Tether Is Breaking Its Peg to the Dollar
mktstk.com
mktstk.com
@Bitfinexed is the anonymous Twitter account that has been publicly sounding the alarm about Tether for almost a year now. They got the receipts, they bring the fire:
https://twitter.com/bitfinexed
And longer articles at:
https://medium.com/@bitfinexed/
And as payment for his/her troubles as the Harry Markopolos of the crypto-world, he/she has been threatened with lawsuits.
If you, like me, perversely enjoy reading about or watching true financial crime stories ("The Smartest Guys in the Room", "When Genius Failed", Casey Serin's various blog exploits, "The Wizard of Lies", etc.), then @Bitfinexed's work is incredibly satisfying to read.
For example, in just the past few days, you can get the excitement of reading his/her public Twitter conversations with some of the big primary players in this Ponzi scheme, where those fraudsters brazenly deny any influence or financial benefits from this scheme, even in the face of immense evidence or screenshots.
I expect to see some of those tweets included in financial crime indictments in the near future.
George Soros broke the Bank of English's attempt to maintain a minimum exchange rate for the Pound against various other European currencies.
It was this experience that taught me that you can not cost free fix the exchange rate between currencies unless you are using "magic". And USDT has always seemed magical to me.
BTW: https://www.coindesk.com/tether-confirms-relationship-audito...
There are no two currencies here, only one - USD. So no magic is required if they don't lie about their USD holdings.
Tether is supposed to be be 100% backed by USD on a 1:1 basis. If that's true, while it may temporarily go higher and lower, and should always return to normal as actual USD moves in and out of the system.
The controversy about Tether is very simple: they haven't taken any steps to convince people that's actually true, and the default assumption you should make with such systems is they're scams that aren't actually backed by the currencies they claim to be backed by.
"Like any not credible fixed exchange rate regime that is not backed by enough reserves, Tether/USDT collapses when they run out of true dollar reserves. And since Tether/USDT 1:1 peg to the US$ is the mother of all scams it will soon collapse taking Bitcoin down with it."
To an exchange, Tether is just another cryptocurrency. Traders deposit Tether, other traders deposit Ripple or Iota, then the traders trade and the exchange takes a cut.
If any of these goes to zero traders might get wiped out, but how exactly does the exchange go bankrupt?
They've also just printed $600m in tether a few hours ago. Hopefully that's backed by actual $600m in new customer deposits.
Edit: Market cap of Tether jumped $600m in the past 24h [1], but the Tether were granted over a period of 7 days. Looks like CMC doesn't update the market cap every day.
[0]: https://www.coindesk.com/tether-confirms-relationship-audito...
Seems to be just https://coinmarketcap.com/currencies/tether/ getting delayed data - it jumps from $1.6B to $2.2B at 01:14 UTC on Jan 28, but Tether was printing $100M chunks during the period it shows as flat.
The best way of convincing people of that is to provide a facility that allows people to trade the one currency for the other at par.
Free floating currencies are more reactive, but fundamentally operate in the same fashion, albeit with far more volatility.
https://www.economist.com/blogs/economist-explains/2015/01/e...
But still, I'm a skeptic too.
Tether deviated by 10 cents last May, and then it quickly recovered. Tether may have its issues, but this move alone tells us absolutely nothing. Saying that Tether is dying because of this move alone is absolute nonsense.
Such deviations can happen when one or a few whales take out their tens of millions of dollars out of Tether, or put their cryptocurrencies into Tether (that's when it rises by 5-10 cents).
If they are selling because they can't access the normal withdrawal mechanism (e.g. US customers or people in a rush relative to processing delays) then it is the former. If they are speculatively shorting it is more likely the latter.
It could be both: people who can't do normal withdrawal and think there is at least 2% chance of fraud.
I don't have a position here and no axe to grind, but parting from your auditors is in many cases a significant red flag.
There remains the possibility that Tether doesn't need to have the money in reserve (or not 100%, anyway). It can just conduct open-market operations to maintain parity: printing & selling Tether when USDT/USD is above parity, and buying & destroying Tether when it is below. This could even make for a very nice business model, as explained in this blog post:
https://kevinlawler.com/tether
Of course, the conclusion that Tether will stay solvent from profit motive does not concord with history: FDIC came around for a reason, and that reason was 30% of all banks started in the US ended in insolvency. Plus, there are obvious parallels with Black Wednesday:
https://en.wikipedia.org/wiki/Black_Wednesday
You can even short Tether on Kraken, although then you have to worry about counter-party risk through exchange insolvency.
As with any great Ponzi scheme, you have to pay some of your early investors to keep the thing going. But, at some point, you risk eating into your profits, so you just stop and everything collapses while you disappear to the island you bought with your stolen money.
If they want to keep going, they have to buy some USDT on Kraken to prop up the price. But, if they're done with the con and want to cash out...now might be when they do it. A few hundred million worth of various crypto assets is not a bad take.
> Isn't it more plausible that this is not someone writing a check for tethers (money coming in from outside the crypto ecosystem) but more likely it is coming from converting other cryptos into USDT?...
What you really need to watch is the widening spread in price between bitfinex and other exchanges which implies that people are buying crypto at inflated usdt prices because they don’t trust usdt any more.
I think if either that continues or the price of tether continues trading below 1.00, it’ll trigger a panic eventually.
https://www.cryptocompare.com/coins/btc/markets/USD
CEX.io (see middle paragraph for shady explanation) https://blog.cex.io/news/recent_updates-16999
Also - who is sitting and holding all these tethers? There are 2.2 billion of them out there...
No, this is what they could do if they were legit.
Issuing and selling a new Tether when it's over $1.00 on an exchange keeps all their promises and lets them make the difference as profit. If they sell the Tether for $1.05, they put a dollar in reserves and the $0.05 is profit.
Same for buying a sub-$1.00 Tether from an exchange. They've taken a Tether out of circulation, which means they can treat the backing USD as theirs again, which means the gap between the $0.98 they paid and the $1.00 value is profit.
All of this requires them to actually have the capital to do so, though, and I'd consider the lack of Tether-issued buy/sell orders at these values to be a hint at the real scenario - they don't have the capital they claim.
Not that I’m recommending you touch tethers with a ten foot pole!
I imagine it's because Tether has an effective PR team.
You can use USDT to buy ETH or BTC, and thats enables liquidity to USD fairly easily.
I'm not defending Tether, I'm just pointing this out because your comment makes it sound to me like a trap that nobody has gotten any value out of.
Nobody ever has to be able to redeem for dollars as long as exchanges keep making markets with usdt.
I have no position in tether, haven’t used it, just interested in cutting thru misinformation.
It's called withdrawing at any of the exchanges that support tether.
For now. If faith in Tether collapses, no one will trade USD for that "few percent" discount anymore.
The surprising fact is that people do buy and sell on exchanges that have no access to real money.
Trading Tether for USD on Kraken is different, and is the topic of this thread. Given that Tether cannot be redeemed, its price is free to fall as soon as traders on Kraken lose faith -- which, given that Tether has essentially failed an audit, may be happening.
It’s the difference between a money market mutual fund officially “breaking the buck” vs shareholders marking them as being worth less than a dollar.
The article also shows wallets with the top USDT balances, and a Kraken wallet is 13th on the list, with about $16m of USDT, while the top 3 wallets have ~$1.1b between them on other exchanges.
Either Kraken is a small player, or nobody on Kraken holds USDT for long because that's where people go to immediately change it for USD.
Poloniex has many USDT markets, as they use it to compensate for the fact they do not provide markets against fiat. As such, those markets have way more volume.
The market visualization and analysis tools website tradingview.com offers a computed charts of USDTUSD from poloniex (symbol: POLONIEX:USDTUSD). It tells a whole different story than kraken charts: https://www.tradingview.com/chart/?symbol=POLONIEX:USDTUSD . Basically, usdt is stable there.
There's still a problem here: tradingview does not tell (afaik) how they are computing this price. I would assume they do a mean or average of various BTCUSD markets on several exchanges, then check it against BTCUSDT on poloniex, or something like that. But I don't know any official explainer about it.
What is interesting, is it appears that CMC updating the total supply occurred simultaneously with the drop in value. Is CMC data impacting the market independent of the actual supply?
In case people don't realize, GDP is the total amount a country produces per year, not the total value of the country. There's nothing impossible about a country's largest company being worth more than it's GDP.