Tether price manipulation
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However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation. Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
But in the depths of the March panic, Tether jumped the shark in order to backstop the entire crypto ecosystem, and they can never put that genie back in the bottle. Much like the Fed who cannot stop monetizing US deficits for fear of letting yields explode, the Tetheral Reserve must continue to print USDT in order to support prices. Exchanges cannot let this fail since the vast majority do not have access to the bonafide banking system and thus scrappy users must devise "fiat onramps".
There are many theories about why, the predominant one being that iFinex know they are screwed, and are making one last cash grab before presumably disappearing. This sounds fairly reasonable if the entire operation is indeed a sham, but it means there is effectively no upper bound to BTC prices because the denominator in 90% of the market (USDT) is effectively zero.
Tether has become too big to fail. Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
The narrative around bitcoin has always been "It is digital currency. It works like gold". Hence the notion of "mining".
EDIT: downvote me if you want but you are flat wrong
Section 6 in the bitcoin whitepaper explicitly likens bitcoin to gold [0]
>The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation
I wholeheartedly agree with this. Let's look at some Reddit /r/bitcoin posts in January 2014:
https://redditsearch.io/?term=&dataviz=false&aggs=false&subr...
People were discussing bitcoin being used as a digital currency. There was talk of bitcoin being accepted on Overstock.com, TigerDirect, and using bitcoin apps on phones as a digital wallet. I would argue the majority of people in the bitcoin community at the time were genuinely interested in the technology and its use as an everyday currency.
Now let's look at some Reddit /r/bitcoin posts in January 2020. I picked this date because there weren't any recent significant price fluctuations.
https://redditsearch.io/?term=&dataviz=false&aggs=false&subr...
There was practically zero discussion on using bitcoin as a currency. People were only interested in the price and treated it as a commodity, just like a digital gold.
> EDIT: downvote me if you want but you are flat wrong
Do people treat bitcoin as a currency or a commodity today?
I don't think we need to get into whether or not gold is a currency or a commodity but you are fooling yourself if you think that the price of gold is driven by jewelers and PCB fabs.
Long term the price is driven by the mining cost.
Bitcoin lightning could change this, instant transactions with almost no fees, but it's still in early days.
Reading about the Lightning Network gives me a headache in general, but Phoenix manages to hide all the tech stuff. I think my old parents would be able to use it.
And it solves one LN problem of having to have bitcoin for opening a payment channel, you can simply install the wallet and start receiving bitcoin.
This is a very amateurish attempt at analyzing what "Bitcoin community" (which you haven't even really defined properly either) are thinking or are interested in. Bitcoin reddit is a bunch of kids who like memes and hating on the FED. I know a lot of serious investors who would never be seen posting or commenting there. It is just not a place for a lot of people.
All the original Bitcoin adopters from the beginning moved discussion there.
It was expected (again, as stated in the whitepaper) that truncating transactions (in order to shrink blocks that are "old enough") would be able to manage block size well enough to stay reasonable.
In my experience (circa ~2011,) this expectation seemed to be generally accepted without much question by anyone talking about bitcoin. If it was acknowledged as a flaw it was usually hand-waved as only likely to be a problem 10+ in the the future.
edit: Or that a new network would learn from the bitcoin experiment and implement a protocol that works better at large scale.
Stop with the storage space nonsense. The only people even storing the entire chain are enthusiasts, servers and miners. Saying "what if it gets a thousand times as many transactions" is ridiculous, but it still wouldn't be a problem. A few gigabytes a day? A $300 dollar hard drive would still take a decade to fill up. I think the few that sync the entire chain handle that.
Aside from that, people figured Moore's Law would continue at its historical pace, and Bitcoin could grow indefinitely at the same pace.
In fact the whitepaper even opens with describing Bitcoin's usage for commerce. The very first paragraph in the introduction!
The narrative has indeed changed to "digital gold" after it's made abundantly clear that Bitcoin is no longer suitable for commerce.
The emission of new bit coins following the "mining" of new blocks is like the minting of new gold coins following the mining of raw gold.
Because bitcoins are like gold coins.
I agree that neither gold nor bitcoin are suitable for commerce. But the narrative around and apparent intent behind bitcoin from in the beginning was "It is digital currency. It works like gold".
In the olden days, gold was actually a currency. The supply of coins you could produce was limited by the precious metals you had. The amount of paper money you could issue was limited by the amount of gold bars you had. In this system, gold is still acting like a currency; but a currency with very real limitations on the ability of any institution to manage it. [0]. This was the original meaning of digital gold.
In contrast, modern gold is not used as a currency. It is used as a commodity and store of value; and a hedge against inflation.
[0] Unlike gold though; bitcoin actually has a predictable issuance schedule. There is no sudden spike in Bitcoin supplies because prospective suddenly discovered a rich vein.
The same issue would arise if the USA started printing dollars and buying physical gold with it. Is that right?
It has not been that for years. It failed miserably as a currency, and the current narrative is that it is a "store of value".
It would seem to me that if transparent stablecoins with utility are going up, the simplest explanation for tether going up is that it serves the same role for people who have either become accustomed to it from its earlier availability, or have it as their only option due to jurisdiction. Not anything nefarious.
There seems to be little actual evidence to support conspiracy theories that Bitcoin's price movements are due to mismanagement of tether.
[1] https://twitter.com/JacobOracle/status/1346133087877537792/p...
I personally dislike Tether and avoid it, but strong claims require strong evidence.
https://fred.stlouisfed.org/series/M1
Ironically (or not) Bitcoin was created in 2009 right when that graph gets really crazy.
It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.
That's more than enough reason why we should try something else. It doesn't inspire a lot of confidence. By that reasoning, the USD has the same sort of backing as the Venezuelan Bolivar. So what's to stop the prior from becoming like the latter?
People who repeat this don't understand that fiat money is based on trust...and that is not a bad thing.
This is why blockchain is fundamentally stunted: the global society is based on trust and cooperation. Trustless systems will never be able to compete in these arenas.
speaking of jumping the shark, have you seen what governments have been up to lately ?
interest rates at a 5,000 year low, moral hazard abound & global fiat collapse imminent in the best case and in the worst case we have banks/elites/governments who are going to be looking to further enslave those in debt and forced out of business/work with some dystopian debt forgiveness scheme involving a 'vaccine' schedule and travel restrictions or whatever else (use your imagination).
the truth is that everything mentioned in these comments was an argument that had already been had years ago - the markets reflect that - but i did enjoy reading the last sentence of your original comment and thinking to myself "am I reading Time Magazine ?"
2) you talk about fiat collapse being imminent...USDT is worth far less than any fiat (see: nothing) I don't get how these ardent fiat haters don't see their entire ecosystem has been coopted by something that has infinitely less value than the thing they so despise
"Escaping" that for something which literally is backed by nothing at all is a strange move.
Until that time, expansion of the USD (or other Fiat) supply impacts the "value" that BTC has.
I don't think so...
They used paper that symbolized "withdrawal rights to gold". USD (or any other piece of paper that people agree has a value) is a perfect currency for exchange, it's just not a great store of value.
USD is a fantastic store of value. Since 1982 (arguably the beginning of the modern inflation-targeting era), the USD has lost no more than 6.3% of its value year-over-year, nor gained more than 2% (CPI measured, source https://fred.stlouisfed.org/series/CPIAUCSL#0).
In contrast since 2016, Bitcoin has 60% of its value year-over-year (2018) and gained 1700% (also 2018).
A store of value is not a story of appreciation and hoping for a gain, it's a story about holding a stable and most importantly predictable value into the future. The USD more than satisfies this condition. Bitcoin does not, no matter its speculative merits.
Most importantly, society does not owe people a fictional store of value guaranteed to never lose purchasing power. People don't eat quarters, nor do they live under dollar bills. It strains credulity that a nominal token (however minted) should hold a guaranteed value, without taking capital-like risks required of any productive investment.
My point is that you can't "get away" from USD, while the BTC market is effectively tied to USD.
so if the USD supply is massively inflated, and people can use those USD to buy BTC, the tie is still there.
If and when people denominate their goods and services in BTC without any reference to a fiat amount, then they are decoupled and BTC loses the tie to USD.
No, but prices were denominated in gold, effectively, as the price of gold was fixed. That was the whole point.
Preventing debasement of currency via inflation via printing money, which a lot of people use as their go to argument against fiat money, is simply adding economy wide debt to the ledger. This is necessary from time to time especially during crises and especially in a services/financial services/ intellectual property heavy economy.
If no money existed, at all, how would you receive compensation for providing work of an IP nature to your neighbor. You would need either a perfect trade (you really want their chicken it’s just the right amount of chicken for you) or you take an iou. Which is a debt. Now have them write that iou down on a piece of paper and hand it to you. Your neighbor just printed money. Not so crazy.
It seems to me that either you the amount of currency in circulation needs to increase or the value of the existing currency needs to increase.
Taking into account the gold standard was used for possibly centuries (not sure) was this problem encountered before and how was it solved?
https://en.wikipedia.org/wiki/Great_Bullion_Famine
https://en.wikipedia.org/wiki/Price_revolution
Both under- and over-supply had negative effects on the economies of Europe.
The gold standard really was a primitive fiat currency anyway, governments would debase coins so they contained less gold in order to expand the money supply for instance. And only a small fraction of coins would be gold anyway, silver was far more common - the Pound Sterling takes it's name from a pound of silver from the easterlings (Germans). Paper money just made it obvious that physical currency was only a representation of wealth and not a fixed unit of wealth itself.
The gold standard is basically a political myth about a system that never really existed. Money is a very abstract concept, and reducing it to physical tokens and easily intuitive rules is appealing to many.
This was posted to HN and it was quite eye-opening. For those that don’t know, 1971 was when the gold standard was abandoned by Nixon. I don’t know if the graphs are cherry-picked and I hope they were honestly since the US is never going back to the gold standard and it seems to have far-reaching negative effects in every aspect of human life.
To answer your .25 cent milk question it seems to have not been a problem in history and health of the country before 1971. The profits and benefits of the rapidly growing economy have pretty much all gone to the ultra wealthy that are nearest to and in control of the money printer.
adjustable, with a benign regulator > fixed > adjustable, with a corrupt regulator
So, the aim shouldn't be a return to the gold standard or a switch to BTC, but to make sure that central banks can do their job without interference from politicians.
Backed by $750B in annual military spending
It would be really nice for people to spend even a few minutes thinking about how money works, or open a textbook even just to learn what you disagree with.
It's tiresome to explain over and over and over again to people how the "full faith and credit of the United States" is not "nothing at all" but in fact a guarantee of great value, at least as good as any on any other security, and one that is quite measurable (by for example comparing the prices of full faith and credit securities with other almost identical securities without this guarantee).
On the contrary, I'd say that it's the cryptocurrencies that _by design_ are based on nothing at all.
The killer app is decentralized, permissionless, open source, and censorship resistant network.
Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
Gold morphed from worthless rocks in the the ground, to coins traded by traveling merchants, to stores of value that were eventually centralized and monopolized by governments.
RE: Tether I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.
Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
Bitcoin is sound. The centralized exchange layer built on top of it is dirty.
That’s like saying the killer app of the internet is the internet.
The web gives me access to information quicker and easier than going to a library or bookshop. Email and IM means I can communicate with people in other countries quicker and easier than I could by post. Crypto doesn’t change anything.
A few drug dealers and some people living in countries with hyperinflation may care about “permissionlessness” and “censorship* resistance”, but for most people, actual money is far, far more convenient.
* That’s some Orwellian newspeak, btw. If someone defrauds me and a court of law ensures that I am restituted, the reversal of that fraudulent transaction isn’t “censorship” because stealing money isn’t “speech” or “expression”.
For example, Chinese can use bit coin to exchange large amount of funds to other currency, although this can only be done in private because the official ban.
That's the "how" part, not the "what". What's the killer app implemented using that network? What do we do with it?
A replacement for gold is one.
Gold is relatively stable and has physical backing. BTC does not.
I can make a $12,000,000 transaction for $.35 but if I actually want to get the money, I have to pay 2.5% to a legit exchange or take my chances on some janky ass exchange. Why not just transfer the money via ACH and pay the small fee and save myself the headache?
I pay 0.15% and the exchange has been around for a decade without ever losing funds. It's even now licensed as a bank in the U.S.
Yes, but what can I do with that other than toot/tweet/twit at other people and buy LSD tabs?
https://www.nucypher.com https://filecoin.io https://alice.si https://www.augur.net
With IPFS you can host and access files that can't be censored. (same level of censorship resistance as torrents)
With Monero you can transact free from surveillance.
The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.
Private keys can be confiscated like anything else. They won't do you much good if you're thrown in prison for not turning them over if legally compelled. Sure you can try to hide your ownership, but my point is that actual cryptocurrencies are only one layer of very deep opsec you need to resist state actors. For the common illegal goods consumer it's unlikely to do much more than provide a false sense of security due to other opsec failures (use of phones, use of cookies, use of mailing addresses, use of non-e2e chat, using a hosted wallet, lack of anonymous vpn, etc etc etc).
> The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.
Interesting use of "dollars." How much is actually Tether? How much is manipulated market cap (through wash trading or more convoluted defi mechanisms)? How much is actually liquid USD?
So the killer app for bitcoin is owning bitcoin?
Tether's page (https://wallet.tether.to/transparency) claims $23.6 billion in total assets. Despite their claims to transparency, I see no report of what those assets are, how risky those assets are, or any audit that assets they even own those assets. Their front page has a big link saying "Proof of funds", which leads to an audit published 2½ years ago, claiming only $2.5 billion in cash in two bank accounts with unnamed banks.
For a company that claims to be "always fully transparent," that is shockingly opaque.
I stopped following the money side of it (atm and sites accepting btc) but a vast majority of btc and cryptos attention right now.. is simply better yearly returns than other kinds of possessions.
That's not an app. That's meaningless advertising lingo.
In all these analyses, one key point is missing: arbitrage traders have to make up for the sell pressure on USDT when Tethers are being printed and sold for BTC. Can anyone show me how there is a plausible mechanism/scheme/conspiracy that keeps the USD/USDT exchange rate stable while a crazy amount of illegitimate Tethers are being printed?
Edit: typo and removed link.
Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)
99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.
It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.
1. buy X for USD
2. buy BTC for X
Shouldn't the price for X then stay the same? (Bought X once, sold X once)
Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD?
Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?
You could argue speculation is the killer app. I'm not a fan but it's hard to deny it's a huge business and some people seem to like it. Kind of like Las Vegas in a way.
As Stripe, PayPal, Visa, Gofundme, Patreon, et. al. shut down avenues of payments for legal, but unpopular purchases, BTC is the obvious workaround.
Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators, etc have become increasingly estranged from the "normal" payments market in the last few years. BTC is the killer app for this.
Some people make lots of money of it, no doubt.
I'd say to qualify something as a business, there should be value creation somewhere along the line. With BTC, I see mainly redistribution of value, along with destruction of resources.
The only peg that exists is the one whereby you should be able to go to Tether Inc and redeem USDT for USD 1:1. That peg has never ever been demonstrated (publicly).
All the other "pegs" are just cash trading. If I trade USDT/USD on Binance...I don't actually have USD. Even on that pair, my USD profit/loss are denominated in USDT.
For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.
Genuinely curious, as someone who has never used Binance nor USDT:
Why is the "directly" part here significant? If I can USDT (Binance) -> USD (Binance) -> BTC (Binance) -> BTC (Coinbase) -> USD (Coinbase) -> USD (My Bank), then whats the difference other than a few extra steps?
Kraken, Bitstamp, did so for 3 years+
With all due respect, this is completely wrong - crypto has the same killer app it has for years, and that app is _crime_.
Whether you're buying drugs, paying anonymous extortioners, accepting bribes, money laundering, or tax evasion, cryptocurrency is the go-to choice for electronic funds transfer for your modern criminal.
And there is no obvious place for further money to come from once they want to cash back out.
This narrative was an intentional morphing by various actors within the space (Blockstream) who believed raising the blocksize to allow higher throughput would cause 'centralisation'. Instead they want people to use layer 2 solutions such as blockstreams own federated product Liquid.
And then you realize that this is pure speculation and the most ardent supporters are just praying for the greater fool theory to rain good fortune on them.
You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.
Crypto is not a currency but an investment product; can we please just accept that and talk about it for what it is?
"Gold's narrative has had to morph from currency to store of wealth" Circa 1971
M. Saylor is preaching this it seems. It's just a better asset (less supply, no mass~)
"The market can remain irrational longer than you can remain solvent"
Tether has no such limitation. All the exchanges are complicit in this, wash trading is rampant, and there's an de facto central bank run by actual criminals. There is absolutely zero reason why iFinex can't take bitcoin to $100k or $1m or whatever they like. They only have opportunity costs.
The only thing keeping them in check right now is the appearance of legitimacy. If they were to overdo it, people might actually sell, which is not what they want. So until their legitimacy is tested (Jan 15) they will probably responsibly grind this higher. But on the last day, I expect billions and billions of USDT issuance so that they can run stops on every short in the market, collecting their last few shekels before the music stops and they vanish to an island somewhere.
https://www.reddit.com/r/CryptoCurrency/comments/ksdfne/why_...
If the NYAG doesn't like what's in there I guess it may go badly.
The courts document list is https://iapps.courts.state.ny.us/nyscef/DocumentList?docketI...
If you look at the latest one, it mentions the 15th.
> But Tether is printing so much money.
So is USDC, and the price of Bitcoin is going higher. This means Bitcoiners have lots of value in Bitcoin and some of them are going to convert that value to USD. They are mainly using USDT for that, for whatever reason.
> Tether printing press is driving Bitcoin price.
Wrong. My proof for that is "where is the premium to buy Bitcoin". In a very liquid market (which for the most part, crypto is), prices should be the same up to the costs (transaction and banking fees). Prices have been higher in Coinbase during this run. As I am typing right now, Coinbase prices are 50-80 dollars higher for Bitcoin. GBTC is even more ridiculous with 10-15% premium on price (but also GBTC is less liquid/arb-able). This signifies that demand is coming from US retail and institutional investors.
> Tether is holding USD as securities/derivatives/whatever.
All of them are. See: https://omarabid.com/usd-stable-coins
USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). If Tether came and said "sure we'll redeem these fully backed Tethers for USD 24/7/365" you would quickly find yourself with a liquidity crisis.
For the bystanders here, I've made a reply to a comment similar to this in sibling thread: https://news.ycombinator.com/item?id=25686965
This isn't necessarily true, as in that event, although possible, wouldn't necessarily have happened. Much like banks with limited liquidity can survive for a long time. To your point, it's confusing how they managed to thrive after admitting that they were lying about being backed 1:1.
Edit: I haven't been paying too much attention to tether in ages. It looks like they're now offering redemption of $100k+ at a minimum of $1000 a pop?
Tether's reserves only matter when people try to redeem Tethers. This is currently not possible.
So it is purely a trust game right now, and everyone has an incentive to trust (or turn a blind eye) that Tether is playing by the rules.
This is why being liquid and freely trade-able matters. Tether is fully redeemable if you can trade it against other crypto/stable coins. Want to redeem USDT? exchange it to USDC and then withdraw to your bank account.
They did redeem from 2.8bn to 1.7bn. Which is like 40% of their total value at the time. Is that significant enough?
And since Bitfinex is the owner of Tether Ltd., there is unfortunately no outsider that could credibly confirm to have actually received any USD in exchange for those burned Tethers. Bitfinex might just as well have sold Bitcoins from its own stash (or from customer wallets) to others for USDT and then burned those USDT in order to stabilize the USDT/USD price which wasn’t exactly holding up well at that time. If they had actually printed more USDT than they have USD in the past, this would be a smart move in order to distribute the "missing" funds more evenly across multiple crypto coins in their custody, which makes it less likely for them to run out of one of them and thus makes it less likely for the alleged scam to come to light.
> There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently.
All this proves is that they have something in reserve, not that it is 1:1 backed. Most modern banking operates on a fractional reserve system, but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.
Now try taking out 50 million or more, you'll face same difficulties.
This tether nonsense comes up every few months, still adamantly holding the 1:1.
Not mentioning that it's not the single dollar peg option in crypto space anymore, plenty of other options USDC, Dai.
Sure but that’s my point. The fact that my small volume transactions go through without friction is not proof that the system is not fractional reserve. In the case of a (properly run) bank the value still exists but isn’t liquid; in the case of USDT we don’t know without an audit.
As long as they have a blindly trusted money money printing machine, they can use it to defend the illusion that it's printing real money. This is thes standard playbook for a pyramid scheme. You use new money to keep the illusion of a big holding and you can keep that going as long as the illusion holds.
Other than, you know, they themselves admitting under oath that they did not.
I'm fairly certain that _Tether's_ lawyer said, in court, that their reserves were closer to 0.74.
>Tether can print infinite amounts of (worthless) $USDT.
>They then inject this into BTC, ETH, LTC, (and others) to cause prices to pump.
>Notice how during the months they stopped printing Tether, the market moves sideways or drops significantly.
>This graph also shows the extent to which USDT plays a role in Bitcoin's price action over the years.
I don't get it. This doesn't really prove anything either way. Sure it could be the case that they're printing USDT backed by nothing and using it to by cryptos, but it could very well be the case that they're printing the USDT in response to real deposits from people who want to get into crypto. Since USDT accounts for a significant portion of the crypto market, it'd be more suspicious for price to go up without a corresponding large amount of USDT being printed, because that would mean prices are going up without more money being poured into the market.
If BTC price rises, trade volume grows, increasing demand for stablecoins due to their utility as a low-volatile alternative to fiat to bypass legislation. You would EXPECT this pattern to arise. Note also how OP does not show a graph of trade volume/buy-sell volume which would potentially show that it is used as claimed.
I still think Tether is extremely shady for refusing audits and dubious backing. I avoid it like the plague and hope others are as smart.
"It could be" that if you send me $1 million, I'll make you live forever. You should try it and see.
Are people accepting Tether in trade for BTC under the assumption that Tether will always be exchanged 1:1 for USD when this is not actually the case?
EDIT: The answer seems to be yes Tether is 1-to-1 with "I O U $1" and enough people are accepting these IOUs in exchange for BTC that the market is moving because of this.
That last part ("the market is moving because of this") seems so unbelievably stupid to me that I don't actually believe it.
(This is my understanding of the situation and from the reading the explanations of other people, but please take this with a grain of salt, im not sure if everything is true)
Are people trading BTC for "Land for sale on the moon" too?
This sounds like exchanges handing out IOUs instead of money when their patrons try to cash out.
If people didn't believe it, they would sell (either for BTC or real dollars), and if enough people did that then tether would collapse.
My suspicion is there are enough dormant tether holders that the above will never occur, even if there have been some substantial fraud losses.
Legit: US$ are sent to tether, tethers are issued in exchange 1:1 and then used to buy bitcoin. This will tend to raise the price of bitcoin but only as long as people are sending real US$
Illegit: tether insiders just issue tethers without US$ backing, use them to buy bitcoin and probably try to sell the bitcoins at a profit becoming million/billionaires in the process. Sky's the limit really - you can issue crypto tokens in any amount though it could all collapse if people want to swap their tethers back to US$ and there aren't enough there.
>They then inject this into BTC, ETH, LTC, (and others) to cause prices to pump.
Means use the tether to buy BTC etc in exchange for tethers which will tend to raise prices if there are more buyers than sellers and people seeing the price rising will cause them to buy more.
The majority of exchanges can't actually hold fiat money due to regulatory issues.
Also I imagine some people are hoping to avoid the taxman by keeping it in crypto though that's legally not kosher.
Also, I would be very, very weary of using an centralized exchange that "can not hold fiat". With the layer-2 projects that are coming now (take a look at loopring or Stakenet), you can transact as much as you want, no gas fees and exchange fees are about the same as any CEX.
Tether originally promised that they were 1-2-1 backed with actual currency reserves, but had to abandon that statement when it became apparent they'd lost a load of money to Crypto Capital.
Tether still claim to be 1-2-1 backed with "investments" but there has never been a completed 3rd party audit of that claim, so it literally has to be taken on trust.
The entire point of Tether seems to be that it is always valued to be exactly 1:1 with USD. And that seems to somehow convince people that entities who cannot obtain a loan of USD can obtain a loan of Tether?
If Tether gave out a significant amount of USDT for Bitcoin without backing it in some other way, it means Tether isn't actually backed by the USD. Even if they lent out Tether for USD, they might have used BTC as collateral/risk assessment.
The fear is that Thether is held up by a loan of BTC and BTC is held up by in some part by the stability of Tether.
If Exchange A has no "traditional banking ties" but is where I want to trade so I need to buy crypto through Exchange B first in order to trade that crypto on Exchange A why would I buy Tether instead of BTC through Exchange B?
No bank, no problem! Tether on Wayne,Tether on Garth.
But seriously, this old news. All of these stable coins and alt coins are just big pools of liquidity to swim in.
Interestingly, USDC seems to follow similar minting patterns, and they post quarterly audits of their books / are much better regulated.
The most likely threat to Tether as a currency (IMO), is that one or more large countries outlaws its use, and/or decides to prosecute its owners...
Of course it is possible that Tether are getting custom, but not the kind that wants to leave a bank trail. But if that's the case they're going to fall foul of the regulators sooner or later...
You just answered your own question.
There is ample evidence of the sketchiness of the people behind Bitfinex. But there is also a simple explanation for the behavior of bitcoin and Tether in 202 that involves no conspiracies. Many hodlers bought during the March crash because they saw it as an opportunity to buy at a discount (I am one of these people). The crash coincided with events that should drive up the price of bitcoin over the longer term. Specifically, the creation of trillions of new dollars and what many saw as a new era of much looser monetary and fiscal policy. The idea that demand for hard currencies is increased is totally consistent with this.
Compared to 2017, I now believe there is a smaller chance of total tether insolvency and a larger chance of significant but not catastrophic shenanigans.
The bigger question is: Why are so many institutions using Tether to purchase 7-8 figures of bitcoin at a time instead of simply engaging with any of the well-known institutions who will facilitate the purchase directly? What do all of these buyers possibly gain by using an intermediary currency and funneling all of their money through the Tether company first?
The only explanation I can come up with is that Tether is being used to skirt financial regulations or launder money, which doesn't bode well for Tether either.
Could it not be possible that cryptocoins has become a massive world wide gambling area? People betting on the prices going up or down, moving their assets between floating cryptos and Tether.
This may well be true. But it also seems to be the case that for a long time, Tether was the only game in town, and institutions built integrations around it. Someone starting out now might not build on Tether.
However, there is also another possible explanation. When investors want to buy BTC they first to go Binance and ask for USDT in exchange for USD. Binance creates new USDT for them. Then they use the USDT to buy BTC (reverse causality). Just saying it's possible, but I believe Jacob Oracle to be right.
But why sell them USDT first and then sell them BTC in exchange for the USDT?
Why not just sell them BTC directly? That's the issue.
It is supposed to be a stablecoin. That's meant to be exceedingly boring. Tether is anything but boring, with all kinds of intrigue, lack of transparency about its reserves, law suits and so on.
There are a bunch of other stablecoins out there that just seem like better propositions, so why does crypto price action continue to be primarily driven by inflows from Tether?
Shorts (if they exist) would be extremely risky, as you owe more if bitcoin rises.
https://www.theblockcrypto.com/data/crypto-markets/futures/a...
Bitmex, Huobi, etc.
Banks create money out of thin air when you take a loan. The only difference is they destroy that newly created money when you pay the loan back (but keep the interests).
See : https://positivemoney.org/how-money-works/banking-101-video-...
It doesn't make sense that people who want to cash out of BTC at a certain price level will cash out through USDT because there is no exchange to redeem USDT to USD directly. You have to cash out through USD/BTC or USD/ETH.
There are arbs traders who maintain the peg the USD/USDT, but arbs traders will always attempt to have a net 0 position, it doesn't make sense for them to hold tether either. Defi flash loans like AAVE and byz offer 0 collateral loans. If they are not using flash loans, then they will post collateral with USD (as this is presumably how they want profits) to short whatever ticker they need to short for the arb play.
If bitfinex and tether keep printing tether, someone is holding all this tether. A lot of this is probably held in defi liquidity pools and AMM pools, but the total reserves in these exchanges (Compound, curve, dydx...) is far less than the 600 million printed.
Perhaps the same institutions printing are the last holders, but Why would tether and bifinex hold their tether if it is truly a scam? I am confused as to who the last holders of tether are, if people are swapping tether for BTC and BTC for USD. Most people that buy tether (other than people supplying liquidity pools) do so to swap to another token for a real potential of gains, since Tether will never gain in value significantly with a 1:1 peg.
A tether fork can be 'backed by tether.' The issuer of forked tether would accept 1 tether for one new tether fork. this issuer immediately sells tether to get the risk off their books through an exchange while liquidity exists. When redeeming the tether fork ppl can either get back tether or ~ 1 us dollar. So you effectively have front running the inevitable tether bank run. Sure they have to put trust in this new tether fork. You can steal tether's customers that are worried and since the feds seem to have a blind eye towards a company that isn't a bank and is most likely practicing fractional reserve lending, you let the free market 'regulate' tether.
- B buys 1USDT for 1USD
- BTC sale at 1USDT from A to B
- person B now lists their BTC for 3USDT
- if person C now wants to buy this BTC for 3 USD, there has to be an additional 3 USDT minted
Given new influx of money keeps happening to buy BTC, more and more USDT needs to be printed. Meaning, extra USDT is printed BEFORE the price increases. Because it's required to buy. Doesn't explain why it's seldom burned. Nobody ever cashes out?
There was a successful SpaceX launch yesterday, and Bitcoin went over $40,000 for the first time. In 2020, SpaceX had its best year ever for successful launches and returns of the first stage, perfectly coinciding with Bitcoin's meteoric rise in value. So Bitcoin must be tied to successful SpaceX launches.
Eth is $400 on Coinbase, Bitcoin is $12000 on Coinbase
Print 1,000,000 Tether
Buy $1,000,000 of Eth on an exchange that supports Tether
Sell $1,000,000 of Eth on Coinbase
Buy $900,000 (arbitrary post-sale amount from selling Eth) of Bitcoin on Coinbase
Another scenario:
Bitcoin is $12000 on Coinbase
Bitcoin is $12000 on another exchange that supports Tether
Print 1,000,000 Tether
Buy $1,000,000 of Bitcoin on the exchange that supports Tether
Bitcoin is now $12050 on another exchange
Coinbase price of BTC rises as arbitrage bots and manual traders purchase cheaper Bitcoin on Coinbase and sell it for profit on the other exchange until prices equalize
The price of a USDT is 1 dollar. They give out new USDT for $1 a piece.
Sure, they may be spending these dollars elsewhere, thus holding a fractional reserve. Sure this may illegal and get them in trouble.
But this doesn't effect the dollar value for which these USDT's and thus Bitcoins are traded.
As long as a USDT is $1, nobody is manipulating the price.
If this were the case, Tether would be back by cash. But it isn't: they claim it's backed by cash, cash-equivalents and receivables from loans, including loans to affiliated entities (or some similar language).
So, for example: they could create 1M USDT and immediately loan it to their associated crypto-hedge-fund (for zero interest). The hedge-fund promises to repay that loan in USD (creating 'reserves' for USDT), and immediately places buy orders for Bitcoin; generating demand for Bitcoin that will raise the price.
The entire narrative around BTC is "HODL", and the only thing people really do with it is buy and hold. Money is flowing into the system, so there's room for scams to operate undetected within those margins.
They largely can't (especially that a good fraction of Bitcoin is now held by institutional investors). But it makes up for a good story.
That's circular logic isn't it? USDT is $1 USD and $1 USD is 1 USDT, therefore it is "stable".
That sentence in and of itself is meaningless.
Meaning yes, they don't have USDT 100 % fully backed, but they aren't printing it out of thin air either.
What surprises me are the incredible volumes in USDT -- why would anyone ever use USDT instead of USDC, DAI or BUSD? All of them are much more transparent and less risky.
The exchange I use only has instruments with USDT pairs (BTC/USDT, ETH/USDT), not with USDC.
> This is just dumb but I'll lay it out anyway: The NY AG issued the first Tether subpoena in Dec 2017. The AG got the financial info, found that tether was fully backed by dollars, and that the Tether company lent some of those dollars to the Bitfinex company, which is the basis of the NY AG lawsuit. Bitfinex has since issued tokens to cover the loan.
To say that the NY AG got the subpoena info (which would require more evidence than an audit and be under penalties of perjury as well) found no backing and let them continue a ponzi is to say that the NY AG is part of the conspiracy. So enough with the tin foil hattery.
https://www.reddit.com/r/BitcoinMarkets/comments/ksvlc3/dail...
I am fairly certain over 3 years passed since then.
When Tether falls, it's going to make a very big noise.
Try telling this to climate change activists
There's a gradual process to go from hypothesis to theory to fact, and to get there, you need several types of independent evidence. Correlational evidence is okay as one of those.
A correct statement is that correlation is not proof of causation (no matter how strong).
Types of evidence:
* Correlation
* Theoretical basis / strong hypothesis
* Extrapolation
* Interpolation
* Small-scale well-controlled experiments (lab setting)
* Large-scale less controlled experiments (real-world setting)
* Anecdotes
* ... and so on
You want several of those before you start to believe anything, and some are stronger than others. Correlation isn't fundamentally weaker than most of those, though; all of those carry their own methodological issues. The number of times you can have a large-scale perfectly-controlled preregistered randomized control trial with no confounding effects is exceptionally rare (some medical trials, and a few other settings).
There are several algorithms that calculate the causal structure from correlations: PC, GES, FGS, FCI
They are proven to be asymptotically correct
Yeah...that's not how it works.
Say the SEC takes on Tether and it falls. Why then does BTC and the crypto markets crash?
Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation.
This use is so common there is jargon for "Tethering up".
There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility.
On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager.
Because of this wide-spread use of Tether, it's collapse would cause a liquidity crisis: people want to but cannot sell their Tethers for other tokens/fiat. Tether goes down from it's 1USD peg, triggering a run on Tether as people try to swap it as much as they can for anything else, driving down the price further. Meanwhile noone is willing to buy Tether. The theory proposed by OP, is that panic in the already volatile crypto market ensues, people exit for fiat where they can driving down prices everywhere. Trust in the whole market will be obliterated.
Personally, I haven't trusted Tether since the first BitFinex scandals and avoided like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
If it's still somewhat backed and just that chunk of usd that remains unaccounted for, printing tether isn't exactly a scam? People trade their usd for printed tethers and use that to buy bitcoin, so it's still essentially people exchanging usd for bitcoin
The question is do you believe that billions of dollars are flowing into an unaudited stablecoin when other, audited, stablecoins exist...
Edit: I forgot to add the link, here it is https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...
Relay looks interesting too: https://relayfi.com/business-banking
https://twitter.com/search?q=%22minted%20at%20Tether%20Treas...
It’s mysterious how Bitcoiners hate the Fed printing money but they get awfully quiet with Tether printing money when it helps prop up the price.
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[0]: https://www.equities.com/news/how-do-bitcoin-futures-affect-...
Tether however isn't balanced. There is no risk. There is no offsetting liability in the market for the Tether they create (unlike with a short future, which has an offsetting long side).
> Precious metals markets have long since been subject to manipulation by large banks. Several banks have admitted wrongdoing and faced fines for manipulating gold prices. Many believe that the prices of gold and silver have been kept artificially low through the use of leveraged paper contracts.
>Dr. Paul Craig Roberts, the former economic advisor for the Reagan administration, has written extensively about this subject.
>In his view, some of the biggest banks in the world have been working to suppress the price of gold in Western markets for many years. They accomplish this through creating so-called “naked shorts” out of thin air (the term vapor contract term we’ve been using is analogous to a naked short).
>A naked short is simply a contract that allows an institution to place a sell order for a particular asset without having any ownership of the asset.
>In other words, it allows a bank to flood the market with fake sell orders, creating downward market pressure. Given that banks can create these shorts to the moon without any accountability, they can keep the price down at a level more or less of their choosing for quite some time.
Especially the last alinea seems to reflect some of the things you said about Tether actually.
Point still stands, proof or GTFO.
My point was that the tweets author is trying to back up their claim while DJBunnies did absolutely nothing to try to back up theirs.