Print tether, buy bitcoin, sell bitcoin for real money.
Day traders use tether to slip in and out of positions in a volatile market. Unregulated exchanges use tethers in place of real dollars.
Day traders use tether to slip in and out of positions in a volatile market. Unregulated exchanges use tethers in place of real dollars.
But to buy bitcoin for tether, you first need someone to sell bitcoin for tether. And this guy then has tether. What is he going to do with the tether?
> Day traders use tether to slip in and out of positions in a volatile market. Unregulated exchanges use tethers in place of real dollars.
But day traders close their positions at the end of the day (or at least regularly) so they will not hold tether.
The exchanges will make money if btc goes up and more people buy it through them. By accepting tether for bitcoin they help pump up the price. Holding useless tether is fine as long as more retail comes in to them for bitcoin with USD.
But how can that be a scam if they hold the tether? It can only be a scam if someone else now has the tether and they have the real money. I'm trying to understand who is getting scammed here.
Moreover, why are they printing tether if they already have too much?
Tether is pretend-dollars that allows them (bitfinex and Tether the company) to fraudulently pump btc. As long as enough people believe 1 tether = 1 dollar, the show will go on. Tether has yet to be audited to prove their reserves, and the crypto community believes them even though they talk about trustless systems all the time.
So this is a two party scam, one is Tether, the company, printing money out of thin air, who then the exchange, the second party, accepts and gives btc in return as if tether was backed 1:1 by USD. This transaction is what kicks off the chain reaction that pumps btc's value. Tether, the company, now sells btc for USD at a profit, and can use that money to convert tether back to USD if say, the exchange comes to them looking to trade tether for btc. So both parties win, and tether is just weird monopoly money that they know is useless but they have to continue pretending it's worth 1 USD or else they can't keep rinsing and repeating this cycle.
He may not have an off-ramp (which means he can only sell the Tether to someone else, either directly or using cryptos as a bridge). He might be a crypto trader or even trader of other kind of merchandise and need the liquidity provided by Tether (which is for all purposes, "real" as long as the entire thing doesn't collapse)
Majority of the USDT volume come from SE Asia where countries often have strict capital control, and in these situations USDT or cryptos do provided utility by allowing people to circumvent the capital control. That's also why there's a crackdown of crypto OTC desks in China reported a few weeks ago.
Or is the theory that Tether is actually backed by Bitcoin, in a sort of circular way that is sustainable as long as the Bitcoin price goes up but would unravel disastrously if the price were to come down?
The people that printed tether now sell their btc for a profit and can now cover their tether obligations to keep the illusion going that tether is 1:1 backed with usd. They can now repeat the tether printing cycle.
And who is getting scamed here? Who is sitting on the tether at the end of the day?
> Retail people seeking to get into bitcoin in the middle of this bubble are getting scammed because tether is being used to artificially inflate its value.
But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?
I now have 18k USDT, but I can't spend them on blackjack and hookers. In fact, I can buy nothing with the 18k USDT except crypto!
So I have two options:
* I keep the 18k USDT. But why should I do that?
* I buy back my BTC. But then somebody else has the problem of spending the 18k USDT! Where do they eventually end up? I dont get that part.
> Where do they eventually end up? I dont get that part.
Without a chair.
The price of btc denominated in tether (BTC-USDT) goes up after our transaction. Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity. Now bitcoin's price in dollars has gone up and people notice this, and news articles are printed and people get FOMO.
But at the root of this pump is a fraudulent transaction. I printed tether that I know is not worth one dollar each, and you played along with me and we exchanged tether for btc, and we caused btc to go up in price so that we both benefit. Whomever buys btc (i.e. retail investors) after I've pumped the price is in great danger of being scammed because there was no real money behind the initial tether transaction. You, the exchange, might be holding a lot of useless tether, but it doesn't matter because you've already profited from the price increase in btc via higher trade volume and usage of your platform plus all the publicity you get from a media that is always happy to report insane btc valuations.
So you don't do anything with the tether, you don't care about it as the exchange. It's unclear if the tether in these exchanges, which is a lot, will be redeemed for dollars at some point in the future by coming back to me, the Tether company, where I would use some of my profits from selling btc high to trade some of your tether for USD and help maintain the appearance that tether is fully backed by USD.
This is the bit that doesn't make sense.
Arbitrage bots trying to push BTC-USD up to match BTC-USDT will end up holding a lot of USDT. So what do they do with it? You can't just magically make USD markets go up; that needs actual USD to enter the system (as part of the arbitrage process, if nothing else).
The world where no one tests the peg too hard is incompatible with the world where Tether caused huge BTC runups all on its own.
It doesn't really work like that. It's more like: you see BTC being traded at 15k, and you refused to buy because that's ridiculously high. Two days later, the price pumps to 18k (which is, at least partially, caused by Tether printing). Now FOMO kicks in and you saw a tweet by some rando that says that Bitcoin will breach the ATH and get to 25k for sure due to his TA. You decided to buy in at 18k.
Notice that in this entire thought process, there's no difference between USDT price and USD price. They are considered one and the same, at least in the vast majority of traders, holders, miners and crypto media.
Now, you may have access to USD exchanges like Coinbase, but many people don't. For those, their only FOMO option is USDT exchanges like Bitfinex, which means they need to buy USDT first, which means the Tether ecosystme just got some new cash inflow and someone else got to cash out their USDT.