Bitfinex fails to perform promised audits
medium.com
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Assuming it’s not an outright scam, what’s the business model for issuing and redeeming warrants at 1:1 parity?
Vitalik Buterin, the founder of Ethereum, published a post on coins like Tether a few years ago:
https://bitcoinmagazine.com/articles/mastercoin-a-second-gen...
My understanding is that unless there's a "tether-run", where everyone wants to get out of Tether at once and the company behind Tether isn't well prepared for it, then that's when the coin may actually crash. Otherwise, it will self-stabilize by putting more Tether on the market, or taking Tether out of the market. So in a way, I guess it works a little like the Federal Reserve.
As for not having enough money to "back Tether", this is bad in the sense that they promised they would, and they're not showing proof that this is true. However, it's "only" as bad as any real-world bank that uses a fractional reserve banking scheme. So just like a fractional reserve banking entity would crash as soon as there is a major bank run, similarly Tether would crash if they don't actually have 1:1 USD:USDT backing.
So Tether is about as "shady" as any of the major US banks - and yes, I would agree that both are pretty damn shady. But this seems to be the status quo right now, so if you don't trust Tether, I surely hope you're not keeping your money in a bank either, because I think we're getting close to another financial bust, and we'll go through the same crap or worse that we went through in 2008 with the defrauding banks.
There are also some cases when the bank has no enough money (bad lenders selection, promised a too high interest rate, fraud, ...). In this case the deposits are not fully backed. But this is not the normal state of a bank.
That said, they never claim to be 1:1. They claim to be operating within the legalities requires for fractional reserve banking.
Tether claims to be 1:1.
Banks profit from the repayment of loans, not directly from the issue of money, and banks' willingness to accept each others' credit at parity to m0 reflects their knowledge of the facts about other banks' expected future income streams and guaranteed access to an m0 lending facility, not ignorance of their counterparty not having what they claim to have. If everyone wants to withdraw their USD from a bank as cash, the reserve lending system is designed to actually allow this to happen. Banks fail, infrequently, because the number of people who fail to meet repayment obligations to the bank exceeds expectations, not simply and inevitably because not enough Peters are willing to be robbed to repay Paul.
The two are similar only in the same sense that a futures contract and a shyster selling you the Brooklyn Bridge both involve the other party selling something they might not be able to deliver.
That is not true at all. You are probably thinking of the minimum capital requirements (banks leverage) which measures all lending (bank assets) against their common equity. Deposits and credits are roughly equal and the minimum capital is required to cover mispricing on their assets. And no, banks are not being deregulated in this regard. In fact Basel III which regulates those reserve ratios is much stricter and it took several years for banks to recapitalize to the new minimum levels.
Or you are thinking about the bank's deposit with the fed (the fractional reserve part). But those reserves are not a problem for banks because if there is lack of reserves on the interbank market and the price (interest rate) of borrowing reserve increases above the fed's funds rate, then the Fed steps in and provides the reserves at the rate it wants to keep. This is part of central banking because a central bank cannot simultaneously control the amount of reserves AND the interest rate.
Sell 1 USDT for 1 USD, keep the $1.00 as profit?
I think the issue is that it's really hard to assume it's not an outright scam with a straight face anymore.
The dip corresponds with a $600M increase in the market cap, so is likely explained by a sudden increase in supply.
It would be worrisome only if the price didn't get back to parity.
But since the biggest market for this is money laundering, it's hard to imagine any "legit, fully transparent, US based companies" succeeding.
And since the pitch is “we want anonymous international depositors to open and close accounts with you,” with extra steps added, no bank will agree.
But there is the need for everyone to trust the ETF manager. Authorised participants (APs) must trust they can redeem ETF units for a basket of the underlying shares and vice versa. Other market participants, in turn, must trust that process to manage tracking risk.
ETF managers earn that trust by contractually guaranteeing APs' creation/redemption rights, being regularly audited like normal companies, being regulated like securities companies, and having their holdings vouched for by other market participants, e.g. banks, clearing and settlement services, et cetera. Literally none of the preceding apply to Bitfinex nor Tether.
More broadly, a structure like Tether is inherently incompatible with anti-money laundering. No jurisdiction will let a bank say "these $2 billion are held by unknown beneficial owners." If we wanted that, we'd just re-authorise numbered, i.e. anonymous, bank accounts.
[1] https://www.bankdirector.com/index.php/magazine/archives/2nd...
Disclaimer: I own some bitUSD, bitCNY, BTS, but I am not involved in other ways with the project.
[1] https://wallet.bitshares.org/#/asset/USD
And furthermore, how is the web comic artist going to pay their rent? Landlords don't take tethers, so at some point they need to cash out to actual dollars and receive an ACH transfer from an exchange or the like. Are they really better off being forced to trust a crypto exchange?
Tether will probably collapse in the next big downturn. That's when Bitfinex has to spend real money to buy Tether units back to prop up the price. Tether, like a Ponzi scheme, seems to work as long as net inflow of money exceeds net outflow. When it doesn't...
Funny how the price of both products has gone up. I purchased a Ledger Nano S (unused as of now) for about 70 EUR. Now its 95 EUR, with "Shipping is scheduled from March 26". This chart on Amazon (regarding Trezor) is also telling [2]. I guess people wanna join the hype bandwagon. On the official website the Trezor is 89 EUR "without VAT". Which is illegal to advertise in NL unless you're specifically targeting businesses (who prefer to not have VAT mentioned).
A disadvantage of the Ledger Nano S is that in order to use it, it requires Chrome [3]. I'm not sure that's true for Trezor. It also has a Chrome extension but iI seems it can function with just the "bridge" [4]
[2] https://www.amazon.com/Trezor-bitcoin-wallet-Black/dp/B00R6M...
Also for the hardware hackers there is the Coldcard being developed by these guys with a pre-order now: http://blog.opendime.com/coldcard-annoucement/
For the rest of us, there's risk management.
The full seminar is worth watching as well:
“How do I secure my bitcoin?” — Andreas Antonopoulos https://youtu.be/vt-zXEsJ61U
I mention the above only to say it didn't feel like a true bank run to me at the time. People were still able to get in and out, but prices were certainly depressed. And several of the exchanges survived.
i also distinctly remember people sending money to mt gox LONG after every mention of them on the internet was followed by angry people calling them a scam.
This is a really strong assumption that I wouldn't bet on.
https://medium.com/@bitfinexed/bitfinex-never-repaid-their-t...
Unfortunately they are the best when it comes to quickly cashing out, and in terms of buying I have no other alternative that I've used thats reliable. Depending on the asset you might have some luck with Cex.io or others.
Here's a link I found with a quick Google search that might be of value to you: https://99bitcoins.com/buy-bitcoins-debit-card/
Don't ever hold your assets on an exchange for any length of time after acquiring them, counterparty credit risk is no joke.
My only thought is maybe they slow down buys to get themselves a look-back period where they can decide to cancel transactions that don’t go their way before filling the order. That would maximize the average revenue per transaction a lot during periods of significant volatility. It would skew profitability upward, at the cost of user experience and goodwill.
Seems like more of a short-term strategy by a company that is trying the milk the crypto craze as much as possible and willing to burn market share in the long run as the fad dies down.
Then again, could just be unicorn growth pains.
Coinbase, Bitstamp and a Swedish exchange whose name I forgot are three that have all their user's assets covered/available.
Binance fees are low but not so low that I doubt how they make money. They have a huge number of pairs without having too many shitcoins. Many of their pairs are now ETH/___, which is much better for many people due to high BTC fees.
But yeah, I'm going to completely ignore a great level of service and security, and instead be worried because they don't list an address on their website. /s
What good is a non-[insert your country] address really going to do for you anyway? A small-time crypto trader isn't going to have any power to get anything from most foreign domiciled companies without very significant effort.
Finally: this goes against the entire principle of cryptocurrency. The point is that I don't want to have to trust my nation (or any other nation). I trust Binance because they haven't fucked me over. The same can't be said for legally domiciled US exchanges I've traded on and the US government.
1 - https://en.wikipedia.org/w/index.php?title=Bitstamp&type=rev...
While it was relatively easy to get verified on Luno, their "instant sale" prices are quite high and I see no way to place bid/ask orders directly.
I'm also interested in other recommendations.
1 - https://www.luno.com/invite/XHBQ6 (Note, there is an invite code in this URL, feel free to remove).
I think they started out as a South African only exchange a few years back.
Edit: disclaimer: own some bitshares.
Edit2: would be interesting if bitmex converted or pegged some of their swap products into decentralized currencies that you could trade on other exchanges.
Isn't that the best kind of greed ? Greedy logical people make more money than illogical non greedy people.
This only works as long as their bitcoin holdings don't drop in value below the amount of tether they've printed.
Backing USDT this way is incredibly unsafe.