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Comment by panarky | Hacker News Reader

> It’s “backed”, but it is a meaningless idea

Let's assume that it's impossible to sell Tethers for dollars. I don't think that's completely true, but that's the "steel man" argument.

Even if you can't sell for dollars, you definitely can sell for BTC, ETH, XRP, etc. Why don't people liquidate their Tether to buy other cryptocurrency?

You would know this was happening if the price of Tether dropped far below $1.00, or if the supply of Tether contracted as Tethers were destroyed on redemption.

The fact that we don't see either of these things tells me that the backing isn't actually "meaningless". Rational traders with their own capital at stake don't appear to be selling.

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> The fact that we don't see either of these things tells me that the backing isn't actually "meaningless". Rational traders with their own capital at stake don't appear to be selling.

This is the equivalent of arguing "if roulette was a negative sum game, economically rational actors would cash in their chips". There's plenty of reason to believe that the USDT market doesn't even closely approximate economic rationality, and no reason to believe that there are ordinary investors with large sums of cash tied up in USDT who have superior insight into the level of backing Bitfinex actually have than the people questioning them.

The "why aren't more rational people shorting it?" argument makes slightly more sense, but then if you shorted Madoff when his fraud was first highlighted, you'd have been bankrupted in the ensuing 8 years...

>"why aren't more rational people shorting it?"

I imagine it would be hard to get the borrow just now or I'd probably go for it.

> Let's assume that it's impossible to sell Tethers for dollars.

You can directly do this and the market is pricing it at 5% discount. Anyone can short it or buy tethers at a discount. It's been down to 85c in the past.

https://trade.kraken.com/markets/kraken/usdt/usd/1h

Ever since or most recently there is always market force to move it back to closer to peg https://www.coingecko.com/en/coins/tether

>Even if you can't sell for dollars, you definitely can sell for BTC, ETH, XRP, etc. Why don't people liquidate their Tether to buy other cryptocurrency?

They (or at least some) are. BTC crashed about 10% yesterday.

If people are selling Tether to buy BTC, the price of Tether should decline while the price of BTC should increase.

What actually happened is the price of Tether dropped < 1% and the price of BTC reverted to where it was a week ago.

Are you sure the price of tether is accurate? Are you really sure?

It appears to be defying gravity while the backer is accused of fraud and doesn't have funds to back it.

These exchanges are unregulated and unaudited, the movements in price are inexplicable, and the simplest explanation is fraud.

> Are you sure the price of tether is accurate?

The price is accurate in that I can sell Tether and buy Bitcoin or Ethereum or Ripple, etc. at the market price.

The fact that a counterparty is willing to buy Tether, in large quantities, in exchange for Bitcoin, tells me that the market price is accurate.

Have you bought large quantities or are you relying on what exchanges say? Are you sure that that large quantities are not wash trades? I’d be very wary.

https://modernconsensus.com/cryptocurrencies/tether/bitforex...

Of course you can't trust what exchanges say.

But if there were widespread problems selling Tether to buy Bitcoin, and withdrawing Bitcoin from the exchange, then we'd hear about it and there'd be a run on the exchange.

Or the exchange doesn’t have all of the Bitcoin or Ethereum or Ripple, etc. claimed.

Have you done that personally? I.e tried to buy one token and selling for 0.95?

You can't really go from USDT -> USD directly. You go from USDT -> BTC and then BTC -> USD. So the drop in BTC is really people accepting fewer BTCs for the same USDT.

FWIW, you can trade USD/USDT at Kraken, which is a reputable exchange by most comparisons.

My understanding is that the existence of Tether provides liquidity and confidence in BTC (especially the ability to sell quickly). If Tether takes a big confidence hit that might affect BTC strongly.

>Rational traders with their own capital at stake don't appear to be selling.

I think that's a good observation but maybe it's just folks who already own Tether are inclined to belive in it... still, maybe not all that rational?

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