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Comment by empath75 | Hacker News Reader

You would have to be nuts to short when there's an exchange printing billions of dollars of unbacked tokens they can use to drive up the price at will.

If you want to short cryptocurrency, short tethers.

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I'm consistently confused as to who is buying all the tethers in such crazy amounts. It's not like they are appreciating in value. They are sort-of pegged to the dollar, but why not just hold the real dollars?

>why not just hold the real dollars?

Some exchanges don't accept fiat, so if you want to trade USD/BTC you settle for USDT/BTC.

Do you know if any of these exchanges are part of the index CME uses?

Out of the constituent exchanges only Kraken has USDT markets. Though I am not sure if they have difficulties in cashing out USD or not.

No one is buying those tethers. Bitfinex is printing them and using them on their own exchange's margin trading market. They use it to wash trade the price up or down as desired. There is some evidence they have been wash trading down to trigger stop loss sell orders and buying the cheap coins. Then they wash trade up and sell.

This is pure speculation.

The relationship between Bitfinex and Tether is real though, executives have positions and board seats in both companies.

That answer doesn't make any sense. Bitfinex is buying bitcoins from itself?

Could you please explain in more detail?

People get upset when you print USD, so Bitfinex instead creates USDT out of thin air and then uses it to buy BTC on its exchange. This would be OK if the Tether was actually backed by USD reserves dollar for dollar, but there is zero evidence that this is the case.

I understand that, but my question is why would anyone buy USDTs in such quantities? The total is now close to a billion dollars, as far as I understand.

Exchanges make it cheaper/easier because they're all light on USD and banking/tax rules make all sorts of sketchy characters want to avoid USD. There are also probably a lot of people who don't know any better and think that it's as safe as USD.

How have they not been sued for this yet? They're advertising monopoly money as being backed by real money.

They actually say on the website that they're not redeemable.

Bitfinex isn't buying Bitcoin from itself. It is buying from customers that use their exchange, using fake money that they are printing out of thin air.

And why are the customers buying USDTs in such large volumes?

Technically all cryptocurrencies are "fake money printed out of thin air", so that doesn't bother me. I just don't get the appeal of holding USDT.

> And why are the customers buying USDTs in such large volumes?

Tethers purchasing is currently unavailable for general consumers[1]. The only way for new customers to trade in Bitfinex is to purchase cryptocoins elsewhere and then transfer them to Bitfinex.

Bitfinex claims that there are unnamed "institutional investors" that are purchasing all those tethers [2]. I find that hard to believe. Most likely, the vast majority of tethers in circulation are printed out of thin air and haven't been purchased by anyone.

> Technically all cryptocurrencies are "fake money printed out of thin air"

Assuming a perfectly competitive environment, the bitcoin mining rewards should converge to the cost of mining, which leaves a smaller profit. On the other hand, Tethers are unilaterally printed by Bitfinex, with no mining cost. All the printed tethers go straight towards purchasing Bitcoin and defrauding Bitfinex customers.

> I just don't get the appeal of holding USDT.

Bitfinex attracts speculators because they allow leveraged trading (including shorting), trade lots of different cryptocurrencies in addition to Bitcoin and have lax know your customer / anti-money-laundering requirements. But I agree with you -- I am baffled why any sane person would want to come anywhere near Bitfinex.

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[1] https://wallet.tether.to/app/#!/signup

[2] https://medium.com/@bitfinexed/https://medium.com/@bitfinexe...

Tethers are used on exchanges that don't deal in dollars. Traders who want to sell Bitcoin for USD sell them instead for USDT (Tether). Theses are the people who are buying the newly issued Tether. New Tethers are issued so that USDT stays very close to $1. This works great as long as Bitcoin continues to go up relative to the dollar. If/when Bitcoin goes down significantly theses same exchanges would need to buy up Tether to keep the price near $1. But that means the issuers of Tether will have to give up the massive profits they are currently reaping. If they don't the house of cards comes crashing down.

> New Tethers are issued so that USDT stays very close to $1.

That's the problem, new Tethers should only be issued when $1 USD is sent to the issuer and deposited in its audited bank account.

Think of it like casino chips. The house is giving them out instead of money when you win, hoping you'll lose them playing instead of cashing out. That way they only need the money they expect to have to cash out instead of the value of the chips on the floor.

But you buy casino chips, because you don't have a choice. With crypto you have tons of options, especially on Bitfinex.

> there's an exchange printing billions of dollars of unbacked tokens they can use to drive up the price at will

Can you explain? What's the exchange? How do they print Bitcoin (I presume that's what you mean by "tokens")? How does that drive the price up rather than down?

The token is called "Tether" and it's run by the Bitfinex exchange. It's supposed to be backed by US dollars, but they've refused to release any third-party audits to support that statement and it says this on their website: "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. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers." So, basically, it's Monopoly money.

Bloomberg recently did a story on it:

https://www.bloomberg.com/amp/news/articles/2017-12-05/myste...

And the market cap is over a billion! I wish I could print a billion in monopoly money and exchange it 1:1 for real dollars...

https://coinmarketcap.com/currencies/tether/

Ah, so we're into fractional reserve territory. Never mind, I hear there are cryptocurrencies that will save us from that.

Of course, there's SeriouslyGuysUseThisLimitedCoinOnlyNoOtherCoinsCoin.

That is not how market caps work. No one can exchange all the Tethers for the market cap in USD.

No, I'm saying the market cap is the number of tethers that tether.to has printed so far.

To be fair, no one can exchange Tethers for any amount of USD. Bitfinex and all other Tether-using exchanges only allow people to cash out with Bitcoins. (Instead of the weakness of tethers being reflected in lower prices, it is reflected by inflated the tether-denominated prices for Bitcoin inside Bitfinex)

It's $1.15b[1] and most likely to be the result of incoming USD wires. The Tether USD in circulation accounts for 0.36%[2] of the Bitcoin (BTC) market cap.

- [1] http://omniexplorer.info/ask.aspx?api=getpropertytotaltokens...

- [2] https://coinmarketcap.com/

How would one do that technically? The value doesn't fluctuate. How would you time when tether goes to 0? If it ever goes to 0, that is.

Sorry, but what? What exchange is printing billions of $ of unbacked Bitcoins?

He's right. It's Bitfinex and it's been going on for a while now. A ton of people have called them out and they've largely ignored everyone. They've promised an audit and no audit has materialized in the years since they've promised one.

There's a fantastic anonymous twitter account that's been calling them out for months now and gathering pretty damning evidence: https://twitter.com/Bitfinexed

Bitfinex prints Tethers, not Bitcoins.

> Bitfinex prints Tethers, not Bitcoins

"Yeah, but he's our bastard" [1]! Joking aside, you deposit a coin with Bitfinex and get some pixels saying "one Bitcoin". You then trust those pixels can be exchanged for Bitcoins or dollars down the road. If they're playing fast and loose with one, it's a funny argument to make that they aren't doing the same with the other.

[1] https://en.wikiquote.org/wiki/Talk:Franklin_D._Roosevelt

They make claims that Tether are 1:1 redeemable with USD.

I didn't say they were.

How did you think your comment that "you would have to be nuts to short" on an article about shorting Bitcoins would be taken? Please explain how Tethers can be used to manipulate and increase Bitcoin price.

Don't short tethers. The margin rates might just eat your gains from it going to 0.

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