Bitcoin: Magic Internet Money
researchaffiliates.com
researchaffiliates.com
What we do know is that their own website T&C says by holding a USDT token, they owe you nothing. They never have to allow anyone to withdraw a single penny. They can sail off to a (different) island and keep any assets they may or may not have, scot free. They're chuck-e-cheese tokens.
They hired an auditor, then the auditor quit.
They bank with a domestic bank in the Bahamas, Deltec (chaired by the creator of Inspector Gadget, Jean Chalopin), who they may well own. Just as they owned Noble in Puerto Rico before it was bankrupted due to their ownership being revealed. And guess what? The Bahamas' government domestic bank foreign liabilities do not show a 24B influx of USD over the last year.
There's no reason - nor has there ever been reason - to believe Tether is anything other than a scam to enrich Tether and bank Bitfinex. The crazy thing is that USDT volume amounts for 80% of BTC trading volume. [1]
I just can't understand the "well, let's just assume it's fine until proven otherwise" attitude. If that's your attitude I've got a tokenized bridge to sell ya.
To call Tether a systemic risk to the entire crypto space is quite the understatement.
Most of those calculations are based on self reported volume from exchanges no one has even heard of.
How systemic that risk really is is not very clear since it is concentrated to certain types of exchanges where the regulatory risk tends to be already quite high. A bank run on them would still be huge.
- Selling each Bitcoin for $2,000 to pay your electricity bills?
- Selling each Bitcoin for $40,000 USDT, which you know is only backed by $2,000?
Clearly the latter, because you make the same amount of money but get to keep 95% of your Bitcoin. The Tether fraud only makes sense if you assume that the miners aren't colluding, and that they don't make more money the more Tether gets devalued.
Hardly ideal, but there is a pdf version of the full thing: https://www.researchaffiliates.com/content/dam/ra/documents/...
Could someone explain this to me? How would a government confiscate bitcoin held in a cold wallet? I get they can track it and potentially seize it if it was held on an exchange, but presumably anyone buying Bitcoin because they're worried about the government seizing their assets would not hold it on the exchange and would store it on a cold wallet?
- guns
- jails
Obligatory: https://xkcd.com/538/
Your only protection is if they don't know your cold wallet actually exists, something that is rather hard to pull off with Bitcoin - it is easier with some other cryptos (Monero, ZCash, Beam, Grin)
Same thing as any order to seize or freeze financial assets but perhaps with more scrutiny given the pseudo-anonymity of digital currency. Same for acts by Congress that route through the Treasury to freeze assets like the Magnitsky Act.
The price to earnings ratio of Tesla is 1692—that’s nuts.
Bonds?
Gold?
Real estate?
The truth is, preserving wealth in 2021 isn't obvious at all.
We’re well on the way to negative interest rates.
The primary reason for the rise of bitcoin’s price from the low in March 2020 to $37,000 and change tonight is because it’s being used to preserve wealth.
1. So someone sells (potentially) worthless Tether for Bitcoin, ok.
2. But who is selling his Bitcoin for Tether in these volumes? Miners need to sell for cash to finance their operations.
I suspect there are exchanges where the BTC/USD pair does not exist, only BTC/USDT (Bitmex comes to mind).
In which case, if you want to trade in and out of BTC/USD, Thether isyour only choice.
I'd love to hear if people can easily withdraw actual USD from semi-shady exchanges such as BitFinex, Binance, etc...
[edit]: and I agree with you, I wouldn't buy a USDT even if my life depended on it.
The IRS has classified BitCoin as a commodity. That means whenever you transact in bitcoin (if you do it legally) you have to record the fair market value of the coin in USD so you can report and pay capital gains or losses. It's not practical to use it as a currency for legal transactions.
Businesses have no interest in a money system that are anonymous because they have to deal with potential audits from the IRS.
BitCoin similar to gold, except for the fact that gold has intrinsic value as a material input to manufacturing and it has to be acquired at market price.
Bitcoin is a system that requires current holders to encourage new people to come in and purchase Bitcoin because that's their only viable exit strategy.
So, Bitcoin is a commodity. It'll never be used as money and no major nation will treat it as legal tender. It has no intrinsic value. It's viable for black market transactions but that's it. The closest analogy I can think of is that it's like Beanie Babies (with certificates of ownership and authenticity). It's a Beanie Baby pyramid scheme.
>Bitcoin isn't legal tender and never will be. The primary reason is that the govt (and its in our best interests) needs to able to execute fiscal and monetary policy. No one wants uncontrollable inflation or deflation -- there's a reason why we use a fiat based money system today.
Outside of speculation, many use Bitcoin to escape the effects of fiscal and monetary policy that they don't agree with (e.g. 35% of all dollars that have ever existed, were printed this year).
>The IRS has classified BitCoin as a commodity. That means whenever you transact in bitcoin (if you do it legally) you have to record the fair market value of the coin in USD so you can report and pay capital gains or losses. It's not practical to use it as a currency for legal transactions.
The law is always slow to catch up with innovation. It's a commidity for now, which makes using it more burdensome than it needs to be, but this can change overnight if it was given the status of a currency.
>Businesses have no interest in a money system that are anonymous because they have to deal with potential audits from the IRS.
Bitcoin is the opposite of anonymous. I'm not sure why people still get this wrong after seeing Bitcoin in use for 11 years. It is a well tracked public ledger of value. Companies can more easily open their books to audits, and the IRS can also verify these books using publicly obtainable information.
>BitCoin similar to gold, except for the fact that gold has intrinsic value as a material input to manufacturing and it has to be acquired at market price.
Bitcoin is digital gold. Its intrinsic value stems from many aspects (in no particular order):
* ease of value transfer
* time of settlement (settlement between banks will take up to 90days)
* divisibility (a dollar only has two decimal points, while Bitcoin has 12 for now, but no real limit otherwise)
* a zero-trust consensus system
* and quite a few other properties. These are all intrinsic to Bitcoin. To claim that it has no value flies in the face of its pratical application for the last 11 years.
>Bitcoin is a system that requires current holders to encourage new people to come in and purchase Bitcoin because that's their only viable exit strategy.
Not sure why you feel this is true. Bitcoin would continue fine as-is with the current participants and activity. Perhaps the speculators would leave the system, but this is true of pretty much any speculative market activity and not the primary purpose of such a financial tool.
The point I was trying to make is that Bitcoin will never replace a national currency, nor will Bitcoin ever get to the point where it accounts for any meaningful volume of payments for goods/services. No nation will let that happen because (agree with it or not), not having monetary policy controls will (not maybe) result in an unstable economy which is in no one's best interest.
I'm not beyond convincing, but I need you to explain how you imagine a simple deflationary scenario playing out. Here it is. The govt. was asleep at the wheel, classifies bitcoin as a foreign currency and we transition over to bitcoin. The federal reserve has no teeth. Then, for whatever chaos theory reason, deflation begins to kick in. Every-day-Joe sees costs of goods decreasing relative to Bitcoin's purchasing power. Saving coin suddenly starts looking like an appealing investment strategy and he stops spending. Demand dries up bit by bit and goods get even cheaper in a positive feedback loop. What do you do?
We really do want to keep inflation at around 2-4% for a reason. How do you achieve that with Bitcoin is in wide-spread use?
> The law is always slow to catch up with innovation. It's a commodity for now, which makes using it more burdensome than it needs to be, but this can change overnight if it was given the status of a currency.
Why do you assume that the law got this wrong? Again, the reason for this is because it's not in our national best interest to have a wide-spread alternative currency to the USD. I think the IRS absolutely classified this correctly.
The vast majority of Bitcoin purchasers do so with the desire to make USD, e.g. https://www.reddit.com/r/Bitcoin/comments/7g9cmx/we_made_it_.... Typical bitcoin holders watch the market rate because even if they don't realize it, they all actually know it's not a currency in anything but name.
> Bitcoin is the opposite of anonymous. I'm not sure why people still get this wrong after seeing Bitcoin in use for 11 years. It is a well tracked public ledger of value. Companies can more easily open their books to audits, and the IRS can also verify these books using publicly obtainable information.
Personal identity isn't attached to wallets. It can be, but that's not within the scope of the idea of Bitcoin itself. Blockchain as a ledger has useful application for accounting purposes, but Bitcoin itself isn't a value add.
> Bitcoin is digital gold. Its intrinsic value stems from many aspects (in no particular order):
'Digital gold' is very different from real gold in that, well, it's not real and can't be used to produce anything physical. Real gold is an input to manufacturing value chains.
* ease of value transfer * time of settlement (settlement between banks will take up to 90days) * divisibility (a dollar only has two decimal points, while Bitcoin has 12 for now, but no real limit otherwise) * a zero-trust consensus system * and quite a few other properties. These are all intrinsic to Bitcoin. To claim that it has no value flies in the face of its pratical application for the last 11 years.
Not to be flippant, by why does anyone care about any of those bullets? Most people just want money to be stable so they know when they can retire and not worry about the purchasing power of their savings. And they want their money in banks so they can be FDIC insured.
Here's a perspective on intrinsic value. When a person sells a house for a significant capital gain. They don't just exit the housing market. They still need to live somewhere and they reinvest at least a portion (or sometimes more) capital back into the housing market.
So yes, you can talk about whether something has intrinsic value in if it holds value but that's really missing the point in a significant way.
* National currency has value because it enables stable commerce * Commodities have value because they are used by humans * Bitcoin is classified as a commodity but has no intrinsic value
> Not sure why you feel this is true. Bitcoin would continue fine as-is with the current participants and activity
Maybe. Some people are going to sell their bitcoin and retire taking that money out of the system, most likely permanently. A bunch of people crowd funded that. So how does the next inline "get rich off of bitcoin"? I think it's pretty straightforward.
At any given time, a small scale bitcoin holder (<1000BTC) can liquidate their entire position on Coinbase and withdraw USD to their bank account within a few days. A large holder would have to be more careful, but the market is big enough to liquidate 10,000 BTC over a week or two with minimal price impact.
Given this, we can see from revealed preferences that most small and large bitcoin holders are not liquidating their positions for USD. Whether or not Tether is a fractional reserve doesn't really change this.
That said, if Tether is revealed to be a fractional reserve, it would almost certainly be a huge short term shock to the system for bitcoin. Liquidity between exchanges would be shot, and the news would scare many investors away from the market. I wouldn't be surprised to see an 80% short term drawdown in that scenario, similar to when Mt Gox crashed. But again, this doesn't really change the long term dynamics I described above, since holder's ability to liquidate BTC for USD was never an issue.
The mechanics are different too, where a bank loans money it doesn't have and leaves itself with a negative balance until the loan is repaid (which btw, also has to be backed very carefully). They're just printing money to buy BTC and pump it.
Last, they also don't owe you any money or other assets if you try and withdraw. They can say no, and tell you to stuff it. Read their T&Cs on their website.
> That said, if Tether is revealed to be a fractional reserve...
What do you mean? Their lawyer admitted it in court two years ago. [1]
[1] https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...
1. Tether exchanges BTC for USDT
2. Tether prevents people from exchanging USDT for USD
3. Tether immediately sells their newly gained BTC for USD
4. Ideally Tether would back USDT with a 1:1 in assets in USD.
Point #4 is under debate. But since #2 exists it's unclear that even if #4 is true, Tether would stop a run on USDT.
What it really looks like is that Tether figured out a way to extract capital out of the crypto market by buying assets and replacing them with worthless IOU's. Meanwhile the founders have walked out the back door with suitcases of cash.
Depends on how much Tether's driven the current bubble. A 90% fall from peak is perfectly plausible; that's where it was 2 years ago. And it could go much further. Will Bitcoin vanish? No, but it after a whole new set of people have their fingers burned, it could become effectively irrelevant.
It's important to remember that the supply of new cryptocurrencies is basically infinite. Bitcoin has a brand recognition advantage over the others, but if its brand becomes "a giant vehicle for fraud that people lost absurd amounts of money in", there are plenty of other ways for speculators and marks to gamble.
It's a little more than brand recognition: there's also a network effect involved (à la Facebook / WhatsApp) that makes it hard for the other cryptos to compete even though they may have better tech.
There's also the hashing power, which - if you leave the tree-hugging arguments aside for a second - secures the network integrity quite effectively and is hard to match by contenders.
The hashing power will decline drastically in a crash, as many existing miners will become uneconomical. If that happens, I'll be very interested to see where that mining power goes. Another currency? A 51% attack on the way out the door?
Didn't work for me when I was using Bitfinex. They asked for KYC when I tried to withdraw some Tether. Now I'm at a loss in trying to understand the point of it.
[edit]
Maybe I've figured it out: It's essentially a way of moving a sum of fiat between exchanges without going through a bank. If you withdraw to a bank, then you have to wait a while before you can move that money back into an exchange. At least that's my experience.
The IRS has been very clear, when you swap one crypto for another, it's a taxable event. Generally it's not a good idea to avoid the reporting.
[edit] Cleaned up as I likely misread your statement.
In USistan
Worth a read, the arguments pro and con Bitcoin are well argued, and the fact that Bitcoin in 2021 is a different beast than in 2013 (in term of its properties) is an interesting - and likely valid - point of view.
People downplay bitcoin because it can't be used as cash. It's not supposed to be. It's a store of value. And, in a world where fiat currency is being printed endlessly like monopoly money, there's really only 2 asset classes left: Stocks and Bitcoin, and maybe gold. Do you really want to put ALL your money in equities? No, and neither does anyone else. People want diversification. And Bitcoin, is a great way to diversify your portfolio with a store of wealth.
People call it a ponzi scheme. but, it's just metcalf's law. the usefulness of a network is based on the size and amount of participants. is facebook a ponzi scheme? is the US dollar a ponzi scheme? if no one believed in the dollar then it wouldn't be worth anything either -> Just ask all the countries with failed fiat currencies who underwent a period of hyper inflation. I'm not saying that's going to happen to the US dollar. but, i'm saying, fiat money requires people to have faith in the US dollar, just as people are now gaining faith in bitcoin. that's not a ponzi scheme, that's called Network effects.
This is not 2017. 2017 was a period when people in their underwear were speculating on bitcoin. there's 2 types of bitcoin investors: the hodlers (which know what bitcoin is for and hold it for almost forever), then there's the speculators. It just happened that in 2017 very few people understood bitcoin's purpose and so 80% of it was speculators and 20% hodlers. This year in 2020, the perentage of buy and hold investors is much greater, which means the drop from the top will be much less than last time. there will always be some speculators, but as bitcoin ages, the percentage of hodlers to speculators increases and thus these large price spikes will also decrease.
Prices are set on the margin, and 80% of BTC trading volume is done using tether.
The IMMENSE value of bitcoin is that it can't be devalued. This is huge. In a world where nearly every fiat currency is being devalued and debased at a rapid base, there are many who are desperate for a store of value that's stable. no other fiat currency can offer this guarantee.
PS: The damage to our planet is not subjective but objective and very very real [2]. The CO2 footprint or the electronic waste is going up.
[1]: https://openblockchains.github.io/bitcoin-ponzi [2]: https://digiconomist.net/bitcoin-energy-consumption