Former algorithmic trader. You're right–the ceiling isn't particularly unusual. That prices never cross through is weird, but not inexplicable.
What is inexplicable is the downtick inelasticity. Large sell orders should burn through more book than small orders. As the top of the order book is burned, lower bids are revealed. Even in the presence of lots of arbitrageurs, there will be transactions at those newly-revealed lows.
That isn't happening. Instead we see a stable harmonic evocative of wash trading.
Let's assume a third-party manipulator (i.e. they can't print new Tether).
To make this economical, they would need an in with at least one exchange. Their trades on this venue (let's call it ShadyBit) would be free, or close to it. This is where the majority of their wash trades happen. If one naïvely averages volume across the market, this will do the trick.
But the jig will fall apart if another exchange starts sharply diverging. So you set up sock puppet accounts there to soak up excess demand. As long as you keep the confidence game balanced, there shouldn't be too many people looking to sell at unusually low prices.
In the meantime, you can continue using your inflated-value tokens as collateral for borrowing or to buy appreciating assets or to sell or whatnot.
You’re responding to an allegation of fabricated volumes by quoting volumes.
And its not like USD-USDT hasn't become uncoupled before. It's been as low as .7 in the past.
You're describing a shallow order book. This happens quite frequently in less-liquid markets. The transaction signature of a shallow order book is large orders prompting a pause in trading, as the order book is drained and refilled.
Contrast that to a hyper-liquid market like that for on-the-run Treasuries. You'll have a mix of price and time preferences, with some people wanting immediacy and others willing to provide it for a discount/premium.
The presence of continuous, non-volatile trading--particularly on the downticks, given a pegged asset--is very unusual. Enough so that I've never seen anything like it before in a properly-functioning market. Which is suspicious.
That difference can indicate that the suggestion that they are backed by USD is bullshit. For example, they are likely avoiding hitting 1.10 on purpose so they can avoid scrutiny on re-issue.
And how does someone trading to themselves have any effect on price whatsoever? If there was real liquidity on Kraken and the price actually hit 1.10, then Bitfinex/Tether could simply print tether and arbitrage the difference themselves, essentially creating the tether out of all the money they made arbitraging, meaning it is fully backed.
If the accusation is wash trading I just don't see how that would matter.
There is zero chance that all of these markets are manipulated.
This lacks the imagination of market manipulators from even the 19th century. For more modern context, see penny stocks. These are traded OTC at a variety of venues. Manipulation is trivial given (a) prices on one venue are broadcast to others, thereby letting one bad apple spoil the bunch and (b) electronic trading makes overseeing dozens of accounts easy.
Not necessarily. All it takes is one. (But it does take at least one.) See my comment elsewhere in this thread [1].
Ok, sure.
> To make this economical, they would need an in with at least one exchange. Their trades on this venue (let's call it ShadyBit) would be free, or close to it. This is where the majority of their wash trades happen. If one naïvely averages volume across the market, this will do the trick.
Do what trick, exactly? What does your hypothetical manipulator get out of this?
> But the jig will fall apart if another exchange starts sharply diverging. So you set up sock puppet accounts there to soak up excess demand. As long as you keep the confidence game balanced, there shouldn't be too many people looking to sell at unusually low prices.
"Sock puppet accounts to soak up excess demand". See, right there, you're saying something, but I don't think you're following it through to its logical conclusion. Saying you just "soak up excess demand" hides the fact that this requires enormous amounts of capital, not to mention paying the transaction fees on the exchanges you aren't colluding with.
What you are supposing here is that someone is artificially propping up the price of Tether. What that means is that they are taking real US dollars and exchanging them for an asset that they know is not worth its current price, en masse. If you want to posit someone is doing that, you need to provide an extremely compelling motive for so doing. A motive that would generate more money than it costs them, and I don't see any way that could be happening, with the possible exception of Bitfinex themselves doing it. But...of course, if Bitfinex is propping up the price of Tether by exchanging them for USD 1:1 then....isn't that the point of Tether in the first place?
> In the meantime, you can continue using your inflated-value tokens as collateral for borrowing or to buy appreciating assets or to sell or whatnot.
You're really handwaving here. You're saying they're taking real money, USD, and buying Tether tokens so that they can prop up the price of Tether because they have a lot of Tether that they can exchange for other stuff?
Play this tape all the way through. Let's say you have 100M Tether and 1M USD. You want to prop up the price of Tether so that you can buy sweet cool stuff with your Tether tokens. So you use your 1M USD to prop up the price of Tether, and you starting buying shiny new Bitcoins with your Tether. Now you've bought 10M USDT worth of BTC, so now there is 10M more Tether out there in circulation. You've created massive selling pressure that you now need to balance with real USD. What you are proposing here just fundamentally violates equilibrium principles and so cannot, on its own, be what's happening.
So you’ve exchanged 10m tethers for Bitcoins to users who can’t sell them back for dollars, which will greatly diminish selling pressure.
If you are wash trading, you are not giving up valuable dollars for questionable tethers, that’s the whole point of wash trading! Kraken could can just provide heavy discounts to the wash trader to minimize slippage to trading fees (which I think they do).
Skeptics of the conspiracy, scam theory about tether basically use as their main argument a variation of yours: the bottom line being the market, as it is, believes Tether is not a scam, or the peg would simply not hold.
The reasons individuals believe one thing or another is inscrutable, but the key to this scam is opacity by the entity that creates the tokens. As long as Bitfinex can maintain the belief that they are backing each tether with a new dollar, there is no way to tell if the 50million new tethers were printed from “thin air” or purchased by millionaires.
Once the house of cards is built up, the holders of these related assets have a strong motivation to maintain the belief that tether is a real dollar backed asset. That really helps keep the peg at unity, until it doesn’t.
One of the most absurd things about this, is that tether says they are under no obligation to redeem tethers for dollars. That alone is as serious red flag.
Right now there seem to be enough suckers who are willing to play this game of “musical chairs” and do whatever they can to keep the music from stopping.
No it isn't. Bittrex has both a real USD pair and a TrueUSD (audited, US-based) pair. Binance has a TrueUSD pair.
> It is not trivial to be an active trader on Kraken who can freely move in an out of tether and USD.
Yes it is. I have a kraken account. I've traded Tether/USD plenty. I have no special privileges.
> Most of the holders of Tether don’t have access to a market to exchange for dollars.
Yes they do. See, first two answers.
> If you are wash trading, you are not giving up valuable dollars for questionable tethers, that’s the whole point of wash trading! Kraken could can just provide heavy discounts to the wash trader to minimize slippage to trading fees (which I think they do).
Ok, and this accomplishes what?
> Skeptics of the conspiracy, scam theory about tether basically use as their main argument a variation of yours: the bottom line being the market, as it is, believes Tether is not a scam, or the peg would simply not hold.
I'm not actually making that argument. The argument i'm making is that this 'wash trading' theory is stupid, because there is no reason to wash trade. The only entity that would have any interest in wash trading Tether is Kraken itself, to make the market appear more liquid, and attract real trading activity. But if that were the case, that has no bearing on the Tether-Bitfinex conspiracy theory and just isn't all that nefarious an activity.
Nobody has provided any compelling reason why anyone would be interested in falsifying trades on this Tether market. In the absence of any motive, i'm skeptical both that it's happening at all, and that if it is, it has any meaning whatsoever.
That being said, Tether itself may or may not still be a conspiracy. These things are unrelated in my mind. Though, on balance, I think I lean towards thinking it's not a conspiracy, though for other reasons than this.
Bittrex does not have a USD-USDT pair available for regular traders. They are literally just testing this service this week with a limited pool of users.
Here’s what they are said in what is the most recent post on their news blog, May 31, 2018:
https://support.bittrex.com/hc/en-us/articles/360004397871-B...
>During this first phase, fiat trading will be limited to approved corporate customers in the United States located in Washington State, California, New York and Montana. Qualified international customers may participate in the market as well. Like all customers who want to be active on Bittrex, fiat customers will be required to submit to both the standard registration process --including proof that they are operating in qualified U.S. or international regions -- as well as other specific fiat terms and conditions.
You are trippin’
As to who might have a vested interest in maintaining the appearance of the dollar-tether peg, come on. That’s not too hard to figure out.
Yes, and I stated why I thought that was relevant. Feel free to provide a counter-argument. You realize that any supposed 'USD' pair is equivalent to a promise to pay you USD by the entity that issues it, right? Which means that a USD pair and a USD-backed token are literally the same thing: Promises to pay USD. How meaningful they are is contingent upon the trustworthiness of the issuing entity. TrueUSD is a regularly audited US-based company with real VC backing and transparent accounting. TrueUSD is much more meaningful than a Bittrex or Kraken USD pair.
> Bittrex does not have a USD-USDT pair available for regular traders. They are literally just testing this service this week with a limited pool of users.
They've been testing it longer than that, and a decent number of people have access to it.
> As to who might have a vested interest in maintaining the appearance of the dollar-tether peg, come on. That’s not too hard to figure out.
I didn't say that. I asked why someone would be interested in wash trading. Re-read what I actually wrote, and feel free to respond to literally any of the substance of it.
No, you're making an assumption which is easily proven wrong. Here is what Kraken's USDT/USD book looks like on the bid side:
Volume Price
125.000 $0.9988
121.898 $0.9987
535.315 $0.9985
871.893 $0.9984
147,258.063 $0.9983
It is interesting to me that there is any substantial demand for a Tether, when $1 is always worth $1. If Tethers are actually worth $1, why not convert them to dollars and avoid the counterparty risk entirely?
The price of tether will likely never reach 1.1 unless there are solvency concerns. Any price disparity between BtC/usdt and BTC/USD has historically disappeared, so you can pseudo-arbitrage these pairs across exchanges even though they are technically not the same. Kraken's USD/USDT pair also makes this bridge easier.
Secondly, AFAIK many exchanges including Bitfinex had trouble letting people withdraw USD. I am not entirely sure if that has changed recently.
So, in both cases Tether acts as a counterparty to BTC trades. In most cases, the BTC/USD pair is not actual USD but TUSD.
Tether should only be issued based on the amount of USD that Tether has in its bank account / vaults (they have released a 'audit' by a law firm but not by an official auditor). Since each Tether represents exactly $1, market forces should handle the pegging. Assuming people trust that Tether does have the USD, then any price < or > $1 represents an arbitrage opportunity.
The demand for Tether comes from the fact that many exchanges are not licensed to operate in USD. Tether is used in place of USD on those exchanges, and the counterparty risk you mention is likely balanced by arbitrage opportunity.
It's not clear if tether can really be "redeemed".
But in practice I don’t know enough to be confident that a tether is always going to be $1.