The whole Tethers thing scares me the most:
https://twitter.com/Bitfinexed/status/953398351889944576
There's $5B worth.
https://twitter.com/Bitfinexed/status/953398351889944576
There's $5B worth.
That's the line I often see on Twitter / Reddit and usually gets a lot of upvotes, despite being irrational, with no proof to back it up.
As bitcoin falls, the demand for Tethers goes up. To keep Tethers pegged to, say, $1 USD, they need issue more to meet the demand, which would be a more rational explanation why more were issued.
Or maybe people want USD, but the exchange forces them to go through Tether to get there. So there'll be a brief demand for Tethers, then a big selloff of Tether for USD.
Tether was kicked out of their HK and Taiwan banks, and now they are banking in Caribbean islands. They are supposedly holding $1.55 Billion USD cash in one of those banks to back USDT issued so far.
My question is, have you seen a Caribbean bank? Most bank HQs over there look like a 7-Eleven, and banks are owned by local politicians or shady characters. Anyone who deposits more than $1 million in those banks is a fool.
Like, once a decade or so. At the cost of great human suffering.
This seems like a fairly frantic attempt to prop up the value on their part.
This is great in theory, because transactions between two types of cryptocurrencies are (relatively) easy and cheap, and with one coin pegged to a real currency, it means the crypto ecosystem is much more liquid.
Now, the downside: you may have heard of the macroeconomic "Impossible Trinity"[1]. One outcome of that is that it means Bitfinex has to keep US dollars on hand equal to the total value of Tethers created.
Now, the real downside: over the past couple of months (and even more over the past week), Bitfinex has issued a quantity of Tethers that most people don't actually believed are backed by US dollars, meaning they are vulnerable to a "It's a Wonderful Life"-style run. And worse yet, the liquidity Bitfinex provides has been "baked in" to the price of other cryptocurrencies for a while.
At any rate, the accusation the Tweet is making is that Bitfinex is now significantly overextended, and can no longer promise to convert all the issued Tethers, meaning the Tethers (and thus all the other cryptocurrencies) are not nearly as liquid as "investors" thought they were. As many predicted[2].
Most irritatingly, this exact thing happened over, and over, and over again when countries were on the gold standard. It's why fiat currency is such a good idea.
1: https://en.wikipedia.org/wiki/Impossible_trinity
2: http://fortune.com/2017/12/05/bitcoin-btc-price-usd-tether-l...