Bitfinex and Tether required to end all trading activity with New Yorkers | Hacker News Reader

Bitfinex and Tether required to end all trading activity with New Yorkers

ag.ny.gov

568 pointsdgellow501 comments

I've been following Tether for quite a long time. I have no absolute proof it is a scam but the writing is on the wall. Here are some facts.

- The current Market Cap of USDT is 34 Billion Dollars. It was 4B this time last year. Since the value is pegged this means there has been an influx of cash of 30 B into this shady company in the last year alone. Who invested this money? We have no idea since Tether doesn't disclose, but we're supposed to believe all this money entered USDT even with the red flags we see.

- There's a correlation between Tether printing new USDT and the Bitcoin Price.

- There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

- Daily volume of transaction is in the 100 B mark. Twice that of Bitcoin and 3 times Tether daily volume this time last year.

- BitFinex is included in the NY decision because it's proven now that Bitfinex and Tether are operated by the same people. Note that a few years ago this was not only undisclosed but actively denied by Tether.

- Tether initially told its investors it was 100% backed by dollar reserves and that it would be subjected to constant audits. The audits never happened, and they eventually conceded only ~70% was backed by "short term cash reserves".

My conclusion is that the folks at BitFinex came up with a new currency, printed billions of it and used it to wash trade against itself and other crypto, creating an artificial demand that drove the prices up. It's textbook Ponzi scheme and will inevitably come crashing down, killing Tether, BitFinex and a chunk of the Crypto Market.

Crypto folks will counter argue that people has been saying this for years but Tether is still chugging along and crypto is healthier than ever.

Personally I won't touch any crypto with a 10 foot pole until this thing blows over. If that means missing out on a lot of possible gains so be it.

Almost all fiat deposits into Bitfinex create USDT.

Thats an additional fact that the amount is in line with the amounts that would be deposited into any big exchange.

If Coinbase minted USDC whenever someone deposited, you would see the same kind of growth.

The basis of your entire post is assuming impropriety based on pretty normal behavior with the addition of the business quirk of when USDT is created.

The ability for impropriety is a good enough reason to avoid it, and their unilateral willingness to do so without any discussion can reinforce that. But people thought everything you thought since the beginning of Tether in like 2014 or so, but the reality is that it “only went fractional reserve” in 2018. Its kind of like they threw up their hands and said “well people think its a ponzi anyway might as well cover this business debt!” The irony being that the NY AG investigation actually proved that prior to 2018 it functioned exactly as promised, barring their 2017 distress by having nowhere to put their fiat deposits.

But if you assume that it hasnt come crashing down because Bitfinex does what they said, then it still does make sense: crypto prices pump after Tether mints because it is people depositing into the exchange and then buying crypto.

Any way glad USDC and DAI are growing a lot now, which have grown by the same orders of magnitude.

Is 'pretty normal business behavior' pretending two entities (bitfinex and Tether) are arms lengths entities with no relationship to each other to hide the conflict of interest, along with the provably lying about the actual backing of the coin, and using what were supposed to be customer trust funds to bail out what was supposed to be an explicitly stated unrelated business?

If so - be aware those are felonies in many industries and are probably criminal in most jurisdictions (fraud at a minimum). For very good reasons.

I am able to perceive things that don’t all reach negative conclusions. That doesn’t mean I like the product or the organization or have any specific opinion on it. That’s how due diligence works.

Yes, this is precisely how investment banks work.

Surprisingly, yes. That is fairly normal in financial institutions. It seems nonsensical at a first glance, but:

https://www.investopedia.com/articles/analyst/090501.asp

What you are pointing to is expressly pointing out that 1) it is illegal, 2) it is illegal for a very good reason, 3) if anyone finds out the illegal things going on, it will likely result in catastrophic (or at least very, very expensive) consequences.

The pretending part that Tether and Bitfinex were doing was fundamentally different than the walling happening within financial institutions, where it has to be disjoint staff, disjoint control/leadership, and if someone sneaks through compliance and shares data (wink wink) it is highly likely someone will get fired if compliance finds out.

In the Tether/Bitfinex issue, they shared board members and ownership despite claiming they didn't in public, and were misrepresenting themselves in a very material way as independent.

If you were just adding some information, apologies. If you were advocating that clear evidence someone is brazenly committing a crime is not a justifiable and strong reason to distrust them, or even that it is inappropriate to hypothesize how they could be getting rich while continue to do similar things - then yikes?

If you were saying Situation Normal, All Fucked Up - then extra yikes?

Goldman Sachs (or some random VC firm) say might have some subtle versions of this going on, but if they were doing what Tether is and has been doing right now, they wouldn't be a solvent entity for very long. That Tether is hiding from jurisdictions (for now) in a way that Goldman can't doesn't inspire confidence in their trustworthiness or stability going forward, as they're clearly on the radar now and blood is in the water. Along with a lot of money and some high profile political promotions, potentially.

Goldman absolutely does play games like this on the market making side, but the difference is that the chairmanships of Goldman and the Federal Reserve tend to be a revolving door. They’re a special kind of royalty.

USDT, USDC and DAI each have their own set of counterparty risks. USDT is regulated somewhere sunny, USDC somewhere that could be hostile if given enough power, and DAI is backed by digital assets such as custodied Ethereum. The sooner there are more solid options in more jurisdictions, and more certainty around USD stablecoin regulation, the better. I will be very glad to see Tethers go away.

I can’t find where Tether is ACTUALLY regulated, but I can find a lot of misinformation about where it is regulated and how, even in their own legal pages. For instance, they claim they are regulated by FinCEN. However, they appear to only be registered with FinCEN for the purpose of reporting crimes and the like (money laundering), which does not (quite explicitly) give them the right to claim FinCEN in any way is regulated or overseeing them in the traditional sense.

If someone runs across Tether (somehow?) explicitly committing money laundering in a jurisdiction that FinCEN controls, yeah they could go after them - but since they don’t have an address near as I can tell, that’s not easy to do, and all they say on the matter is they are ‘incorporated in Hong Kong’ [https://tether.to/contact-us/]

Also, their ‘proof of funds’ is kinda ridiculous from any sort of auditing or compliance perspective and crazy out of date [https://tether.to/wp-content/uploads/2018/06/FSS1JUN18-Accou...]

If you have any more accurate information, please post!

Given the amount of money we’re taking about, the number of investors affected and the extent of the fraud around these entities, I’m surprised we have not yet seen a securities class action suit raised against them... I suppose it’s all good while the ROI goes up. After the seemingly inevitable crash, I suspect a SCA would be on the cards

I think there are 4+ active class action lawsuits, or were before they were combined - https://www.google.com/amp/s/www.coindesk.com/plaintiffs-com...

Your linked article keeps calling "The Chinese Wall" an "offensive and racist term." I don't understand that. I always assumed that the term refered to the Great Wall of China, i.e. a large, famous and fortified wall designed to keep groups on opposite sides separated, hence its metaphorical use in business. Is there some other connotation with regards to that term that I'm unaware of?

If everything is fine and dandy with them why are they stopping trading in NY? Why is the AG claiming they lied about reserves, the one thing they really-really shouldn't have been? (Insert "you had one job" meme.)

I didn’t write that everything is fine and dandy with them.

The world toolset doesn't function under a “your either with us or against us” mentality, it functions as a gradient.

That gradient is that the NY AG case showed Tether was functioning properly until 2017/2018. If you were around crypto at that point in time, you would know that people would not have believed they had full reserves ever.

Just reread what I wrote. You are deciding to see advocacy for Tether which is not what I wrote at all.

They haven't "functioned properly" because they promised audits, transparency/openness and independence, and none of that happened even back then. They then found out that they can keep up the empty promises and started dipping into the sauce, and now finally one investigation caught up with them.

Your selective omissions imply advocacy - at least this is how it seems to me, and I'm not saying that's bad/good.

Not everything needs a dissertation long disclaimer just so you can decide if you want to listen to me

The accuracy of any statement can be weighed and discussed on its own merits

You make multiple false, assertions in one comment, backtrack those assertions in other comments, and then pretend your position has remained unchanged the whole time.

It comes across as dishonest and makes me, an outsider, wonder how much tether you own.

Thats because they aren't assertions, its called a conversation

It's called lying, first to others and then to yourself.

I am not sure how you interpret the AG report to think it shows they were functioning properly. They haven't shown proof of backing at any point. They have shown they had the money in the account at one point which is nowhere close to showing you have backing. Statement of balance is completely meaningless, especially when it comes from ac transfer done from your sister company like a day before.

All the AG report shows is just more evidence it's one huge scam.

If fiat deposits into Bitfinex create USDT, shouldn't fiat withdrawals from Bitfinex burn USDT?

I'm having trouble to find comprehensive data on USDT burns but https://coinmarketcap.com/headlines/news/tether-just-burned-... seems to suggest that one billion is extraordinary (and those weren't removed from circulation but swapped to another chain), and Tether finds it Twitter-worthy when they burn 100 million: https://twitter.com/Tether_to/status/1225088948243968005

For sure I don't expect Bitfinex fiat withdrawals to match fiat deposits, but 100 million USD withdrawn vs 30 billion deposited seems unordinary?

I agree and have always found this interesting. But it is similar behavior in more transparent stablecoins. Only Gemini’s GUSD has seemed to completely burned to nothing at one point. But USDC and DAI have growth so similar to Tether during bear markets that I cant put the lack of burns squarely on Bitfinex.

Either there is a broader accounting issue with minting and burning methodologies or people/entities really do hold.

During bear markets large market participants are still buying, and a tiny portion of people are providing the price discovery, and this is mirrored in the increasing amounts of crypto that have not moved from addresses in a long time.

Many people hold the stablecoin itself, instead of going back to fiat. So there is growth of all market participants, even during bear markets when other cryptos are falling out of favor.

Thinking out loud, I've paid a lot of graphic designers and marketers in India this year in Tether. They arent familiar with crypto but just notice that their Unocoin app takes it. We’re not doing paypal, and all fiat transfers are domestic with none of fees, time, or scrutiny that an international fiat transfer would have.

The nature of all stablecoins is that if the supply does not match the demand then there are arbitrage opportunities to mint more, which can be initiated by the user. If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.

So if all the stablecoins have similar growth patterns, the things going for Tether are simply first mover advantage and greater clout in Asia.

> If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.

Sure, but what if Tether is at $0.98 - how do you get dollars back?

If you have a bitfinex account you can redeem the tethers for dollars at a 1:1 rate still and this would burn the tether reducing the supply.

Not all countries like US can get an account there or use fiat so I wouldnt know if the redemption mechanism is currently working or not

Yes it’s a scam and 30 billion dollars deposited in a year is a laughable claim, particularly from a company with a history of lies and fraud. Nobody in the crypto space calls them on it because the fact they get away with it calls into question the entire ecosystem.

How come you just come here telling that deposits in bitfinex creates USDT

But Paolo himself post that all the usdt minted is 'tron replenish' everytime whale alert tweets about 800,000,000 USDT frwshly minted

So, basically, in your intentions to defend USDT you are even contradicting what its own CEO says...

It's also funny how tesla 1.5b investment and microstrategy few millions buy are to be 'celebrated' as big and huge, yet you are trying to convince us there is people depositing 800m daily into bitfinex?

US equities are choosing to make a big deal out of something benign at fairly small amounts. The corporate debt market is massive with almost all blue chips routinely issuing short term debt that dwarfs anything Microstrategy did, for completely ambiguous purposes and the market does not care as long as its paid back. 100 billion $ worth of US commercial paper was issued just in the last month with no fanfare whatsoever and no disclosure on what the proceeds are for. Microstrategy’s dabbling in the corporate debt markets is only news because the CEO wants it to be.

The volumes from a large crowd that can also include institutional can very easily be large.

A recent example is the Saudi Aramco IPO, particiption in that IPO used Saudi retail investors and Saudi payment rails and resulted in $25bn in purchases. That one country’s internal financial system was able to handle it and there was just that much participation.

Tether doesn't have the transparency we will want. Choose a different product for that reason alone, and there are options now.

But assuming the worst, out of the universe of assumptions, is just as useless as assuming the best. The western world says “all this is improbable so lets assume it is impossible”, the eastern world doesn't seem to care and there are examples where much larger sums of money could show that Tether’s growth is not improbable or impossible.

The point is that $30bn of deposits (whether some of that is counted incorrectly on multiple blockchains) is not noteworthy enough on its own to reinforce your conclusion. Many random brokers have that. If they had a stablecoin that was minted upon deposit, you would see the same thing. And here, institutions also use Bitfinex and $30bn is actually then a reflection of how small the crypto markets are.

I agree with you that GP's post hardly makes any sense but

> ... yet you are trying to convince us there is people depositing 800m daily into bitfinex?

800m daily would have meant 300 bn USDTs created in a year. They create 30 bn in a year, no 300 bn. It's huge but you are one order of magnitude off no?

Their post doesn't describe normal behavior. It describes what would be illegal behavior elsewhere. It may be somewhat legal depending on the underlying reasons due to the quirks of not being regulated but renegading on promises to investors is not normal behavior when it comes to things like audits.

> Almost all fiat deposits into Bitfinex create USDT.

As a matter of fact that is NOT true. (speaking as a crypto hedge fund manager, active since 2013, and trading > $1B/month on all major exchanges). It used to be like that in the past (when USD and USDT where one just represented as "USD" on Bitfinex), but this changed a year or two ago. Now, USD wires are being credited as USD and USDT deposits are being credited as USDT. And there is a USDT/USD market on Bitfinex to exchange between the two.

Nice this is how Coinbase functions with USDC too

Likely they all piggyback off of each other’s implementations in the face of evolving regulatory guidance

Why does USDC and USDT need to exist for this? What’s the benefit of not just having USD in your Coinbase/bitfinex acc if they’re meant to be pegged anyway?

a significant amount of cross-border trade (yes, actual goods transported in meatspace) is conducted in USDT for many years now.

I still am waiting for a source on this, unless the implication is that those meat-space trades are all illegal / ML and therefore not tracked....

What kind of source would you be looking for

Its like cellular service in an underground subway station: people tell you it arrived and use it and nobody thinks about it afterwards. There wont be a source about that whether you believed it or not.

USDT is as frictionless so it just has use.

I mean, all functioning governments track the net value of imports / exports (that's the main job of customs departments).

Most functioning governments also keep a balance of payments (https://www.imf.org/external/np/sta/bop/bop.htm).

If the flow of imports / exports doesn't line up with the net flows of payments, someone would raise a flag.

So yeah, unless it's ML / illegal trades, we could at least figure out a way to track it.

Casinos and CFD buck shops love it. Typically only pay 0.003% vs 0.02-0.08% charged by VISA/MC card processors.

Sending USDT is cheaper, faster and easier than sending actual USD.

I don't fully agree with that. - Cheaper: Well most decent banks I have been working with don't charge on USD wires, or they charge something like $20 flat, which happens to be on par or cheaper than the ethereum blockchain fees nowadays - Faster: In my experience (in sending hundreds of wires every month), the actual "sending time" of USD wires via Fed wire or SWIFT is literally minutes, so that's on par with blockchains. Most of the time the funds are just stuck somewhere in the compliance department. The same would hold if you withdraw/deposit USDT/USDC to an exchange. Funds can still get stuck waiting for compliance approval. - Easier: That's debatable. I guess some banking UIs are better than others. And blockchain is not particularly known to be UI/UX friendly either. One definite advantage I could think of is that when you hold USDT/USDC in your wallet, then you have full control over them, but I bet 99% of the USDT/USDC is held on exchange, and exchanges are more and more starting to act like banks (with all the slowness that that entails).

Sure, if you are in the developed world and have access to traditional or online banks, and a relatively stable local currency.

Then there's, like, the other 4+ billion people in the world.

Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.

> Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.

If they did, it looks like it's closed now. At least in the US, converting between two cryptocurrencies is a taxable event:

> There are plenty of questions about whether or not investors can claim a direct crypto conversion (e.g. bitcoin to ethereum) as "like-kind", avoiding taxes on those transactions. The tax laws changed beginning in 2018, and like-kind exchanges are only applicable to real estate transactions.

https://www.coinbase.com/learn/tips-and-tutorials/crypto-and...

I wonder what % of that is getting declared...

In germany, they don't allow that loop hole.

If you made profit and traded against another coin, you pay tax, simple.

If you hold for a year though. You dont pay taxes.

My portfolio is up quit a bit now and its almost a year. Hope it stays almost like that just few more weeks :)

But who knows?

You send USDC/USDT to another exchange, use it to pay for stuff, store it in a hardware wallet, etc. USD can only be transferred back to your bank account.

Because many exchanges are in no way capable of holding a banking relationship with a legitimate bank that transacts in USD.

edit: Perhaps that was overly snarky - the issue is that the US requires legitmate banks to take certain efforts to identify their customers (KYC), and prevent money laundering (AML). Meatspace banks aren't perfect in this regard either, but many crypto exchanges are either unable or unwilling to do this, or are already proven to be engaged in fraud or other financial crimes.

No way interested and running an equivalent business with much less overhead and faster growing customer interest with higher returns, has nothing to do with crime or incompetence or imperfection

so bitfinex customers deposited 30B US$ since last year? hard to believe.

I think Tether is mostly a fraud, but the market for escaping capital controls (aka money laundering) is almost certainly $30B/year or more.

If this was for money laundering, why such a high balance?

> Almost all fiat deposits into Bitfinex create USDT.

Which is insane. Those are customer funds, that Bitfinex owes to their customers, if they choose to withdraw from their ecosystem.

They aren't a personal piggybank for them to dip into as they please.

This is not at all like fractional reserve banking, where a financial liability (customer deposts) are used to print dollars (in the form of loans), because customer deposits can be called back anytime, while loans cannot.

With Tether, if Bitfinex takes a dollar a customer deposits, and then prints and sells a USDT, and the customer withdraws their deposit, they have to destroy a USDT, in order to maintain the 1:1 peg. There is zero evidence that they are doing this at anywhere near the rate they claim.

Ironically, what they are doing is very similar to a double-spend.

This case stops short of proving exactly what percent they are currently backed at - there is almost certain some level of "legit" deposits (Tether has value in evading capital controls). The weight of evidence is strongly in favor of past financial crime, and the imposed transparency requirements suggest NYAG suspects these issues are ongoing. I dont suspect they will ever provide satisfactory evidence of legitimacy, and the DOJ is almost certainly investigating them by now.

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.

I'm not saying I disagree with your overall thesis. But this specific point makes it sound like USDT is some sort of roach motel ("you can get in, but you can't get out"). That's not true, it's fairly easy to get back to USD at low cost. The fact that USDT is trading at near parity with USDC on Curve indicates that most of the market doesn't perceive a risk.

> There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.

Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.

> that most of the market doesn't perceive a risk.

That is absolutely no indicator for safety.

> Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.

https://global.bittrex.com/Market/Index?MarketName=USD-USDT

Do they process withdrawals in a reasonable time?

I have not had problems with them, but I'm also not doing any large transactions.

Also note Kraken, withdrawals are as fast as a wire transfer (so a few days): https://www.kraken.com/en-us/prices/usdt-tether-usd-price-ch...

What I'm not sure is how that market connects to Tether's bank accounts increasing or decreasing in holdings. This is all third-party exchanges, presumably with other customers as the counterparty.

Dunno about Bittrex but Kraken also has a USD/USDT pair. Withdrawals via wire transfer take around 2 days.

> That is absolutely no indicator for safety.

Currently, several billion in value is locked into Defi-based liquidity pools with USDT. If USDT collapses tomorrow, the stakers will lose nearly all of their principal. (Fast traders will quickly swap worthless USDT for all the USDC in the pool, before hardly anyone has time to remove liquidity.)

The largest of these pool, currently pays about 2.6%.[1] Even if all of that return reflects USDT credit risk, that market implies a 1/50 chance of USDT collapsing within the next year. I'm not saying the market is necessary correct. But what I am saying is that very deep, liquid markets are not pricing any significant USDT risk.

If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.

[1]https://www.curve.fi/3pool [2]https://compound.finance/markets

> If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.

This trade involves risk, and not just the direct USDT risk. If it didn't, there's no particular reason multi-billion dollar hedge funds wouldn't buy this down to the yield of an equivalent US treasury or similar.

> If it didn't, there's no particular reason multi-billion dollar

This is true in theory but in practice it seems much more commonly false. Even in vastly more mature and liquid markets, straightforward arbitrages can persist for years and in some cases decades, even after an inefficiency becomes public knowledge

I’m wondering how high volume would need to be for the first step (from USDT to USDC) before something breaks?

Why don’t more people use USDC anyway?

>Why don’t more people use USDC anyway?

USDT got there first.

Well, because Tether is happy to look the other way for money launderers, cartels and other bad actors. USDC can't.

That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one, and seems like it would have to involve multiple parties during the exercise.

Many exchanges have pretended for a long time that USDT is 'the same' as dollars, and there are going to be a lot of folks pissed that it isn't actually the same thing.

>That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one

This. If Tether truly were just a token backed 1:1 with USD on deposit at a commercial bank, you would not need to make multiple hops across multiple entities to actually convert it to dollars.

Also imagine how "well oiled" this financial transaction's machinery will work during a market contraction.

>There is an easy way.

How many fees have you paid through the 3 or 4 steps to get to this "easy" solution? Is that solution available to everyone worldwide? (I'm not familiar with Curve or Coinbase and whether they're US only or something of that nature)

There was a similar situation the last time the NYC AG tried to shut down Tether and withdrawals from Bitfinex were blocked (June 2019). What happened was that Tether started trading at about $0.93 and USDC/DAI started trading around $1.04, as the supply of other stablecoins wasn't quite adequate to accommodate all the people fleeing Tether. Bitcoin actually ended up being the reserve currency instead: the price of Bitcoin spiked from $5200 -> $8700 over the course of a couple weeks as Tether holders dumped it to buy Bitcoin and move it to other exchanges.

Personally I'm surprised the risk premium wasn't more, but Tether is still around today despite both Bitfinex and Binance blocking withdrawals and the NYC AG initiating fraud charges against them, so ultimately the folks who decided it was nothing were right. Then, at least.

If the total amount of USDT exceeds their USD cash reserves, who became the beneficiary of the extra USDT?

Bitcoin holders.

Which BTC holders and how? What's the path from onboarding on an exchange website, to eventually getting unbacked USDT? If I put USD onto an exchange, why would the exchange give me more USDT than what I deposited (and if this never happened, then how did the first unbacked USDT come into existence)?

I hold BTC but didn't use USDT in the process, just deposited normal fiat and bought BTC using that.

1. Bitfinex processes a USD deposit and dispenses USDT

2. USDT holder purchases BTC with it

3. Bitfinex purchases crypto (mostly BTC) with the USD, instead of holding it as promised

Thus the original USD of the person buying BTC at the exchange has effectively double the buying pressure on the BTC market because Bitfinex is actively investing all their USD holdings that "back" Tether into the market as well.

Good explanation. Why do they do step (3)? Aren't they just opening themselves up to massive legal liability?

Some believe this is an intentional Ponzi scheme to print some money for the owners of Tether and Bitfinex, others believe they had good intentions at first, but through bad investment or otherwise got underwater, and started "investing" their USDT-backing dollars to claw back up.

Bitfinex originally denied relation to Tether but it's been proven that was a lie.

The worry is, at some point there could be a "run" on Tether, when the curtains are pulled back, where all the USDT-BTC traders who happen to have USDT holdings and they suddenly become worthless because nobody wants to trade USDT-BTC anymore at 1-1.

As long as "public confidence" in USDT continues, the charade will too

Another dumb question: If they've been buying assets like BTC using the USD that they were supposedly keeping as reserves, shouldn't they have made massive amounts of profits since 2018, and be in a position to now return the USD reserves so that it's 1:1, while keeping billions in profits for themselves?

If they haven't exited the BTC position, then selling the BTC to convert back into USD may not be possible without dramatically affecting the price. And if it's still in BTC and they don't bother converting back into USD until the last minute, then a run on USDT may make it impossible for them to convert enough BTC to USD fast enough to redeem USDT.

It's hard to analyze Tether/Bitfinex's risks here because, well, they have been fairly opaque about what their actual financial situation is, so people are relying on their gut instincts to guess what it is.

USDT has a market cap of $35bn, let's say that 30 percent is unbacked and the corresponding USD was used to buy BTC. That's a position of at least $11bn. It's probably worth more than that now, since the price went up after they supposedly bought in, but they only need to liquidate $11bn to return the USD to their reserves to make it 1:1 again.

The market cap for BTC is $1000bn. Wouldn't they easily be able to unload the position over a 1-3 month period without too much price impact? They own 1 percent of the market cap, and in the stock market we often see larget stockholders than this unload their whole position without a catastrophic impact.

You couldn't liquidate that much BTC without tanking the markets... it's a game of chicken if it's true that the USD backing tether is gone.

Not considering your other points - I never had issues converting between USDT and USD. I just did it yesterday in fact.

Did you exchange USDT for USD through the exchange or did you trade USDT for USD, there is a difference.

In the first instance the exchange is on the hook for the USDT and they have to go to Tether to get USD to cover it.

In the second instance the other user you traded with is on the hook for the USDT and they will probably just trade it for USD in the future or another crypto.

What will happen to NY AG which investigated Tether for 2 years, went through 2.5 mil pages of documentation, yet missed such an obvious scam that a lot of people, including on this forum, can clearly see?

If Tether implodes, is this proof that NY AG is incompetent or even worse, somehow implicated in this giant scam by covering it up?

In the NY AG settlement PDF it clearly states that they will not indict Tether in the future for the investigated crimes, including not being backed up by assets, which happened before the date of the payment of the fine:

> 56. Within five (5) days of the receipt of the penalty ... and agrees not to bring any claims or causes of action against Bitfinex or Tether ... for matters relating to the conduct set forth in the Findings and the Petition ... arising out of Bitfinex or Tether’s representations concerning the backing of tethers during the time period January 1, 2014 to the effective date of this Settlement Agreement; transfers of a portion of the cash reserves backing tethers to Bitfinex pursuant to the line of credit

I wouldn't be surprised if they are into the scam and got bought.

The real world isn't a nice place and police show...

Doesn't mean the DOJ or any other State AG can't bring action. NY also doesnt remove themselves from prosecuting over any future action, like being unable to provide the agreed upon transparency reports.

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

So what actually happens when people sell Bitcoin? They get USDT on an exchange and then can never get cash out? Is there some convoluted series of trades you can make from USDT -> ??? -> USD or something instead? And people selling Bitcoin have made enough profit to just ignore the overhead of those trades I guess?

OP got that wrong. It's very simple to exchange USDT for USD, you can do it on Kraken and Binance and withdraw to your bank account. No problem at all

Isn't that trading, you're selling USDT to someone who wants to give you USD for it? That's different from telling the operators of Tether itself "Here's some USDT, give me the USD that backs it".

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

It's perfectly possible to exchange USDT for USD and withdraw USD to your bank account; it does not involve complicated steps nor outrageous fees. Kraken, for example, has a very liquid USDT/USD market, is a well respected exchange, and processes USD withdrawals that arrive within minutes to US bank accounts. I'am speaking as an industry insider and hedge fund manager that trades ~$1B/month on the crypto markets.

How do you get withdrawals arriving within minutes? Mine take about 2 days, I'm on the highest verification level that they list publicly ("Pro").

It may help that we bank at all of the same banks as Kraken, so most transfers are internal transfers. But even to outside banks, normally US wires should be pretty fast (usually within the day). It may also be the case that we literally wire millions every day on a regular basis, so our wires probably don't get held up at any compliance checks.

> It may help that we bank at all of the same banks as Kraken

Sounds like a good idea. Do you happen to know if a list of such banks is public?

As a start, you can check out Signature Bank and Silvergate Bank. They are known for being crypto-friendly banks, and they bank literally every exchange that trades crypto versus USD.

Thank you, I will!

In Europe, one bank is Fidor.

That's a trade, not a withdrawl. You cannot withdraw 1USD for 1USDT.

>There's no way to transfer USDT into USD

Use Kraken. You can change USDT to USD and withdraw money. I've done both.

This is the confusing part to me. Everything I read online talks about Tether being fraudulent. Shouldn't the price of Tether reflect a discount based on that? If it doesn't, does that mean the market is okay with a Tether being 1 USD even if it is not backed by anything?

Not necessarily because Tether the company will use the USD or similar that they have to buy tethers on the market if the price falls below $0.995 or so. The worry is if there are say 30bn tethers out there and they only have $20bn cash and enough people redeem the the price will stay about $1 until the $20bn runs out and then suddenly drop to not much.

It's actually possible that rather than just holding US$ against USDT they have put some into bitcoin instead which would mean they may have plenty of funds unless bitcoin crashes in an unfortunate way.

So the consensus here seems to be that Tether the company is doing some sort of fractional reserve banking? I'm assuming no one on hacker news is holding Tether ...

To the point of actions speaking louder than words, why are there people who trust Tether enough to hold it? If there is no trust there wouldn't everyone redeem and create a bank run?

I've held tethers before now. The 'fractional reserve' thing is unknown. If I were a crook and running the thing I probably would have printed lots of tethers to buy bitcoin in the slump then sell them at a profit to fix the reserves and buy and island. But who knows unless they do an audit which they seem very reluctant to do. The above scenario would be illegal but would not lead to the collapse of tether unless the law got them which is tricky as they are based in various offshore locations.

I've been through this whole tether is a scam which will collapse thing before around late 2017 or Jan 18 and inspite of the crypto downturn they didn't.

A HN story from Nov 2017 https://news.ycombinator.com/item?id=15745441 for example.

At some point yesterday, BTC/USD pair was trading up to 400$ lower than the BTC/USDT, that should be enough to tell you that a lot of people don't really want the USDT anymore and were willing to pay a 400$ premium to get real USD, it will start getting ugly at some point

"There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try."

How about Bitfinex? I had some problems with withdrawals there in the past - but now it seems to work.

The author of this report from 2018 agrees with your assessment https://www.tetherreport.com/

Even the 70% backing number is too high. According to the findings of the NYAG:

"Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal."

https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

I've also been following Tether a while. I even shorted a bit back in 2018 but I'm starting to think maybe they are basically legit apart from maybe not dotting all the Is on the money launder regs. Here's Gregory Pepin "Deputy Chief Executive Officer at Deltec Bank & Trust", Tether's bankers, saying they have the money: https://youtu.be/rQ3nQ8-KY28?t=281

> Personally I won't touch any crypto with a 10 foot pole

if you dont mind explaining to a relative newbie - how does any of this affect Bitcoin? it clearly has had some effect, but I just dont understand the causal chain.

In addition to all of this they claim to bank in the Bahamas. Bahamas discloses total banked assets and the amount of Tether issued far outpaces the rate at which the whole nation of the Bahamas' assets have been increasing.

Backed by cash in a bank account doesn't mean that much. As you probably know any bank will take deposits and use them for loans.

Strangely USDT sells at a premium to USDC (audited) for years now.

My guess is it will slowly be replaced by an audited stable token if the market wants that.

It appears from the link in the settlement agreement:

https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

Tether wasn’t backed at all times. The argument was that this happened due to asset seizures in Poland and Portugal in 2017-2018.

https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...

Seems to me they couldn’t prove malicious intent, so they suggested they stop trading. Frankly this seems a bit of a click-bait title with the whole “illegal activities”.

Sure, tether wasn’t backed at all times (probably is now), due to governments seizing their funds. Also banks do this all the time, every time they issue a loan for instance. The bank only keeps 10-30% collateral on your home.

The issue is that if it isn’t backed they can print more at any time. But they claim it is backed to avoid inflation devaluation of the currency. Banks are not lower to print currency but tether can at any time. The potential for fraud sufrounding tether is huge and no one is checking over them. Do you trust them? They are already known for lying. This is why banking regulations exist.

> The issue is that if it isn’t backed they can print more at any time.

That’s how all banking works. China, for instance, never even publish how much money they click into existence.

Not saying it’s correct, just explaining how the system really works. They really do “create” money. Even synthetic shares are created on the stock market (largely when creating ETF blocks), see “naked shorts”. It happens all the time.

Here’s an explanation on how banking & interest work in a digestible way: http://anuparty.org/on-interest-slavery/

Tether isn't a bank. It's a stable coin supposed to be backed by real dollars. But that's of course not the case in practice.

> Sure, tether wasn’t backed at all times (probably is now),

Even Tether admitted that they weren’t backed by funds, and that was before they printed most of their current supply: https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...

I don’t understand why anyone would be in a rush to take them at their word when every new piece of evidence demonstrates that Tether’s operators are not interested in behaving honestly.

> Also banks do this all the time, every time they issue a loan for instance. The bank only keeps 10-30% collateral on your home.

Fractional reserve banking doesn’t mean banks can simply print more money than they have on the books.

Regardless, if a bank loses funds due to fraud or government intervention or whatever, they can’t simply continue pretending they had the money all along.

I don’t understand the desire to pretend that what Tether is doing is normal or good for the crypto community. It’s not.

I think it has a pretty simple explanation. The crypto community started with a few dedicated idealists. But it quickly attracted loons, fantasists, scammers, and get-rich-quick dreamers, along with some reasonable people interested in the hype.

Over time, as the space has produced almost no actual utility and generated billions in theft, fraud, and losses, the reasonable people generally got out, often with fingers burned. A few idealists remain. But by now the dominant group are the people low on sense and scruples who are hoping to Make Money Fast, so anything that keeps the industry aloft is great by them.

That's how bubbles work, alas. The dot-com bubble was less extreme, but still at the end there was all sorts chicanery that made no sense to a vaguely rational actor. We saw it again in the mortgage bubble. There was one bank CEO who stayed out of the more dubious mortgages; when questioned, he said, "If something grows too fast, it's a weed." But there were plenty of hucksters saying that everything was normal and good.

The good news is that bubbles eventually pop. I loved the post dot-com bubble period! Most of the MBA-holding locusts who had rushed in went away again. I hope the people truly interested in digital financial innovation enjoy a similar period of quiet soon.

> so anything that keeps the industry aloft is great by them.

Bingo. Tether being less than 100% backed isn't a surprise. Heck, they've admitted it publicly for over a year now - this is, however, the first time we've seen how big the gap truly is.

But the peg is still holding, which means that

1) the market had already priced in the risk of USDT being 14% rather than 100% backed, or

2) the market for USD:USDT is not rational.

> (probably is now)

This kind of argumentation makes cryptocurrency proponents so insufferable. There’s no evidence Tether is backed, but somehow we can just assume in a parenthesis that they probably are, and then go on a tangential rant about banks or fiat or digital gold or something.

Exactly.

We've traded confidence in centralized, old world financial institutions, for decentralized, techno-utopian...financial institutions.

Same s**, different marketing.

At least banks have to operate within the realities of regulations and legal recourse. It’s not perfect, but it does provide a forcing function to make them think long and hard before doing anything that might be fraudulent.

Cryptocurrency proponents like to tout crypto’s ability to escape regulation as a good thing, while ignoring that the same property makes it a dream come true for financial fraud schemes.

Nothing about Tether or Bitfinex is decentralized.

You can take redemption from tether and they will wire you the money, they are in fact registered and regulated. on several exchanges it can be exchanged into fiat, for smaller participant.s

It would collapse a long time ago, if it weren't backed.

> You can take redemption from tether and they will wire you the money

Tether says they will. Has anyone successfully done this?

> on several exchanges it can be exchanged into fiat, for smaller participant.s

No one says you can't trade USDT. But that requires a counterparty, and if it turns out that Tether is mostly backed by air they may evaporate as well.

That’s usually the way these things work. That’s why the AG is making statements like “stop the illegal activity” and stuff, it degrades trust. However, if you read the statement it’s a win for the crypto exchange. Only an $18m fine for supposedly “billions in fraud” (course if you read deeper, they found no fraud).

I'm surprised that you read a settlement narrowly focused on activities in 2017-2018 and apply it to today.

Tether was nearing a lifetime market cap of two billion when investigated. Their "100% backed!" claim at two billion turned out to be 13.8% backed.

They printed two billion USDT over the course of six days earlier this month. Wonder how backed that is.

Heh. I just made another comment saying that Tether is not like Madoff, so of course I now need to make one comparing Tether to Madoff.

Bernard L. Madoff Investment Securities was also registered and regulated, and also had to wire people their money when asked. Even though they didn't actually have all the assets they said they did. He was able to keep it up for 3 or 4 decades.

It will only collapse if outflows exceed inflows for long enough to deplete their supply of assets. Which is something that is unlikely to happen for as long as this Bitcoin rocket keeps racing toward the moon.

Was Madoff also subpoenaed by the NYAG who investigated and announced there was no fraud and settled for a trivial amount?

Please name the regulators you think have verified Tether's backing. And once you've listed them, please explain why even though they missed the specific points at which the NYAG has proved Tether was not fully backed, you still think they can be trusted.

(I ask only for my own entertainment, of course. If Tether were actually backed, they'd publish regular third-party audits from a responsible accountant. Anybody thinking it's backed is a fantasist that could make Baron Munchausen seem resonable.)

I've tried, six months on they are still stringing me along saying we'll get back to you.

As far as I know tether only allowed a few crypto "king makers" to redeem tether, and even then, only at a very small scale.

Several exchanges list USDT/USD pair.

"A market currently exists, is currently liquid, and currently trades 1 USDT:1 USD" is not a universal truth that will hold in perpetuity.

You very specifically claimed "You can take redemption from tether and they will wire you the money".

There is no evidence that this is the case. Tether sure doesn't offer such a service openly.

1. https://tether.to/fees/

2. https://tether.to/redeem-tethers-to-bank-account/

That isn't a redemption.

Redemption means I give the tether corporation some tether and they burn that tether and hand me back USD.

Tether is Tether. Bitcoin is Bitcoin. The fact that exchanges exist which allow you to trade one for the other does not make them the same kind of thing.

No one would care how many Bitcoin they had without an exchange rate.

Tether printing is a convenient way to inflate the exchange rate. Remove Tether printing and the exchange rate falls.

As long as people talk about Bitcoin in terms of the exchange rate, Tether and Bitcoin are deeply connected.

No it would not, plenty of stablecoins to take it's place, or just crypto/crypto ratios.

That assumes that Tether is being honest and not printing unbacked coins to drive the price up.

So, no, it would still tank the price, because the price is quite likely inflated through fraud.

Let's not ignore major funds and companies investing in BTC like crazy, that's what is propping up the price not the "Tether scam" that's being going on for 5 years unproven.

Remind me, what percentage of Bitcoin trades happens in Tether, again?

If I could buy tulips on cryptoexchanges with freshly printed Tether, I could bid the price of tulips up. If the majority of tulip trades took place on crypto exchanges and much of that was bidding the price up with newly printed Tether, tulips would be exactly as useful as before, but cost a lot more. As such, if Tether were to collapse, people's bulbs would be worth a lot less. Tulips would still be tulips, but they'd be part of a Tether bubble.

Seems logical they would given the investigations and the reason they supposedly didn’t have the funds at the time. I don’t think tether is necessary or a good idea, simply stating what I see.

Frankly, the AG admitted it was backed, just not “the entire time”.

> Frankly, the AG admitted it was backed, just not “the entire time”.

The AG did not. Certainly not completely, nor to the extent that Tether claims that it is. The AG merely acknowledged that Tether had some portion of the funds it claimed to.

> makes cryptocurrency proponents so insufferable

Tether is not a cryptocurrency.

It's a cargo cult: A plain old centralized system which got the word "cryptocurrency" slapped onto it to attract dumb money.

That is beside the point: "(probably now)" is an entirely fanciful and blatantly self-serving attempt by a cryptocoin proponent to avoid the very real problem Tether poses for Bitcoin.

>This kind of argumentation makes cryptocurrency proponents so insufferable. There’s no evidence Tether is backed, but somehow we can just assume in a parenthesis that they probably are, and then go on a tangential rant about banks or fiat or digital gold or something.

Ah yes, because all cryptocurrency proponents are pro-tether.

The comment you're responding to isn't implying they are. It's implying a larger issue: that claims are often made by cryptocurrency proponents without any evidence to back them.

> Sure, tether wasn’t backed at all times (probably is now), due to governments seizing their funds. Also banks do this all the time, every time they issue a loan for instance. The bank only keeps 10-30% collateral on your home.

Exactly. Tether has made no claims about the quality of the collateral they use to back Tethers, so they can probably get away with some very questionable accounting. Anyone who actually has skin in the game understands this about Tether. If you want to take the risk, go right ahead. I've traded at least $50M in notional volume over the past 3 years and never, not once, have I touched Tether.

You’re ignoring the systemic issues that come from having Tether printing drive the price action.

You may not have touched Tether, but Tether’s influence on asset prices can’t be understated. You are at risk by trading assets that are inflated by Tether.

These things aren’t uncoupled.

> probably is now

Here are the facts we know about Tether being backed:

1. They used to say they were backed 1 to 1 by cash.

2. This was a direct lie.

3. They now say they are backed 1 to 1 by cash and "cash equivalents", not otherwise specified.

Which one of these facts is it that you are basing your claim that they "probably are now" on?

3. "... while printing multiple billions a week."

If they're backed then they can prove it with an audit. Considering their last auditor told them to kick rocks, I'm highly skeptical.

I thought it hilarious that 1) Bitfinex/Tether (when they were still pretending they were two completely unrelated entities, remember that?) thought that handing an auditor the front summary page of a bank account would be sufficient to 'verify holdings', and 2) when they told the public they had another audit done, but were unable to release it because it would be in Mandarin...

The entire point of the tether was that it was backed 1:1 by US Dollars. Later they asserted that it was 0.75:1.

The bank doesn't lie about it's capitalization.

Is this the first official ruling on tether that shows it isn’t backed 1:1 by the US dollar?

That has long been speculated, but if this is the first official verification how does that affect the Market.

Especially the self dealing of Bitfinex.

Tether themselves essentially admitted that it wasn’t fully backed in 2019: https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...

The strangest part of the Tether story is how much of it was obvious or even out in the open. Cryptocurrency proponents were happy to look the other way as long as prices were only going up. I suspect cryptocurrency proponents and Bitfinex are working hard to spin this as a win for Tether right.

Getting rid of the fraud (tether) at the core of btc will strengthen btc. This cryptocurrency proponents should be all for it.

I have honestly been surprised how long this obvious tether saga has gone on.

This is only true if we accept your unstated premise that BTC itself isn't a big ole Ponzi scheme.

I guess we could argue, "It's good news for our slightly more subtle fraud if the blatant, obvious fraud gets stamped out."

> This is only true if we accept your unstated premise that BTC itself isn't a big ole Ponzi scheme.

Let's be clear, here: There's a substantial difference between Bitfinex engaging in outright financial fraud vs a bunch of people buying into the value of a virtual currency for reasons no one can understand.

BTC is not a ponzi. It's just a long-running speculative bubble. A collective delusion. You can disagree with that, sure, but it's certainly no more a fraud than Beanie Babies or tulip bulbs.

Sort of. There are many many people hyping Bitcoin (and various bitcoin-adjacent projects: mining rigs, wallets, dodgy unregulated exchanges, etc.), and most of them have a vested financial interest in it.

BTC didn't get to the price it is today on the backs of a few cypherpunks experimenting with decentralized digital currency technology.

> Sort of. There are many many people hyping Bitcoin (and various bitcoin-adjacent projects: mining rigs, wallets, dodgy unregulated exchanges, etc.), and most of them have a vested financial interest in it.

You've basically described commerce.

Pick a random asset class--stocks, real estate, commodities, etc--and ask yourself: are there people who are hyping that asset who have a vested financial interest in it?

The answer is almost certainly "yes" in every case.

In the less-scammy world of regulated finance, there are rules about disclosure and the SEC will come after you for running a pump-and-dump scheme.

> but it's certainly no more a fraud than Beanie Babies or tulip bulbs

Did their bubbles also last 12 years, went through multiple bear/bull markets?

might strengthen it but not it’s price

no the strangest thing isn't how it was out in the open - that's precisely how to get away with fraud...the message and the reality aren't the same but the message is pumped into echo chamber

The market doesn't care. Hasn't cared for years now, just look at the Kraken USDT/USD market which is freely tradable. Tethers are mostly backed by USD - no 100% but that's because some funds were seized due to regulatory scrutiny, not because they disappeared.

I'm not convinced your argument works. Bubbles exist until they suddenly don't.

This isn't a strong argument that it's a bubble, but the burden of proof is solidly on the tether folks to show that they're 100% backed, not the other way around.

I'm not arguing - I'm making a statement. It's evident from market prices that investors don't care. Whether the market should care is another discussion but the parent asked about the market's reaction.

I am not sure why I should trust kraken, but even if I trusted them completely, this only proves tether has enough liquidity to maintain their peg, not that they are "mostly backed." That is to say, it only puts a relatively small bound on their reserve ratio.

This isn't a "ruling" at all. The parties just reached a settlement agreement and Bitfinex/Tether did not admit any wrongdoing.

Honestly, this is kind of a nothingburger. The press release seems to merely reinforce what was an open secret in the cryptocurrency world, which is that Bitfinex and Tether have played fast and loose with whatever reserves they received for their Tether issuance. Which is, of course, utterly unremarkable to anyone who knows anything about how financial sausage is really made.

Bitfinex and Tether are shady. Caveat emptor, and carry on hodling.

It’s more important than that. Cryptocurrency proponents have been trying to downplay the Tether situation for years.

One of the common dismissals was the idea that if what Tether was doing was truly fraudulent, some government institution would step in to intervene. Proponents pointed to the lack of intervention as a signal that Tether was operating above board.

This also reveals new facts and numbers about the scale of what has been going on. We still don’t know the full story, but it’s clear that reality is even worse than we thought.

I don't disagree that Tether is likely a big fraud, but my point is that even the regulated financial system is full of questionable accounting and long-running, undiscovered fraud. Remember Bernie Madoff? His fraud lasted 17 years before falling apart.

It would be nice if Tether eventually falls apart too, but the world will never run out of fraudsters and hucksters.

Bernie Madoff's fraud was big and awful, but, if the allegations about Tether are true, then (edit: for the purposes of this particular discussion) comparing the two is a category error. Madoff's fraud never raised any questions about whether the exchange rate between USD and some other currency was legitimate.

The innovation of Bitcoin is that it is a decentralized Ponzi scheme.

Bernie Madoff's scheme fell apart because it was centralized, and so, once you arrested Madoff, it was over. The end.

There's no one at the center of Bitcoin. There are big players, sure, but they are all replaceable. It's happened before and it will happen again. And each time one exchange or big player is arrested, shut down, or slinks away having stolen enough money to sate themselves, someone new can seamlessly slip in and start hyping Bitcoin and taking a percentage from the new rubes without missing a beat.

I honestly don't think it will ever go away, completely, for good, no matter how often it booms and busts. When I'm in a nursing home I'm going to be getting calls from boiler rooms trying to convince me to move my retirement savings into Bitcoin, I'm convinced.

Almost every currency is a ponzi scheme - that does not only apply to crypto.

Wombats poop cubes -- they stack them to mark their territory.

I did not see any data in that post that is new. The latest news this-year is that Tether paid-off the remaining balances of borrows/loans from other asset classes to make the USD holdings whole. The only way to tell is an independent 3rd-party audit, which would bring some finality to this discussion.

Considering the meteoric rise of BTC is tied so deeply to Tether issuances, it sounds an awful lot like you’re trying to convince us the emperor really has clothes.

Correlation is not causation. And your mental model of how the cryptocurrency markets work is likely way too simplistic--did you know that cryptocurrency perpetual swap derivatives clear over $350B in daily volume?

Pretend for a moment that Tether pulls a Nixon, and closes the "dollar window" ending redeemability. Then what would be the difference between Tether and e.g. the BitMEX XBTUSD perpetual swap contract? Just think about it for a while.

Editing my response because OP has edited theirs- putting my original comment out of context.

Go read more economics. And maybe trade some financial derivatives, lose some real money and see how that sharpens your mind.

Ending redeemability? Can you redeem a tether for a USD today?

Yes, certainly can, right here: https://www.kraken.com/prices/usdt-tether-usd-price-chart/us...

You can also short it if you are convinced Tether is going to collapse.

Sorry, trading it for a dollar isn't the same as redeeming it for a dollar.

You can easily withdraw USD/EUR you got from trading in USDT.

You're missing the point: trading means that you have to find someone willing to do the trade with you. If no one wants to buy your Tethers then you're doomed. Redeeming is completely different - the issuer of your asset has a legal obligation to buy them from you (or at least that's how it should work for assets that aren't scam).

So why not short it against USD? The choice is there on Kraken, it's arguably the easiest win possible if you are convinced USDT will eventually go to zero in the next few years? It's certainly not going to shoot above $1.

> Considering the meteoric rise of BTC is tied so deeply to Tether issuances

Got evidence for that? Because printing USDT after BTC went up is not a manipulation, but a liquidity boost.

Let's not forget that USDT isn't the only stablecoin in town, it's ratio is actually decreasing, all the way from 3k to 50k.

As a matter of fact,

https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12903

If they are shady, then it's high time to employ and enforce regulations - if they can't regulate themselves, then someone else has to.

Arguing that this is old news, and that a small minority has been "in the know" doesn't hold much water either - the crypto scene has long since become mainstream, and as such, attracted regular masses.

In the end, it boils down to consumer protection.

This is not "utterly unremarkable". Rational investors don't buy investments whose very basis is a lie. It's only unremarkable to cryptocurrency gamblers who've already accepted everything they're doing is a slow motion scam.

"Contrary to online speculation, there was no finding that Tether ever issued tethers [USDT] without backing, or to manipulate crypto prices"

I hope that ends the spreading of FUD - claiming that bitcoin and other cryptos are propped up by the printing of fake tethers - which seems to spread here every time there is a sharp rise in prices.

Read the settlement agreement: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

Page 4 of the agreement:

> 20. Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.

That's 14% of the cash required to back the issued Tether.

Where is that quote from? I don't see it in the linked article

It's from https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne....

https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...

> Jason Weinstein, a partner at Steptoe & Johnson and counsel to Bitfinex and Tether

Ahh, so their attorney said something nicely carefully worded, intended to imply to the lay person: "There was no specific finding that allegation X had absolutely occurred, so this shows that all along, allegation X has never occurred".

Noted unbiased participant "the defendants attorney" has been quoted in a pro-Bitcoin publication ;)

I think you are reading too much into it. That's just how the justice system works. You don't have to prove your innocence, you have to prove someone's guilty.

This lawsuit only covers up to 2019, when the Tether supply was only a fraction of what it is now.

It shows that Tether had no desire to correct the situation with the unbacked Tethers. Why does it matter why the Tethers were unbacked? The fact is that they were unbacked and Tether continued operating as if they were.

Why would anyone trust an institution that has already demonstrated they don’t care about backing and, moreover, that they’d rather hide that fact as much as possible until forced to reveal it.

"there was no finding" means that they did not show that that happened, not that they showed it didn't. You're reading something into that quote it very carefully does not say.

So there are 34B outstanding USDT right now. In the documents I see talk about some 850M USD is missing. Are all the other ≈ 33B USDT backed?

Will we only know that on the first report they obliged to do each quarter? Will those reports be made public?

I'm confused what to make of this.

The NYAG investigation is about what happened up to 2019 or so. What has happened since (which includes printing 33 of those 34 billion) is a separate matter, and NYAG is basically saying it's irrelevant because nobody in NY should be able to use Tether/Bitfinex anymore.

What's confusing is that in addition to the slap on the wrist of 18.5m and the prohibition for BitFinex to operate in NY, it is written:

"agreement with iFinex, Tether, and their related entities will require them to cease any further trading activity with New Yorkers, as well as force the companies to pay $18.5 million in penalties, in addition to requiring a number of steps to increase transparency."

What are these steps to "increase transparency"? On activities related to these 850m or on the 33 bn+ printed since then?

To benefit whom? New Yorkers cannot use BitFinex anymore. If it's now irrelevant to the NYAG because from NY's point of view BitFinex is out, why ask for "a number of steps to increase transparency"?

The minting of tether accelerated in 2020 and continues in to 2021 including one week alone where $2B was minted.

https://www.coindesk.com/tether-mints-record-2b-usdt-in-one-...

The most damning detail I've seen comes from US treasury TIC reports, which fail to reveal matching bond ownership inflow to the country that is the reputed host of Tether's segregated bank account.

It is possible that Tether holds funds in some kind of strange non-interest-bearing account, but that seems highly unlikely. Another possibility is that the primary bank is actually a wrapper around some overseas correspondent bank where the funds are really held.

Occam's razor: a company selling a 1:1 hedged coin should have absolutely no difficulty whatsoever proving on a daily or hourly basis that all coins are verifiably fully hedged. It should literally be the company's prime directive, and in this particular case, especially following the endless stream of controversy. The fact they haven't managed to convincingly achieve this even once in 7 years is all I need to know.

The whole thing stinks terribly. Good luck for those who invest in it, but I'll be there if/when it blows up to quietly feel smug about it all

Feels like the NYAG preferred to take an easy win over fully exposing the fraudulent scheme. But I guess in the grand scheme of things it's better to get $18M for state coffers now than be another bag holder when Tether inevitably combusts.

This particular lawsuit started in 2019 and was narrowly scoped. They don’t have infinite jurisdiction over Tether’s global operations.

"Contrary to online speculation, there was no finding that Tether ever issued tethers [USDT] without backing, or to manipulate crypto prices," said Weinstein, a former federal prosecutor. [0]

[0] https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...

EDIT: For some reason I'm being downvoted, but I'm genuinely curious to understand why this news is being simultaneously interpreted in two opposite ways.

Huh? The NYAG press release literally says: "Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie."

Edit: The difference between the two statements is that Tether can still be "backed" by something other than USD, notably crypto. And the PR is silent on what exactly Tether is backed by. This saga isn't over yet.

I'm also confused by the contradicting news. CryptoTwitter (and the markets) reacted enthusiastically...

Those two quotes aren't necessarily contradictory, they're about different timings. Tether could have been fully backed when issuing new tethers, and stopped issuing tethers during period(s) when it wasn't fully backed.

When was the last time CryptoTwitter didn’t try to spin something as good for Bitcoin?

That statement was made by their counsel, so it should probably be taken with a grain of salt.

I guess we'll know more in the next few hours.

It also documents all their attempts to verify the peg required mixing funds with an exchange known to have a running $500m+ hole in their balance sheet

The linked webpage is from the New York Attorney General's office and the quote you quoted is from one of BitFenix's lawyers.

From 2019:

https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...

"The USDT stablecoin is only about 74 percent backed by fiat equivalents as of April 30, says its issuer’s general counsel.

Tether, the company behind USDT, holds about $2.1 billion in cash and short-term securities, wrote its general counsel Stuart Hoegner in an affidavit Tuesday. Hoegner is also general counsel to Bitfinex, a crypto exchange which shares executives and has overlapping owners with Tether.

The two companies are at the heart of allegations by the New York Attorney General, who says Bitfinex borrowed more than $600 million from Tether after losing as much as $850 million to a currency converter."

That's a really good point, this settlement is extremely favorable to Tether and Bitfinex. It's odd to see people persist in pinning Bitcoin's market performance on Tether issuance after reading this settlement from NYAG. Chunks of Tether collateral weren't fully liquid but my takeaway is that they operated on a genuine best-effort basis. As another comment put it, Tether definitely operated in a grey area legally - they hacked the system, but they're not the fraudsters some media, comments, or rumors made them out to be.

This settlement shows they operated as if Tether was fully backed and claimed Tether was fully backed when they knew it was not.

How it that extremely favorable?

If someone sells something they don’t have under false pretenses, that’s fraud. It’s not a simple liquidity issue.

Read the settlement agreement: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

Page 4 of the agreement:

That's 14% of the cash required to back the issued Tether.

Because the issue is this:

A "finding", in legal terms, is a specific, explicit statement with the supporting rationale behind it.

You can make statements in a legal document, even a settlement, without classifying them as "findings" (that have specific legal ramifications).

Indeed, the AG says in the documents that absolutely Tether did not always have backing. However, it doesn't address -issuance- without backing.

So the attorney for Tether is doing as attorneys do, making a carefully crafted statement that will paint a specific impression to the world, whilst being entirely aware (and maintaining plausible deniability) that he is artfully weaving through several other "inconvenient truths".

So even back in 2017, Tether was backed only by a fraction of USD.

>Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.

Wonder how much of the tether they pumped out through last year has been backed?

Nearly none I would guess... Which large company, investment firm or rich individual will wire Tether Inc millions of dollars in return for a promise from a bunch of people that look like arrest warrants will shortly be issued for them...

Do people here not realise that people give them bitcoin and other cryptocurrencies for that in exchange for tethers? If they were only a week late in converting it to USD they'd be up tens of billion in profit this year.

The lack of critical thinking and mindless mob mentality around tether is amusing and has been going on for years now. Proven wrong everytime.[1][2][3]

Even this announcement is dumb politiking that people seem to lap up. Bitfinex has banned US customers since 2017.[4]

[1] https://news.ycombinator.com/item?id=14934874

[2] https://news.ycombinator.com/item?id=16252365

[3] https://news.ycombinator.com/item?id=16182423

[4] https://www.coindesk.com/bitfinex-suspends-sale-select-ico-t...

And if they used made up tether to buy a bit of extra btc or a lot they would be even further ahead. The easily exploitable opportunities for fraud surrounding tether is huge. Bernie Madoff should be jealous.

A 145m sell just sent BTC down 13k. It's not so easy to just sell your ~30b worth of buttcoin.

If anything it's shocking that "we checked and it's all fraud" is seen as a win for crypto.

Where can you find data on sell volumes? This seems very material.

> Do people here not realise that people give them bitcoin and other cryptocurrencies for that in exchange for tethers? If they were only a week late in converting it to USD they'd be up tens of billion in profit this year.

So they're speculating to cover their "1:1 Backing!", and relying on BTC still being hyped, like they said all along?

No, wait, hang on. They were the ones who said they received 1:1 USD inflow for each and every Tether printed.

Now you're like "mindless mob mentality!" while fully admitting that their claims all this were exactly as the mob said.

Tell me, what happens to Tether's ability to create backing out of BTC (or whatever) arbitrage and trading if and when BTC craters again?

> Bitfinex has banned US customers since 2017.

NY is still investigating and believes that Bitfinex has knowingly kept US customers while claiming that they don't.

Something to note: they only had data from 2017 to 2019. Tether printed the majority of their coins in 2020/2021.

I bet they pinkie-swear those new coins are really really backed by dollars this time.

Settlement agreement available here: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

This news is so funny. Tether detractors see this as confirmation that they were right all along, while crypto currency fans say that this is confirmation that it was FUD all along. No bridges were built in this endeavour.

I like btc but in a declaring that tether is fraud isn’t about building bridges, it is about being correct. Getting rid of tether is the best way to legitimize btc. The sooner the better.

It is confusing why you care about bridges with regards to fraud. When was fraud related to consensus building activities? Huh?

I meant it as a figure of speech, in that the 2 parts can't see eye to eye. I care about the legitimacy of the space and I am not a big fan of these backed stable coins, because they can't be easily verified.

The same way the fascists and the democrats can't seem to unify?

Tether isn't decentralized but as it turns out users prefer convenience over ideology. This is pretty apparent from the rise of Binance.

If you want to blame anyone though it's probably the folks that have been working on layer 2 since 2017 but haven't delivered in a major way.

> Tether detractors see this... while crypto currency fans

Be reminded that the overlap in this venn diagram is enormous.

Absolutely! I’m part of that venn diagram and I am disappointed that there wasn’t more light shone on the whole thing.

No bridges need to be built, only people saved from losses and fraud.

Lots of dead bodies in this camp going back years. I used to be one myself. At this point if the ny ag can’t outright bring this supposed scam down then you have to admit it’s not a scam and move on.

What!? NYAG’s jurisdiction is New York. Tether and Bitfinex are barred from doing any business in New York or with New York entities. They went almost as far as they could go without criminal charges against the executives personally. The US justice system is not necessarily done with them.

Looks like Tether is taking the settlement as an agreement of no wrong doing and that no tether coins were issued without backing.

https://tether.to/tether-and-bitfinex-reach-settlement-with-...

LOL

"Contrary to online speculation, after two and half years there was no finding that Tether ever issued tethers without backing, or to manipulate crypto prices."

I like how they say "this report doesnt include wrong-doing" instead of saying "we didnt do anything wrong"

They’re moving the goalposts.

The issue was that they didn’t have the money at some point, but they continued operating as if they did. I’d be even more concerned if they think this is okay now. Tether isn’t useful if they’re only backed at time of issue.

They also printed the majority of Tethers after this 2019 lawsuit.

The price of bitcoin dropped substantially yesterday.

I wonder who was trading on this information before release...

It was always public information that this was coming out today or tomorrow.

Meanwhile, daily Tether volume is $170B. The entire crypto ecosystem is reliant upon the Tether scam.

no its not. that is bad data from no name exchanges lying about their volume

Ha. The exchange reporting the highest volume is... Bitfinex. I believe you that Bitfinex would lie.

Coinbase is reporting $210 billion daily volume.

Is every market lying? Or are you just personally wrong?

where on earth are you seeing coinbase doing $210 billion daily volume? Coinbase has only done 94 billion of volume for the month of February so far

monthly volumes by exchange: https://www.theblockcrypto.com/data/crypto-markets/spot/cryp...

I didn't say Coinbase was doing $210 billion 24h volume. I said Coinbase is reporting that Tether had $210 billion 24h volume. It's right there on the Coinbase tether page.

https://www.coinbase.com/price/tether

ya that is wrong. not sure where coinbase is getting their data from.

keep in mind the total crypto market cap is 1.5 triilion. so tether alone doing 200b is an absurd statement. Total daily volume across all exchanges is only just getting to 50b these days

“Every exchange and crypto market reporting Tether volume is wrong.”

Some person on the internet, with no source to back the claim.

I posted my source 3 comments up.

Why would we trust that source over the exchange themselves?

My other comment here was useful with other sources showing that exchanges do fake data.

https://medium.com/@nic__carter/assessing-bitcoins-liquidity...

https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...

The second source uses Coinbase as the standard for accuracy and compares another exchange to it...

Yes because Coinbase is a legit exchange. It also doesnt use Tether. That doesnt mean that their data on Tether volumes is correct.

This isn't directly related, but you may find these interesting.

Fake volume related to a recent Tether piece in the WSJ: https://medium.com/@nic__carter/assessing-bitcoins-liquidity...

Bitwise presentation to the SEC regarding fake volume among exchanges: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...

But Coinbase doesn't trade Tether. What is the point you are trying make here?

wait.. this seems contradictory to this -- https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...

I think I trust ag.ny.gov much more than theblockcrypto.com...

It suggests the latter is 100% made up news, possibly with the aim of market manipulation by sentiment bots who will be fooled for a few minutes until humans intervene.

I would also prefer to trust that source, however it is written as a press release. So they write it to make them look as positive as they can and stress the Bitfinex bad points. The blockcrypto article seems to indicate that the accounts were now balanced, but the ag.ny.gov makes no mention of it, which is expected if they are still trying to paint bitfinex as a wrongdoer, but calls into question their impartiality, so it becomes difficult to accept either at face value.

The settlement agreement[1] I suspect is a good middle ground.

It looks like the NYAG believes the loan from bitfinex to tether has now been repaid, but makes no claims about either having sufficient reserves to cover liabilities.

[1]: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

> I would also prefer to trust that source, however it is written as a press release. So they write it to make them look as positive as they can and stress the Bitfinex bad points.

Whereas theblockcrypto is quoting Bitfinex's counsel who is weasel wording over people's understanding of what a "finding" is at law?

> The blockcrypto article seems to indicate that the accounts were now balanced

Given that in 2019, Tether's lifetime holdings were $2.1B and even that was not fully backed, and they're now printing $3.5B a week, I'm intensely curious how they are comfortable drawing that conclusion.

I'm also very interested in the $18.5M number in the settlement...

It seems surprisingly small for someone who can't explain where $200M+ has gone to...

This article doesn't make that much sense IMHO. You can read the settlement agreement for yourself here: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

Page 4 of the agreement:

That's 14% of the cash required to back the issued Tether at the time.

If I'm reading the settlement correctly, Bitfinex will now have even less USD to back Tethers, since they'll have to wire an $18,500,000 transfer to the State of New York.

But if there are 34 billion tethers, $18 million is like a rounding error.

Tether is over collateralized. If they paid that $18.5M from their collateral it would still be over collateralized by $145.9M https://wallet.tether.to/transparency

Tether claim to be over collateralized. This settlement contains numerous instances of Tether lying about their collateral situation. Why trust them without evidence at this point? They’re required to submit a report on their specific reserve holdings within 90 days. We’ll see then.

According to the agreement with NYAG Tether admitted no wrongdoing. The statement: https://tether.to/tether-and-bitfinex-reach-settlement-with-...

They also don’t deny wrongdoing. That’s frequently how settlements work even though it’s clear to anyone who reads the settlement findings that there was wrongdoing on Tether’s part.

Hopefully this isn't drowned out by all the crypto discussion.

How can NY require mandatory reporting on core business, if both entities are forbidden now to transact with New Yorkers? How would this even be enforceable? "Sorry, we don't do business in your state."

> How can NY require mandatory reporting on core business, if both entities are forbidden now to transact with New Yorkers?

They can because that's the term the firms agreed to to settle the investigation and avoid a suit over misconduct identified by the OAG.

> How would this even be enforceable?

The OAG takes the firms back to court for violating the settlement agreement, which can include filing charges for any misconduct preceding and covered by the agreement, for which the statute of limitations is suspended by the agreement.

> "Sorry, we don't do business in your state."

That...doesn't help them at all.

I'm so confused why everyone just blindly believes Tether is this whole big conspiracy. I am by no means defending the organization but let's just take a step back here:

> Where does the funding come from to print tether?

When they mint 1 Tether they sell it on an exchange for $1. They don't need anyone to upfront lock up $1 and then also sell it for $1...

Are stablecoins not just essentially an interest free loan to the minter? That's why hundreds of them are popping up all over the place. Minters can go invest that money however conservatively they want and just rack up free interest on billions. Why the hell would they NOT print more if there is demand. Consequently, why the hell would they need to participate in any illegal activity when the can print interest free loans whenever they want?

Yes, ideally you'd prefer someone with this position to be overcollatorized and not simply ensure $1 = 1 tether. But that is the risk you take holding that stablecoin. Pick up DAI if you want an overcollatorized asset.

I just don't see the incentive for some of the other arguments out there - many imply they are just printing it and selling it for $0 I guess? Or is the argument they just siphon the money to another organization? Because that would be a more valid concern. There just seems to be this assumption that somehow someone is fronting or magically creating value from nothing. No, the market is by buying newly minted Tether on exchanges. That's where the funding comes from. How is this not obvious?

There is probably a lot more depth to this topic than I am aware of, but some of the top upvoted comments here just seem to be spewing nonsense.

tldr; If a stablecoin minter sells a newly minted coin for $1...then by definition there is now $1 available to back that coin. Stop conspiring where the funds are coming from. The worry should be how they are investing said collateral backing the coins from there.

> When they mint 1 Tether they sell it on an exchange for $1. They don't need anyone to upfront lock up $1 and then also sell it for $1...

According to the argument against Tether, your first principal here is wrong. In this argument, Tether mints a USDT and trades with someone who has bitcoin or other crypto and wants a stablecoin. What the trader believes they are getting is a coin which is 1:1 backed by USD. In this situation, it is not.

Tether gets bitcoin. Tether can then print more USDT which they trade for bitcoin at a higher price. They would then have an infinite money cheat for buying crypto assets (as long as people believe a USDT = $1) which enables them to drive the price of crypto upward.

Tether claims that the pattern is "Someone gives us USD, we give them Tether, they trade for whatever they want", this was provably false at some points in time.

I think that does help clarify, but I'd say it also aligns with the point I was trying to make in some important ways. They are trading one USDT for $1 of value. If they keep that capitol invested in BTC and do hold only 1:1 in collatoral...no shit, that's is pretty damn reckless BUT they are making the promise that they have the capitol to back it. Given the exponential rise in BTC again this last year I'd be inclined to agree with them for now.

Claims that this process inflates the process of BTC seem far to exaggerated. It's reallocating value that was already there. Firstly, someone has to sell the BTC in order to buy the Tether with it so that argument is somewhat of a moot point. And if they are selling the BTC for USD or other fiat it's actually increasing the sell pressure of BTC against said fiat. It might open the opportunity for trades/swaps which could drive the price either direction faster...but it doesn't make value out of thin air.

I'm not saying Tether is not responsible for poorly investing or protecting the collateral that backs their coin. I'm just saying I can't compute the claims that this is some sort of manipulation scheme. The concept is exactly the same as decentralized stable coins like DAI except the backer is a centralized entity and not a contract. Does me minting DAI magically pump the value of ETH because that is the coin I put up as collateral? No that's a ridiculous claim. I can however feel comfortable holding DAI knowing that the contract will enforce the value of the token no matter the price of the ETH backing it.

> but it doesn't make value out of thin air

You are right, but it can drive the price. Imagine you have an infinite supply of USDT and are deeply in debt, people currently believe the USDT are backed by $1. You are incentivized to create USDT, trade for Bitcoin/crypto and then, since you are also an exchange, create fake trading volume with yourself to drive the price up (it costs you nothing, just some fake $0 USDT!), which drives people to get in with real money.

Do you not see how the incentives here are for Bitfinex and Tether to behave terribly?

I think it is worth noting that I am pro-cryptocurrency and want alternatives to government backed fiat to exist, but to do that the whole industry needs to operate on solid, transparent foundations. People choosing to trust companies that have lied to them repeatedly is an enabling behavior that will result in more scammers and, eventually, regulators.

The word "itself" is doing heavy duty in this sentence. Was there another entity holding dollars in this period? Did Tether issue USDT without a corresponding inflow of USD? We don't know. One would hope that the transparency agreement actually answers these questions for its future operations. It's those questions that matter, after all, not Ms. Letitia James' "efforts".

Have no idea why ycombinator is so salty towards anything crypto.

Yes, tether was wrong when they said USDT was backed by “US Dollars”. But, the conclusion is USDT is backed by something, the likes of which is probably a fractional reserve.

Case is resolved, with Tether admitting no fault.

"Backed by something"! It sounds so reassuring when you phrase it that way.

That was the conclusion of the AG.

Case is moot. Tether is definitely sketch, but it’s not this massive money laundering/conspiracy HN thinks it is.

"Partially backed by something" was indeed one of the conclusions of the AG in this limited scope investigation.

Meanwhile, Tether is, was, claiming "Fully backed by USD!". And yet you are acting like the AG was supportive of Tether's claims, "Oh, yes, even the AG says so!"

It's pretty amusing in the context of YC specifically, and less so HN, given that Coinbase is very likely to become the most valuable YC company to date.

Are there any other active government investigations of Tether/iFinex that we know about?

The hypocrisy. Tether was pushed to the "darkest corners of the financial system" *because* of regulators. It seems they tried their best to remain solvent and didn't steal cash reserves. But regulators made their life hard at every turn. If you care about protecting USDT holders, maybe stop interfering with their operations and stop seizing their funds? And now, they have to submit regular reports to the NY regulators while being banned from doing any business in NY? I doubt many USDT holders are very happy today about the NYAG's attempts to protect them.

From the article:

> Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General James. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie

Are you claiming this is false and they paid the 18.5m penalty for not lying about USD reserves?

Part of their USD reserves were frozen by regulators in Poland and Portugal. It is debatable whether having funds frozen by regulators can be de accurately described as sustaining "massive financial losses". Sure, they could have been more transparent about what was going on. But so far, it seems that all their issues originate from regulators making it impossible for them to run a legitimate business, not fraudulent intentions (which is what they are often accused of).

Your statements don't align with the claims in the article. It says they lost (as in, "where is it") almost a billion dollars and said they still had it, while knowing they didn't.

Bad situation but honest: Legal. Bad situation but dishonest: Illegal.

The announcement by the Attorney General is quite biased and doesn't tell the full story. For a better understanding, I invite you to read the official settlement agreement[0] and Tether's (obviously biased) take on it[1]. It seems that Bitfinex funds were frozen by government agencies and that Tether temporarily provided a line of credit to Bitfinex while awaiting for the funds to be released. The line of credit was repaid in full as of January 2021, according to the settlement.

I'm not saying Bitfinex/Tether acted irreproachably, they surely could have been a bit more transparent about what was going on. But I have some empathy for them. They wouldn't have been put in that difficult situation if it weren't for the insanely restrictive regulatory environment that made it impossible for them to obtain banking relationships.

[0] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

[1] https://tether.to/tether-and-bitfinex-reach-settlement-with-...

New Yorkers haven't been allowed to trade on Bitfinex since 2017. That's when they updated their terms to discriminate against US entities. If US persons are illegally and fraudulently trading on Bitfinex, that does not give any US authority jurisdiction over Bitfinex. How grandiose.

https://www.bitfinex.com/posts/227

https://www.bitfinex.com/legal/exchange/terms

usdt/usd market at kraken holding at ~$1 https://cryptowat.ch/charts/KRAKEN:USDT-USD

Does this mean that Tether is not buyable by NYers in Coinbase and Gemini?

Gemini offered/offers USDT?

Oh actually maybe only Coinbase

No, Coinbase has their own stable coin USDC.

This is the important part going forward:

"Tether must offer public disclosures, by category, of the assets backing tethers, including disclosure of any loans or receivables to or from affiliated entities. The companies will also provide greater transparency and mandatory reporting regarding the use of non-bank “payment processors” or other entities used to transmit client funds."

So from now on Tether must be backed 1:1 and provide transparency. This should severely limit the risk of Tether blowing up the crypto ecosystem.

Here we are again, with a steady stream of nocoiner comments validating their long held positions while bitcoin slowly marches ahead year after year.

Madoff’s fraud took decades to unravel, too. You’d have looked silly declining to invest there, until the collapse.

Madoff took in large sums of money, gave out little and lied about solvency. Tether is 1/30th the market cap of bitcoin, yet there is a magical belief (based on anonymous articles) that it's the primary source of price levitation.

If true, Grayscale would have this same power.

> Madoff took in large sums of money, gave out little and lied about solvency.

That's exactly what Tether has done?

Large sums? Check - tens of billions.

Gave out little? Check - https://cointelegraph.com/news/tether-explains-why-it-hasnt-....

Lied about solvency? They admit in this suit that they weren't 1:1 backed, despite asserting it on their website. They also claimed to be regularly audited, until they had to admit they'd never completed one. (Still haven't, to my knowledge?)

Oh, don't get me wrong, I'm not supporting Tether. Tether may completely fall off the edge of the world and nobody would care. There would be a minor impact on the price of bitcoin and things will move on.

As I mentioned, I believe the proof of insolvency is weak, but I don't think it matters long term either way. Better alternatives will supercede them soon enough. USDC and possibly Libra will be excellent choices.

> USDC and possibly Libra will be excellent choices

https://www.coindesk.com/libra-diem-rebrand

Much obliged.

Tether is scam and even use of Bitcoin looks unethical when you know that:

>> the power consumption of bitcoin is 160% times the energy use of Amazon, Google, Microsoft, Facebook and Apple all combined

So let's assume tether is a fraud. All they have to do is buy bitcoin with their cash received for tether and they are out of reach of us regulators. Is it Fraud or is it Genius? Yes.

"Junk" bonds seemed like an appropriate term for questionable bonds back in the 1980's... By the same logic, cryptocurrencies should be called Junk currencies

question for HN.

If tether has been so successful at avoiding scrutiny while also making money, why is it that we don't see more tethers?

It seems like a very easy way to make money.. given the authorities are asleep at the wheel ?

Well the issue is eventually if DOJ steps in and convicts the founders can all go to jail. Jail is a good deterrent.

It's weird that this has sent the price through the floor.

This is why I like Stellar Lumens. The exchange is built in!

This is how the US continues to lose to Asia.

Does it ever feel like the government is using the excuse of protecting the consumer, as a reason to shake down exchanges for tax purposes?

I'm waiting patiently for the whole Tether printing scheme to fall and crush to finally purchase Bitcoin / Ether. However I'm not viewing them as inflation hedges so long as Bitfinex / etc. are allowed to continue with their obvious money printing scheme.

When most crypto trading volume is traded at trustworthy exchanges which actually hold dollars as much as they say they do, I'll trust $/BTC to be a fair market.

It's dumb escaping from Powell's printing machine straight into Bitfinex tether printing machine. BTC isn't the hedge people think it is so long as it's traded against fictional dollars. Tether's volume exceeds Bitcoin, so that's the scale of fictional dollars supporting Bitcoin right now.

Cryptocurrency isn’t the only way to escape USD inflation. Investors have been investing to avoid inflation long before Bitcoin was invented.

Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. Inflation is an increase in asset prices, resulted in reduced buying power. You only need to invest in assets (stocks for example) and minimize holdings in cash if your goal is simply to avoid losing buying power of your cash. Cryptocurrency currently functions as a speculative instrument, not a stable store of value.

Cryptocurrency in general is only deflationary if we pretend only a single cryptocurrency exists and ignore all of the increasingly brazen financial instruments offered by exchanges. As it stands, the ever expanding list of crypto currencies, NFTs, crypto lending products, and new crypto currencies represents a general inflation in the cryptocurrency space.

> Investing in virtually any asset other than cash will, almost by definition, shield you from inflation.

... which is why virtually every nation on Earth adopted some kind of inflationary fiat currency. It pushes money to be invested, not held. Wealth is a verb, not a noun.

The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.

Not holding wealth in cash has been investing 101 material long before cryptocurrency. It is fascinating how crypto proponents took over that narrative to imply that crypto was the only investment that could escape inflation.

They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. It hasn’t spiked upward 100% of the time because USD became 50% less valuable overnight

> They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand.

Uh, I'm very much of the opinion that your average BTC fan isn't exactly educated about macroeconomics, but this sentence makes absolutely no sense.

Inflation isn't a thing that happens to a currency, it's a thing that happens to an economy. It's a systemic increase in prices across a basket of assets that demonstrates the devaluation of a currency, as a single unit of that currency effectively buys less.

Bitcoin, if it had been a usable currency over the last decade, is very clearly deflationary, as its rise in value as a currency relative to USD has dramatically outpaced the rise in the price of goods and services as denominated in USD, meaning that had prices been denominated in BTC, they would have dropped.

Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Given that even when you buy stuff with BTC, you're buying a product or service denominated in USD, their analysis is generally more correct than arguing that Bitcoin should be analyzed as a currency.

> Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency.

Actually PragmaticPulp was doing both.

In the comment I quoted, they stated:

> They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all.

This is specifically referring to currency inflation.

They then went on to say:

> Bitcoin, for example, is an inflating asset due to hype-driven demand.

As you say, this is asset inflation.

These should not be compared like this, which is why I noted that "this sentence makes absolutely no sense." I stand by that statement.

> The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.

Wealth is never held in currency, ever. It's a physically impossible thing.

When a person holds savings, it doesn't prevent humans from working, or raw resources from being used, or land from being purchased -- it just means that person is not redeeming a claim on those resources at the time. Their failure to redeem at a point in time does not preclude others from doing so: otherwise said, for every debit there's a credit.

But historically, you don't have to take my word for it. The United States had deflation and 0% interest rates on government bonds for 100+ years during the period between the National Banks and the Fed. You held money in cash at 0%, because when you purchased goods later, your dollars were worth more.

Not only that, but inflation is a feature not a bug. Maybe a bug turned into a feature, but still a feature. Something governments and national banks use to stimulate investment and thus economic growth. Because, as you say, hoarding and holding cash (or cash equivalent) does no good for the world. Even though our instinct is to do just that: secure what we have, secure our future and avoid risks.

The strange thing about this is that it's not some secret knowledge, but something that is being discussed in (front of) e.g. the media constantly.

Even if we assume only Bitcoin, it's not currently expected to stop printing money until (assuming Ray Kurzweil wasn't right all along) long after we're all dead.

The Bitcoin inflation story is more political than simply economic. Right now, it's not really possible for it to be narrowly about whether printing money is OK. But one could easily mount an argument about whether humans should be able to twiddle with the money printing policy.

It is supremely ironic that we’re supposed to believe that the best way to escape money printing is to buy a cryptocurrency that was invented out of thin air, which is continuously mined (during most of our lifetimes) out of thin air by doing useless calculations.

Or even worse, a basket of multiple crypto currencies, where the number of available crypto currencies and crypto assets grows larger every day.

It’s not really surprising when anyone pushing crypto to you also happen to hold a lot of crypto. It’s self-serving advice 100% of the time. It’s pretty much a staple also to call every other crypto you don’t hold a fraud trying to steal the spotlight.

While it may well be self-serving, this is also a near tautological statement, as you'd expect someone who pushes crypto to also hold a lot of crypto if they genuinely believe in it - whether for sound reasons or not. As such the fact they're holding crypto tells us nothing about whether they're pushing it because they're holding it or pushing it because they believe in it.

I saw a great comment earlier, "Buying bitcoin to hedge against inflation is like buying lotto tickets to hedge against Apple stock declines."

That makes no sense.

Lotto tickets have an expiration date. No value fluctuation over time. At expiry, they're worth X or zero.

How is that like Bitcoin?

You're maybe stretching the analogy way beyond what was intended.

The intended analogy, I'm guessing, is that both lottery tickets and BTC seem to be uncorrelated with USD. A good hedge is something that is inversely correlated with the thing you're trying to hedge against.

BTC has been the #1 asset over the last 10 years. In many individual years it has out performed every other asset. It has this year by a large amount.

At some point the dissenters will have to admit they were wrong. The reality is, BTC is here to stay and is a valuable hedge that is independent of any corporation, government, or central bank.

What does it mean to be wrong? Should I have mined 1000 coins in my CPU a decade ago? Duh. Does that mean that BTC is a useful financial hedge against inflation? Why would it? BTC went up by a factor of a gazillion during a decade when USD inflation was not out of the ordinary. Clearly something other than "inflation hedge" is driving the price.

What it means is pundits have spared no opportunity to ridicule anyone who has invested their money in BTC, pontificated that BTC has no value, that it is a fad, that it is a bubble, etc. For 10 years. At some point don't they have to capitulate from that provenly wrong position and at least admit there's something there?

What is driving the price is price discovery. More people are becoming comfortable with it as an asset as the FUD described above has continued to be debunked. As more people become comfortable that drives demand which increases the value.

As a hedge against inflation it works for a number of reasons. People generally price it in dollars, like stocks or real estate. As the dollar inflates one would assume the value of BTC would increase as investors have more dollars to invest into it, driving demand.

But the "something other" is more and more people agreeing it has value and therefore creating more demand for it and therefore creating higher prices. This is how any asset works.

I think people don't really agree it has that much value. People want to get rich quickly. They always have done that and continue to do so. Casinos and lotteries are older than bitcoin.

The idea that BTC goes above 50k USD because millions of people believe its intrinsic value is worth that much is a story that BTC investors tell themselves before going to sleep. Reality is much greedier than that, and they know it, but the narrative won't change while the fairy tale continues to be profitable.

This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.

Maybe that means something, maybe it doesn't. If I had some way of knowing, I'd have a lot more money than I am now. It's worth remembering, though, that prices are just that: prices. Nothing more, nothing less.

Yeah me too - I remember when AMZN was $2. I remember when AAPL was 28 cents (before splits, etc). I remember when the Internet had a host of pundits proclaiming it was a dying fad in 2001.

And most anyone who bought a house at the peak of the bubble is doing quite well if they still have it today.

Are you familiar with the concept of survivorship bias?

It's an important concept to remember when talking about the long term outcomes from adverse market events. "If they still have it today," for example, is a useful qualifier, because it subtly renders the statement almost tautological. "Sure, it was a bloodbath, but all the people who survived seem to be doing OK."

Yeah, don't go on margin is the lesson there. People that lost their hat on the housing crises borrowed too much (went too far on margin, which is what a home loan is). Anyone who just kept investing during any market crash in history is sitting well.

So yeah, it's up to you.

Those stocks were issued by businesses that were providing goods and services for people and being paid in return.

The counterpoint is Japan: its economy peaked around 1990, and still hasn't recovered to that level, 30 years later.

> This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.

Well those two performed pretty damn spectacularly in the past 20 years.

You can inflate the money supply and still be "deflationary" if the convenience yield of holding the money (tokens, UTXOs, or whatnot) exceeds or neutralize that inflation rate. You make an excellent point, Bitcoin doesn't have to overtake gold or become a global-reserve to change the world. It just has to be a plausible alternative that enables people to opt-in or out of the system. It has largely already achieved that and I'm hopeful for a future of monetary pluralism.

> I'm hopeful for a future of monetary pluralism.

My big concern about monetary pluralism is what happens to US citizens, when their day-to-day currency stops being used as the reserve currency for the world? I have trouble imagining any way in which that turns out good for me, as someone living and working in the US. Anything you can do to assuage my fears, since you seem to be educated on the matter?

For one the USD is only the largest reserve currency used internationally: GBP, EUR and JPY are also used as reserve currencies. For another the US has been trying to reduce the role of the dollar as a reserve currency because it actually has significant downsides and fewer benefits than is popularly portrayed - this even has it's own term, "exorbitant privilege". Here's Ben Bernanke talking about it:

https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d...

TL;DR: the USD's reserve currency status is very much exaggerated.

Thank you, that was interesting reading. Not sure why you were downvoted.

No problem, this is another article on the subject I'd bookmarked:

https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t...

As much as we hear about things like M1 money supply, the vast majority of wealth doesn’t exist in the form of cash. Investors hold companies, stocks, real estate, and so on. Fluctuations in money supply (or demand for currency) have exaggerated significance in online crypto discussions because crypto proponents find that angle more favorable to their “buy crypto” argument, not because it’s the full picture.

The global reserve currency issue is worth watching, but remember that it isn’t a binary on/off switch where everyone changes overnight. Likewise, it’s not really true that USD is the global reserve currency so much as one of the most trusted. Again, crypto proponents like to suggest the collapse of the US currency is imminent, but the global market believes otherwise. Likewise, crypto proponents want you to believe that Bitcoin is the logical alternative, but again that’s missing the point that part of the reserve currency math depends on things like stability, resistance to manipulation, and backing of a powerful government.

It has? Bitcoin isn’t an alternative to the existing system for people. It might be a digital alternative to gold for people hedging inflation or in failed states, but its transaction fee is just way too high to be a practical alternative to anything but, like, wire transfers (Visa and ACH are WAY cheaper except for huge transfers... and Bitcoin isn’t particularly fast, either). And this high cost is driven by the fundamental non-scalability of the blockchain which requires other layers for the little people (and this is partly why you have people doing business through large companies like coinbase or whatever instead of the vision of decentralized cyberpunk utopia where everyone is at the same level and can directly make transactions using just math... which is the part of the original Bitcoin white paper that was fascinating to me). It’s primarily NOT an alternative to the existing system except that, as a speculative investment, it’s crowding out other more productive physical investments.

I suppose it is helping people think outside the box, but I fear that Bitcoin is sucking a lot of air out of the room. We should be pushing for instant and extremely low-fee ACHs, alternatives to banks like credit unions where customers—as owners—hold more power, etc. Hopefully things move in that direction.

That startup people see cryptocurrency as a way to lock up rents by becoming new gatekeepers for the blockchain (like banks are for the traditional system) or whatever is really a betrayal of the hacker ethos IMHO.

If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it's not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is far from being "a failed state," but if you want to send US$500 abroad via non-Bitcoin means it's basically impossible, and the only broadly available savings vehicle is real estate ("ahorrar en ladrillos"), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought "as an investment". Historically Argentines have saved by buying dollars but that's limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):

https://www.ambito.com/finanzas/dolares/cronologia-del-cepo-...

You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it's AR$147. So whatever savings you had in pesos in 02019 have lost 57% of their value to peso devaluation.

In 02001 a lot of Argentines had saved dollars in their dollar-denominated bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years.

You suggest, "alternatives to banks like credit unions where customers—as owners—hold more power," but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That's more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.

But we're not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you'll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a year ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland's 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)

Most of the world is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:

https://www.gfmag.com/global-data/economic-data/worlds-most-...

And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise! It's well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.

https://archive.fo/ZRXzS

Bitcoin handles a few billion dollars per year in such remittances. This might seem like a trivial amount of money to someone in a rich country, but in poor countries, it's enough to keep several million people alive.

Even in the US, it's common for the police to confiscate large amounts of paper currency just because they can ("civil forfeiture"); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don't seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.)

So, Bitcoin doesn't have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like "instant and extremely low-fee ACHs" and "decentralized utopia", this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon — the loyal subjects of Kaiser Wilhelm in 01913 certainly didn't expect that in 15 years they'd be in the middle of a hyperinflation episode that remains legendary a century later.

Yeah I grant Bitcoin has value as a hedge against system failure. And maybe you’re right about the corner case it addresses being larger than I think. But so much of the hype of Bitcoin is in developed countries with very low inflation. And this should be tempered.

But I'm not talking about system failure, primarily; I'm talking about day-to-day life for somewhere between one third and two thirds of people, most of whom aren't using Bitcoin yet.

Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24? The Bitcoin blockchain itself is limited to 7 transactions per second. With 7 billion people using it, that mean each person doesn’t get one transaction per day, they get one transaction per billion seconds (over 31 years).

It’s useful for rare cross-border transactions for a small portion of the world’s population, I agree. But it cannot, in its current form, be used by one-third to two-thirds of people day to day. Even if you increased the block size 1000 fold (which is not necessarily very practical), you’re still only talking about one transaction a week.

So first layer blockchain Bitcoin simply isn’t going to be useful to most people for day to day operations. They’ll have to go through intermediaries or use higher layers (perhaps with more localized trust, etc). Which may be fine, but we should temper our expectations here of first layer Bitcoin.

Not that many years ago, we used to pay for things with physical cash (gasp!). Once ever week or two, I would go to an ATM, withdraw $N00 in USD, and put it in my wallet. Sometimes I'd have to spend $2 in fees for this service.

There's no reason BTC can't work the same way. With high transaction fees, maybe you'd withdraw once a month? The cost is annoying but it's still safer than having your savings in a shady banking system.

> Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24?

Yes, but the transaction fee is typically about US$15 these days, down to US$5 or so if it's the kind of thing you can wait 24 hours for. This is about the same cost as Western Union. Today there's a lot of trade volume as people panic, but the latest block https://blockchain.coinmarketcap.com/block/bitcoin/671850 contains fees ranging from .023 mBTC, with a bunch of transactions paying .042 mBTC up to 58.7 mBTC. The block reward including fees was 7763 mBTC, of which 6250 mBTC is the mining bounty and the other 1513 mBTC is transaction fees for the 2900 transactions in that block, a mean of 0.52 mBTC. The median transaction in that block paid .341 mBTC:

https://btc.com/00000000000000000000476ab57eea9be8ada36e2680...

The recommended fees from earn.com (previously blockchain.info) are currently 102 satoshis per byte for immediate inclusion and 88 satoshis per byte for inclusion within the hour, but this .341 mBTC median from the last block is generally 140 satoshis per byte.

https://bitcoinfees.earn.com/api/v1/fees/recommended

In dollars at US$50/mBTC, this means that the latest block included transactions that paid as little as US$1.15 and as much as US$2935 (!!!), and a whole bunch of transactions that paid US$2.10, but the mean is US$26 and the median is US$17. That means about 1400 of those 2900 transactions paid less than US$17.

But yeah, this is not what you want to use to pay for a can of Red Bull or even a restaurant dinner. It's more like Western Union or US$100 bills or gold. For example the current underground market spread for dollars is AR$142 buy, AR$147 sell, which is a price you will not get for small bills like US$20:

https://preciodolarblue.com.ar/

In effect every time you buy US$100 for savings from one of the "blue market" currency dealers (travel agencies and the like) you are paying half that spread, AR$250 or US$1.70, to the money changer. 1.7%. The break-even point where this is more expensive than the Bitcoin transaction fee is US$16000 for a US$26 fee, US$10000 for a US$17 fee, US$1200 for a US$2.10 fee, or US$700 for a US$1.70 fee. And, as you point out, lots of Bitcoin transactions happen inside of a single vendor platform like Coinbase and so don't pay the fee at all.

Usually cashing out your savings so you can buy a car or pay the rent or buy food or whatever is an every-month or every-few-months kind of thing. But you're still buying food on a day-to-day basis.

Even if you're using Bitcoin in an ATM-like fashion, paying a fee of US$15 or so every time you withdraw US$200, it's in the "everyday financial bad decisions" category, not the "totally impractical" category. (I hear ATM fees are a lot lower than that in the US now. Sadly, not in Argentina.)

Early on I avoided Bitcoin because I worried it might destroy civilization—after all, I rely on public streets, the public education of the people around me, and the public hospitals, not to mention the police, all funded by tax dollars. And there's been a cogent argument since Tim May presented his manifesto at Hackers (01991? Certainly before early 01993, when I read it) that cryptocurrencies would inevitably kneecap taxation and thus cause the collapse of governments.

But the US election in 02016 made it clear that civilization is doing a perfectly fine job of destroying itself before losing any significant taxability to Bitcoin or other cryptocurrencies, and the best we can hope for is to salvage its crown jewels from the rubble.

The same four countries get brought up by BTC proponents all the time. Yes, evading authoritarian regimes can be useful. But like 1/3 of the planet lives in just India/China. Going from "a use case is sending cash from the US to your family in Iran" to "2/3 of the world population wants this" is a big leap.

Which ones—Cuba, Venezuela, Iran, and Argentina? I don't think Bitcoin adoption is terribly high here in Argentina, but hopefully you can forgive me bringing it up—I live here, so it's the place I know best, and the uses of Bitcoin are pretty easy to understand here even if most people aren't using it yet. And even those four countries are hardly inconsequential in terms of the global commonweal: 170 million people live in them, one in every 46 people alive. That's, like, more people than play Fortnite or Minecraft. More people than have bought a Justin Bieber album. Almost as many people as follow Ariana Grande on Instagram. Four times as many people as live in California. We're not talking about some tiny Elbonia here. Anything that affects 170 million people is a big deal for human welfare.

But the utility, or potential utility, of Bitcoin is a lot broader than that.

Argentina is not terribly high on the scale of "people being unbanked" or "kleptocracy". If we take infant mortality as a rough measure of kleptocracy, we're #84 out of 201 countries and territories in https://en.wikipedia.org/wiki/List_of_countries_by_infant_an..., so we're actually better than average. We're neck and neck with PRC and way ahead of India. If we trust the table in the GFMag link I posted, which they attribute to "a just-released study by the British research platform Merchant Machine", whoever that is, there are nine countries with an even larger percentage of unbanked than Argentina, namely, Morocco, Vietnam, Egypt, the Philippines, Mexico, Nigeria, Perú, Colombia, and Indonesia. Each of Nigeria and Indonesia are individually nearly the size of the US; Indonesia is the fourth biggest country in the world. As for India and China, they claim that 20% of PRC's population is unbanked (another unbanked population nearly as large as the US) as well as 20% of India's (yet another).

And Bitcoin doesn't become useless just because you have a bank account. If you're paying a 3% tax on every bank transaction (as we do here), experiencing substantial inflation rates, working under the table, or facing the prospect of an Argentina-style bank confiscation, you have a use case for Bitcoin. Don't tell me it can't happen in the US; it did happen in the US in 01933 with Executive Order 6102, with gold playing the role of Argentine dollars.

To expand on the inflation question, on https://en.wikipedia.org/wiki/List_of_countries_by_inflation... there are 24 countries with a consumer price inflation index over 10% per year, of course including Venezuela, Argentina, and Iran (but not Cuba), but also including Sudan (regular and South), Zimbabwe, Congo, Angola, Libya, Syria, Suriname, Haiti, Sierra Leone, Burundi, Nigeria, Mozambique, Turkey, Pakistan, Zambia, Azerbaijan, Uzbekistan, Ghana, Liberia, and Malawi. You may not care about Burundi but this list also includes the 7th-biggest country in the world by population and the NATO member with the largest military. These countries don't necessarily have "authoritarian regimes" but it's still useless to try to save up money in the local currency for anything more than the very short term; after 5 years you've donated 40% of it to your central bank by way of inflation. Or maybe 85% if you're in Angola.

India doesn't have a high inflation rate by the numbers but it did "demonetize" the savings of the poor in 2016—those piles of rupee bills under your mattress didn't lose just 10% or 20% of their value but 100% of it—and this in a country where hundreds of millions of people have no bank accounts! Most of them have cellphones, though.

Both India and China also have a tendency to limit their subjects' access to foreign exchange in general, and cut it off entirely at precisely the moments when their subjects most need to emigrate to seek work. This is not at all unusual among poor countries; a Bloomberg overview of some of the measures current in 02019 is at https://economictimes.indiatimes.com/markets/stocks/news/fro... though mostly from the perspective of foreign investors.

Now, even if the 84 million Turks (one third without bank accounts) aren't currently using Bitcoin to escape the ruinous inflation rate (15% per year)—the way they used to use dollars before the government cracked down on it—it's clearly a problem many of them need to solve, whether or not their nominally democratic government is an "authoritarian regime". But diffusion of innovations doesn't happen in a vacuum, and it may take a while for Bitcoin or something similar to get widely adopted in Turkey.

So that's the kind of thing that makes me think my Argentine experience generalizes to about ⅔ of the world population, and my US experience doesn't.

Isn't there really any service that lets you buy and use USD, EUR, GBP... online? And if not, would you still continue to buy crypto if one of these currencies was available?

Of course there is! The banks provide this service. It's called "Home Banking" (yes, in English). As I said above, and as in most countries, it's heavily regulated by the government as described above—prohibited to the part of the population whose need for a form of savings is most desperate, and limited to US$200 a month—and everyone over 20 remembers when the government confiscated ⅔ of everybody's Argentine-bank USD savings. Something like half of Argentines have a bank account and about half of those (about a quarter of the total) are eligible to purchase dollars with it.

Bitcoin is so far not heavily regulated, but presumably will be. But it doesn't provide the scrumptious, juicy central point of control that the Banco Central de la República Argentina does; regardless of what the law says, there's no practical way to confiscate every Argentine's Bitcoin savings between sunset and sunrise.

Not to mention that the reason you can't send money to Iran is not because of any problem in Iran - it's because the United States doesn't want you to do it.

If you live in the US, and you are using bitcoin to circumvent the embargo, you're just adding to the list of crimes you're committing.

Family remittances to Iran are specifically exempted from the USA embargo, but good luck finding a way to do that through a bank: https://www.wiggin.com/wp-content/uploads/2019/09/26580_advi...

This is the most cogent answer I've seen regarding BTC utility for those living under less stable regimes. Usually it's a hand-wavy "something something Venezuela something," which, as bad as Venezuela is, makes it seem like crypto is only really relevant in exceptional cases of instability.

Thanks for the effort.

I'm glad you found it useful!

If we're talking about political regimes, though, I don't think we're even talking about "less stable" regimes—whatever you might think about Cuba ethically, old Raúl and his brother have been in power there for over 60 years and show no signs of losing control, and I don't see any signs of incipient revolution in Indonesia, PRC, Mexico, or Vietnam either. Here in Argentina we've remained democratic since 01983, electing presidents from three different political parties (UCR, PJ, and PRO), and there's no serious insurgency. It's the economy and government policy that are ruinously unstable, to a point that seems satirical to anyone accustomed to the US, but is lamentably common worldwide.

Thank you for the ego strokes!

Venezuelan and bitcoin whitepaper lover here

I've posted several times that the adoption of bitcoin in venezuela is pure bull**

Is only used for corruption/drugs money laundering, more details onhttps://news.ycombinator.com/item?id=25599693

So please, the fact that some venezuelan hners say they use bitcoin doesn't make bitcoin a real valid alternative and widely used

Venezuelans right now only care to protect against the 5000% yearly inflation and they do it with the dollar, they don't care _for now_ about dollar losing value when Bolivar loses 5000%

I'm not Venezuelan or in Venezuela, but I definitely know Venezuelans here in Argentina who send Bitcoin back to Venezuela. But it's clearly not widely used—the best estimates are that there are only a few billion dollars per year in total Bitcoin remittances, of which under US$400 million (per year) are to Venezuela, and there are 5 million Venezuelan expats. And Venezuela has almost 30 million people. So clearly only about 2%–10% of Venezuela's population uses Bitcoin at most, and many of them only use it to provide "send money to your family" services to and from other Venezuelan expats—who may not know or care that Bitcoin is involved.

That certainly doesn't add up to "widely used" but it's not "absolutely 0" as you said in your other comment either.

When I said, "Bitcoin is very popular in Venezuela" I meant relative to its popularity in other countries, not relative to the Venezuelan population as a whole. I mean, if I said Emacs was very popular in Venezuela, that wouldn't mean that every other moto-taxi driver could give you Elisp tips. It would just mean that more people used Emacs than VS Code.

Where does this hypothetical 2% of Bitcoin adopters live? Maybe not in Caracas where it's easy to find someone to exchange dollars with. Maybe they live close to the Colombian border, where they trade with drug traffickers? (Though why would Colombian drug traffickers be Bitcoin buyers rather than sellers? Maybe I need to think this through better.) Maybe they live in rural areas? Probably one of the P2P market sites has a map.

If you had to flee Venezuela, maybe through unsafe areas where bandits were operating, would you rather be carrying your savings in Bitcoin or in dollars?

Hey firekvz, very interesting to hear a take on crypto from someone who actually knows what's happening on the ground. I was wondering if you'd be interested in having a chat for a policy paper I am working on. It would be beyond helpful because as you said the media and a lot of major research paints a very different picture.

This a very good use case for a cryptocurrency, but in the long run a crypto like NANO might be a better solution with due to quicker transaction times, lack of fees, and much lower environmental impact.

You should publish this someplace. This perspective is never mentioned in the mainstream outlets, even if it's pro or neutral on BTC.

Everyone is free to redistribute my comments in this thread, in whole or in part, modified or unmodified, with or without credit; I waive all rights associated with them to the maximum extent possible under applicable law. Where applicable, I abandon their copyright to the public domain. I wrote and published these comments in Argentina in 2021.

http://creativecommons.org/publicdomain/zero/1.0/

>18.5M of bitcoin has already been mined of the maximum 21M. So the amount of remaining future inflation from increased supply negligible. That the remaining 2M will be mined asymptotically over many years is not important except for purposes of incentivizing miners to run transactions.

It's not that negligible. At current reward of 6.25BTC, that means that the rate at which new BTC are being minted, as a percentage of total BTC supply, is about 3 times the (admittedly unusually low) current US inflation rate.

You're right, though, it will become negligible at some point in the not-too-distant future. I think, though, that that may not be all that relevant. The arguments about BTC and money printing seem to be more moral than pragmatic, so I'm not sure you can really draw a line and say, "Below this mark, printing money is A-OK. Above this mark, printing money is the end of the world," because trying to move to that style of argument would be moving the goalpost right out of the stadium. It was never about the actual pragmatics of inflationary currency policy.

By analogy, I'm not sure a lot of dyed-in-the-wool gold bugs would respond to the hypothetical opening of a massive new gold mine by saying, "An increase in the production rate? That, I just cannot do," and walking away from gold. If, on the other hand, the mine were opening in their own country, and being operated by the government, which planned to carefully release gold onto the market at a slow rate, then you might see a lot of protesting. That would actually be better for price stability, but price stability was never actually the point.

That's mostly fair, but worth noting that insofar as Bitcoin is mined on a schedule the inflation can be priced into the current price, so it's less deceptive than when the government suddenly prints a ton of bills and whoever was unlucky enough to be cash flush at the time takes a big haircut in purchasing power.

Stocks might fall in inflationary circumstances, depending on many things such as how much of the companies revenue can inflate - and most times, the answer is worse than inflation. Bonds might not give you a yield exceeding the inflation, especially in inflation created for the sole purpose of buoying bonds.

Speculative inflation hedges might also act erratically, like bitcoin and gold, getting ahead of themselves and the inflation sometimes.

It’s absolutely not true that investing in any assets besides cash will shield you from inflation. Inflation impacts companies very differently, and you want a preservation of real earnings power taking into account the need to replace plant and equipment over time. The best inflation protection would come from a company with a pure revenue royalty with fixed expenses. The worst would be a company with bad pricing power and lots of commodity inputs.

Is there an easy way to determine which companies are which? Do I need to be well-studied in business, or is there a chart or key statistic I can look at to tell one from the other?

This article gives a lot of good criteria for finding companies that should thrive in an inflationary environment: https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Revie...

What’s your recommendation for least-worse inflation hedge?

Yes! Value producing assets produce value regardless of the nominal price of that value. It’s insane that people don’t understand this.

Stocks prices get negatively impacted by rising interest rates. With interest rates at ~0%, there's little money to be made in bonds, savings accounts, or anything that pays interest income, so people put money into stocks w/ the hope the stocks will go up. When interest rates go up to fight inflation, there's more incentive to put money into bond markets, which means there's not as much money going into stocks, which means stock prices don't go up as much. Housing prices also tend to go down as interests go up, as rising borrowing costs mean fewer funds are available for buying a home.

What’s your recommendation for least-worse inflation hedge?

Buy all the non perishables, non obsoletables you're going to need for the next decade. Buy them in discounted bulk for and extra return. Bonus: capital gains tax free!

So invest in toilet paper?

Tuna cans. The $/volume ratio of toilet paper is horrible, and in case of a real big emergency the other end is more important.

Spam has more calories and lasts just as long. If you want carbs as well, add canned fruits and vegetables.

Any kind of dry bulk food will also work as long as you take proper measures to keep mold and insects out. Bonus points if you can also keep oxygen out. (Grains often contain a surprisingly large amount of lipids that can go rancid.) In the kind of emergency where you'd be seriously worried about the "other end", you could very well exchange a bag of rice or sugar for a handgun or a bottle of motor oil.

Yup materialize your savings for a 2% a year compounding tax free return.

Urban dwellers might be more limited but for people who have unused or underused space, this is a way to get a return on that space.

Salt, granulated sugar, powdered sugar, brown sugar, socks, underwear, under-shirts, vinegar, soap bars, toothbrushes, razor blades, feminine products, toilet paper, paper towels, napkins, trash bags, freezer bags, sandwich bags, foil paper, parchment paper, plastic wrap, wax paper, candles, matches, diapers, pet supplies (litter, etc.), gardening supplies, building supplies, repair supplies, medical supplies, fire wood, wood pellets, long lasting appliances and furniture, kitchenware, dinnerware, sheets and pillowcases, blankets,comforter,bedspreads, Maintenance, renovations, Efficiency upgrades.

Some liquid soaps and chemicals have a limited shelf life of just a couple of years so it might be better to avoid unless you know the shelf life. Also be careful buying more than you need which can lead to waste. Be careful being wasteful just because you have lots of stuff at home. Buying alcohol ahead of time in bulk works if you have the discipline not to drink more. Also to get a good return you need to use the full life of your stuff before replacing from your stash, not replace early because it's right there.

There is also a macroeconomic benefit to this approach. It can get the economy out of keynesian recessions when people save by buying.

Not very practical if the amount to be preserved is multiple 7 figures, I should have clarified my question better.

US$5M is a bit under 100 kg of gold or 6 tonnes of silver. Might not be a bad idea to spend a few percent of that on hiring security guards and stocking up on perishables to feed them an their families.

This quickly went downhill lol. Thank you for your suggestion, I’ll stick my $5M in VTWAX and hope for the best.

Probably a good idea to maintain a more diverse asset balance than 100% in stocks, in the interest of hedging wealth preservation against both likely and unlikely shocks. The base rate of state collapse, for example, is about 1% per year, and examination of past episodes shows that it's often pretty unexpected. See notes/pandemic-collapse.html in Derctuo for some of the reasoning here. Moreover it's hardly unusual for share markets to dip 10% or 20% and take several years or a decade to recover.

That is probably your best bet for large amounts. You can also diversify into TIPS (note the negative nominal returns though) and improve your housing situation with renos, upgrades etc.

Potentially high opportunity cost here

Solar panels, water filtration, and indoor farming!

Investing for the zombie apocalypse!

Land is the typical recommendation. A noisy crowd thinks gold is a good hedge. Personally, I think that high quality companies with pricing power should retain their value; Coca-Cola and Apple can probably increase their prices to compensate for inflation, leading to increased earnings, leading to increased stock price (the increase compensating for inflation).

Land and stock have the issue of being inversely related to interest rates and interest rates do rise with inflation.

I'm mostly kidding... Buy forever stamps from USPS. As they raise the price of postage, your stamps will go up in value, and then you can sell them for a profit! This is probably a terrible idea, but it makes me giggle.

Now I'm imaging some sort of push on r/wallstreetbets to YOLO on stamps, posting insane strategies on how to predict when the price of postage will go up, by how much, and how liquid the market is for millions of stamps.

My wife is a lawyer and she buys a lot of stamps. Recently she stumbled onto some strange stamp firesale on Ebay and bought forever stamps at below face value. I could only guess that this was an unwinding of the trade you propose.

That, or forgeries being laundered... [1] https://www.linns.com/news/us-stamps-postal-history/quality-...

For a cash-like instrument, stamps seem to have very little in the way of anti-counterfeiting security.

Stamps (forever or not) are often used for Ebay manufactured spend because they're easy to sell (clear value, lightweight and easy to ship).

It goes like Ebay says spend $X or sell $X on ebay and they'll give you a rebate. (Or sometimes the rebate comes from a credit card or Bing). If the $X covers ebay fees and shipping, then buy stamps to reach the $X and then sell them when you get them. If the rebate it sufficient, you can sell the stamps for less than cost, because you're already ahead.

Back in the roaring '20s Charles Ponzi came up with a way to theoretically make a profit trading postage stamps, and raised a lot of money from investors, although in fact he never actually bought the stamps, and instead invented the Ponzi scheme.

There's a quaint and quirky thing in the UK called a premium bond, which you can buy and which the government guarantees to buy back from you at its initial fixed value (1 bond costs 1 British pound). Every month, a lottery system pays out prizes to holders of bond numbers, as chosen by "ERNIE" - "Electronic Random Number Indicator Equipment".

https://en.wikipedia.org/wiki/Premium_Bond

The equivalent New Zealand scheme (Bonus Bonds) is being wound up due to low interest rates: https://en.wikipedia.org/wiki/Bonus_Bonds

From elsewhere: “With low interest rates continuing to reduce the Bonus Bonds prize pool, the Bonus Bonds scheme was closed to new investment on 25 August 2020 and an announcement was made that ANZIS intended to begin winding up the scheme no later than the end of October 2020.”

Would be interesting to see something like that in place of state lotteries her in the US. Neither is a good investment, but the longer term nature of the prize-bond system makes it less likely to attract desperate short term gamblers.

Buy the swiss franc. Or TIPS. or a commodities etf. or emerging markets etf as EM does well when dollar is weak. (their loans are dollar denominated)

The Swiss would appreciate if you did NOT buy Swiss francs as an inflation hedge. This kind of speculation hurts our export industry.

sorry :/ we just trust your government more than ours

It depends on how much downside risk you are okay with taking. If you want something relatively cash like, ibonds are an interesting option - their rate of return is updated to the latest inflation measurement every 6 months.

If you are okay taking on some risk, a mix of stocks and bonds seems sensible to me.

I totally buy ibonds, but their 10-15k limit a year is unfortunately a joke. I wish I could buy way more.

Buy TIPS instead?

https://www.investopedia.com/terms/t/tips.asp

Paper towels never lose value and pretty pegged to inflation.

But seriously, look at the past 20 years and your takeaway should be that USD is indestructible and that the Fed can do no wrong. They ran the printing press day and night for years and struggled to hit 2% inflation. "Full Faith and Credit of the US Government" is evidently the best inflation hedge in the world.

https://en.wikipedia.org/wiki/End-of-history_illusion

> In the long run, we're all dead

If you want to know where to stash your money in 2021, you look at history for lessons. USD will be completely worthless one day just like the sun will eventually burn off the surface of the Earth. I'm thinking back to financial crisis days when there were endless cries of runaway inflation being around the corner and that the Fed couldn't handle a crisis of this magnitude. And I think that looking back they handled it extremely well. They took a nuclear bomb to the chin and stayed standing.

I'd love to see someone try to sell yellowed 20-year old paper towels (with branding from 3 generations ago) after thinking they were hedging inflation.

This is not financial advice. This is just a reflection of knowledge that has kept all my long term investments stable or growing through every dip and shift in the last 25 years.

- Stable index funds are the best long term hedge. (Date targeted mutual funds have largely been doing very well in the last 15+ years too.) - Then consider LONG TERM materials investments. - Then consider Treasury Inflation Protected Securities. - Then consider property, as in real estate.

Actually personally I'd drop the materials at this point. It's easier to screw up materials investments and they're often in stable funds anyway.

This is all long term, you'll note. I would argue there are no true short term hedges. There are bets against the market and that's often what you see in "hedge funds" that go relatively short term. But if you're in that space, well, you probably shouldn't even be having this discussion on Hacker News. I'm sure I'll take flack for that reinterpretation but it's important to be honest about these things, and many make money in this space by eschewing that honesty.

But, your basic goal of keeping your money valuable long term is not a hard problem, it's literally a solved problem and it's what the S&P 500 & similar indexes and/or TIPS exist for. If you think you need to hedge against the fall of the US or at least the USD? I think you should be hedging outside the financial system entirely, go full prepper, because, that's where that fatalistic logic will take you ultimately anyway.

Actually, with less snark, it is always reasonable to keep moderate term survival in mind. An actual major financial meltdown would likely be survivable with minor prepper-like approach to long term food and water stores, especially if you own property. So maybe move property up on your list if you are in a position to own it outright, and bury some water and long term preserves there as a bonus?

The returns you can make in securities over ten to twenty years is much more impressive than bonds.

Key word being "can". On average securities have a much better return than bonds, but they also have a much higher risk of a large drop in value.

On an individual basis perhaps but not if you're in an S&P 500 ETF.

Go lookup a graph of the sp500 from 2000 to 2010. There are no guarantees that it will always trend up.

Go look at that same graph from 2007 to 2021. If you bought in at the top of the 2008 bubble, you'd have tripled your money by now.

Unless you're planning on retiring in the next 10 years, buy stocks.

The S&P is unusually pricey at the moment though.

It's only unusually pricey if you expect to always live in a world of 3-4% interest rates. We're no longer living in that world, though.

The thing is, you could say the same thing at nearly any point between 1999 and 2021, and be right, and it would still have been a good idea to invest into the S&P.

As a long term investor though thinking 'this too shall pass' is quite a good strategy which means at some point the high prices will fade and you will be left with your dividends and earnings which at current prices are not giving you much of a yield.

Also I've been following Jeremy Grantham who is now preaching that the end is nigh. He has a good track record https://youtu.be/RYfmRTyl56w

He recommends emerging markets and value stocks by the way where valuations are more reasonable.

While your point is correct, I live in NY and true, it's heartening to see that someone is looking out for obvs fraud. But it's really annoying that I can't (straightforwardly) open an account at most crypto exchanges, and I'm banned from investing according to my choosing and to my knowledge.

If I decide to hedge inflation with some obscure or even mainstream "coin" that should be my choice why should gov be able to deny that right?

So much for freedom right?

On top of that, any asset for which demand comes mostly from being an "inflation hedge" is a bad inflation hedge since prices will rise when people want more inflation hedging and drop when they want less hedging, meaning the majority of people inflation hedging will buy high and sell low.

Gold has had that dynamic for a long time, which is one reason it is not considered a good investment most of the time. Buy assets that are productive and you will be much less subject to that. Real inflation hedges look like stockpiles of goods, inventory or production capacity thereof.

Could that make such inflation hedges a good pre-inflation hedge? For example buying gold with the expectation that people will soon want more hedging than they do now, though this relies on getting in earlier than others.

This is how derivatives trading (and speculation, and investing itself ultimately) works. It's all about mentalizing how others will trade.

The big question is to pick the optimal asset for hedging.

So, just price speculation then?

Yes, but at that point, you should just borrow money, and do something useful with it, because being in debt is a simple, straightforward inflation hedge.

This proven logic is drowned by people's instinct to follow the herd... and buy Bitcoin.

Cryptocurrency "in general" obviously isn't deflationary, given that one can create a new cryptocurrency with a simple code fork. But Bitcoin is, no?

As commenters hinted at in a previous thread, the price is a measure of the combination of demand and supply. The mechanics of Bitcoin only address the supply side. OP hinted at the demand side: if a new cryptocurrency were to become more popular, then Bitcoin could lose value.

Which Bitcoin?

This is why I think the proper crypto currencies are backed by another functional use instead of "just coins." (e.g. Ethereum vs. Bitcoin)—one is a useful Turing-complete machine; the other only exists to send coins.

Bitcoin will probably always outshine the other "just coins" because it was the first. Why get another coin if this one works fine for monetary transactions?

Similarly with the functional ones: Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.

The rest of them really ought to provide another service underneath to become valuable.

> Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.

We didn't need the first one.

I used to say "a house will always have the price of a house" (it has issues of course cough 2008 cough) to illustrate what you're saying here as I never managed to explain it properly like you did.

But it also has property taxes and maintenance costs, which will likely be higher than inflation. So it's not a great passive investment unless you expect the value minus costs to gain faster than inflation. Otherwise you gotta live in it or rent it to make back your money, and that's no longer passive.

>Inflation is an increase in asset prices

Inflation is an an interaction between the supply of any non-dollar "thing" and dollars. Sometimes that means certain assets like equities become more expensive in $, sometimes that means commodities like oil, sometimes it means labor.

But to be clear, rising Consumer Goods Inflation (what people most commonly talk about when they mean inflation) can lead to significantly lower asset prices, depending on valuation methodologies.

Both are still printing machines. Dollars are backed by faith in the USA. Is there any difference ?

Powell - "We print money digitally. As a central bank, we have the ability to create money."

https://www.youtube.com/watch?v=ff6SDsaS7rI

Sorry, is the question really "what is the difference between the US Government printing dollars and Tether printing dollars?"

One has a standing army and a history of successfully deploying it against countries that attempt to disrupt the geopolitical status quo by moving away from the dollar.

The other does not.

| Dollars are backed by faith in the USA. Is there any difference ?

Jesus lord, yes, absolutely. The weight of the US Empire and all its combined military and economic might versus what... some shell corporations and the whisper of a promise?

You have no idea that a lot of people, including high profile analysts forgets this very crucial fact, and refuse to invalidate their analogy. You thought flat Earthers are ignorant enough, surprise surprise.

Many people think that money is money. They think money is what makes a nation strong, not products and services. I don't know how even highly educated people missed this part.

Money is a side effect of power, not the other way around.

I mean, if you accept that Bitfinex is printing tether, then the difference would seem to be the fact that Bitfinex is lying about it while the US Government isn't lying about it?

The ability of the US Government to create more dollars is a well understood aspect of the financial system. The US Government acknowledges is has the power to print money, and regularly tells us how much it is printing.

Bitfinex claims they do not print USDT and that it is backed by USD.

For a system that's based largely on trust (for both the USD and USDT), lying is a significant problem.

And what about all the cash-for-difference swaps and futures? BitMEX's XBTUSD swap is basically a synthetic dollar that can only be redeemed for Bitcoin within the walled garden of BitMEX. Tether is like a dollar swap contract that can be moved on-chain and, in theory, can be redeemed for the nominal currency. Of course Tether represents itself as a fully reserved stablecoin, which is likely a total fiction, but in the grand scheme of things I don't think it actually matters much.

I've always championed DAI for a stablecoin. I don't know why it's not more popular. https://makerdao.com/en/

Instead of it being (supposedly) backed by a dollar reserve, it's collateralized by ETH and several ERC20 tokens in a smart contract. The smart contract does things to make DAI tend toward $1. It's been out for years and I think it has worked pretty well: https://coinmarketcap.com/currencies/multi-collateral-dai/

It works through collateralized loans.

Super interesting project and tech, but it’s competing with USDC (and similar USD-backed tokens). Adoption will just take longer for DAO-backed stablecoins.

DAI is very cool.

If you want to really blow your mind, check out RAI: https://stats.reflexer.finance/

Very interesting. I wonder how stable it will be vs USD over the long run.

I am interested in someone making a CPI coin, that tracks some value of a basket of goods instead of another currency. I think that would be sort of the ultimate inflation hedge because ideally the value would not change at all over the long run.

The real question would be "how". A [crypto]asset backed by another currency is easy in principle: simply hold the currency to back it (and make sure you have some sort of transaction fee to cover your storage costs, and don't lie about it...). Same with a [crypto]asset backed by oil or metals. But CPI goods include many goods which are either perishable or lose value over time, and the composition of actual CPI baskets changes over time so you can't do that.

In the absence of that backing you can create a purely synthetic asset that can only track CPI if you've got the ability to withdraw significant quantities from circulation every time the value starts to drop. (That's sort of what central banks do with targeting a fixed non-zero rate of CPI inflation. But they have an economy built on debt so the money supply can contract organically by debts being repaid faster than new debts are issued. This is less troubling for the future of a coin than alternative strategies like having to use VC/company funds to buy back coins, or making a percentage of coins disappear)

Well, DAI exists and is pegged to USD without USD backing. Why couldn't one create a similar system with a CPI value target instead of a 1 USD target?

You could it's a really interesting idea. Synthetix and kwanta have done it with TSLA share price. It requires a liquidity pool to balance the asset. The liquidity pools are usually seeded with rewards from the companies that start them. They eventually find stability via automated market makers.

Short description: RAI dampens volatility (goes up slower, goes down slower) of its collateral (Eth). All thanks to some straightforward control theory tricks!

Can you summarize the dynamics/phenomena that those smartcontracts in DAI exploit to maintain stable value? What stops it from gaining -- or, more importantly, losing -- value?

I couldn't tell from the link.

There are a few different mechanisms. I might be missing some, but here are the ones I know about.

* The interest owed on loaned DAI (called a stability fee) changes depending on the market price. So if DAI goes too high, the stability fee increases which makes getting a DAI loan less attractive. If the market price goes too low, the stability fee drops. If it drops to 0, this would mean interest free collateralized loans.

* There is a savings account smart contract that generates a variable savings rate on DAI. The savings rate changes depending on the market price.

* There is the Target Rate Feedback Mechanism which frankly I don't understand. It has something to do with changing the amount your collateral is worth depending on DAI's market price.

* When the value of the collateralized asset drops to some defined percentage of the DAI withdrawn (currently 150% I think?), the smart contract can liquidate and auction off that asset for the value of the withdrawn DAI. This increases the value of DAI and also ensures that all DAI is overcollateralized.

* MKR token holders function as the governance for DAI and vote on stuff, like the collateralization rate mentioned above. They get rewards for holding MKR and in normal circumstances the amount of MKR is static. But in the event of a black swan, if the collateralized assets drop to below 1:1 faster than the normal system can handle, MKR is automatically generated and sold to raise the additional collateral needed. This devalues MKR in order to keep DAI stable.

Thanks, I appreciate the overview!

You'd need to do better than that. How exactly does printing USDT lead to BTC price inflation? I haven't heard anything convincing yet. Most of the vol doesn't come from the BTC USDT pair. Exchanges don't seem to be doing anything shady like manipulating the price upwards by themselves.

The story is that Tether has been printing tethers and buying Bitcoins. However, they haven't released any concrete holdings or submitted to an audit AFAIK, so there's a lot of speculation on how big of a problem this actually is.

I don't think there are any claims that Tether the organization itself is doing anything like that. They just print USDT and send it to people who are interested in buying USDT like exchanges.

The two problems as I see them are:

- Is USDT actually backed 1:1 by USD / cash equivalents as Tether claims? w/o independent audits we have no idea. So technically, if you hold USDT on an exchange and use it to trade alts and evade the taxman, then if this whole thing falls apart your USDT might be worthless.

- The owners of Bitfinex and the people who run tether are the same set of people. So theoretically it's possible that

   + Bitfinex generates artificial demand for USDT somehow 
   + Finds a way to swap actual USD for USDT (customer 
     deposits? 19bn worth of customer deposits? Unlikely) 
   + In turn goes around and buys BTC with that USD for some 
     reason 
   + Does it w/ enough vol that all the arbitrage bots won't 
     be able to arbitrage it away.

These are a lot of ifs and I'm just not seeing the incentives here as best case Finex gets stuck with a bunch of BTC they inflated themselves which isn't in their interest.

I'm not a finance guru, so I'd love it if someone more informed than me can comment on how someone can pull this off.

The settlement agreement shows that at multiple points Tether was not backed: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

I think the best case is tether printed usdt, used it to buy btc, inflated the btc price and is now fully backed by their btc holdings. This works as long as people want btc

They were able to do it because people accepted usdt as dollars.

> - Is USDT actually backed 1:1 by USD / cash equivalents as Tether claims? w/o independent audits we have no idea.

I'm going to say no. Because Tether refuses audit, refuses to name banks, and would be, based on their printing rates, depositing $3.5B USD a week into their bank (a rate which would put them on par with AT&T, Samsung, or Alphabet). I'm not sure how a few people working out of Hong Kong, etc., do that while sliding under the radar and avoiding scrutiny (from their bank or authorities).

Yes I agree, but still trying to figure out what impact that has on the broader eco system if USDT ends up being worthless starting now. How exactly will it impact the BTC price?

70% of btc volume is tether. Apparently the dollar exit points in regulated markets are rather narrow.

So it could be rather catastrophic if either the market loses confidence in Tether or subsequent Us enforcement action shuts them down or makes Tether untouchable to various exchanges.

That's interesting, I didn't know that, thx! Will look it up a bit more.

It's well known that USDT is not 1:1 backed and this is true since the AG started their investigation.

Market doesn't care. Right now USDT trading is popular since people are used to it. There are so many stable coin alternatives (backed with various collateral, some like USDC backed by USD 1:1), so you can always remove the risk.

Good luck to those shorting crypto due to "Tether scam". If you're a newcomer, this kind of news makes rounds every X months and market sometimes reacts widely, just to return back and inexperienced crypto investors/users get spooked. I'm not saying that Tether is all good and for sure they run a hazy operation there, but there is a wider crypto adoption taking place now. Companies are diversifying their treasuries, starting to load on BTC as a hedge against inflation.

PS: Expect news of China banning bitcoin, India banning bitcoin, Russia takedown on crypto, Yelen commenting that BTC is a scam. All of this will be amplified to move price down and shakeout small time holders while large investors keep buying more and more.

I have the same doubts you do about Tether's legitimacy, but there's a few conclusions I believe you're jumping to which I think don't quite hold:

- Tether's volumes being greater than other crypto-currencies don't have much impact on the legitimacy of other crypto-currencies. The volume is so high because USDT is the other side of most crypto-currency trading pair. Given the liquidity of the market, you can trade almost anything (BTC, ETH, all alts, etc) against USDT without being exposed to any underlying USDT risk.

- The market value of crypto-currencies minus any deposit-backed USD coins far exceeds those coins. Tether "printing" coins out of nothing cannot alone explain the market capitalization of cryptocurrencies.

- Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

> If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

The difference is that central banks aren't lying about whether they're printing money or not.

Instead, they control the methodologies that define the value of what they've printed as well as the flows.

Differences...Distinctions...are there?

IOW, "Meet the new boss, same as the old boss"?

No, there should be no moral relativism to get Tether out of the hook. It doesn't matter if they manipulated the market by one or one hundred billion dollars, they are a bad actor in the space that we must get rid of.

> Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

Man, I find it endlessly amusing that cryptocurrency utopians touted the benefits of BTC based on how it will democratize finance and finally remove the yoke of corrupt governments manipulating currencies and markets to their benefit.

And then when a private company like Tether comes along and starts engaging in shenanigans in this cryptoanarchist libertarian fantasy land, all of a sudden the whataboutisms pop out and the excuse is "well... whatever dude, like, the government does this, too!"

Both your paragraphs are correct, yet each refers to different groups of people.

> - Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

Currently Tether is printing $3.5B worth of Tether per week.

They, and supporters are claiming with a straight face that those printings are supported by USD deposits. But who knows what bank this supposed $180B/year is going into?

Recognizing that revenue is not a straight comparative metric (but that much revenue is banked and/or/then invested), that would put Tether's deposit rate at the top 20 in the world (https://en.wikipedia.org/wiki/List_of_largest_companies_by_r...). We're going to need to accept that there's some pretty large optimism needed to believe this.

Tether is using Deltec Bank and Trust in the Bahamas. Deltec's CEO actually did an interview where he responded to the Tether fraud claims: https://unchainedpodcast.com/is-tether-a-fraud-its-bank-says...

When Tether started, most financial institutions weren't open to working with cryptocurrency companies, but the fact that it's still the top stablecoin by value is troubling since there are plenty of better options now.

I'm sure it'll get me flagged as a naysayer, but this raises more questions than it answers (https://www.coindesk.com/tether-bank-deltec-stablecoin-reser...):

> "Every tether is backed by a reserve and their reserve is more than what is in circulation," said Gregory Pepin, Deltec Bank's deputy CEO.

What business does the bank have in auditing Tethers? Why would they care? They're just holding funds.

> “We can see it firsthand, so I can confirm that.”

That to me more reads like Deltec is heavily involved in the actual day-to-day operations at Bitfinex/Tether. Which wouldn't be surprising - after all, remember when Bitfinex and Tether were claimed to be entirely separate and independent entities.

It's a little bit of a stretch to say that Bitfinex has been able to get Deltec on board with keeping this all going by providing a "partnership" above and beyond the usual "banking relationship", but that's very much the vibe I get from all this, and as I said, to me, it just increases the sketchiness of everything.

Oh, and WTF, I watched the video of the interview with the "Deputy CEO" of Deltec Bank, self-described as a "50-year-old bank [whose] customers range from asset managers to high-net-worth individuals"

It's a damn "kid" who looks to be 30 at most, sitting in his gamer seat with red slashes in the black, wearing a Razer gaming headset.

He has almost no photos on the internet, his LinkedIn profile is full of multiple spelling errors ("Independance Weath Management"), who claims to be a Professor of Finance at a University in Lebanon (a year after graduating from a Lausanne University) while working for numerous Swiss funds, oh and in Jacksonville, Florida, simultaneously.

How the hell are people taking this seriously?!?

EDIT: He's 33.

So he apparently graduated with a Masters in Science from HEC Lausanne when he was FIFTEEN. I'm sorry, I'm crying now with laughter.

Sources:

- https://wallmine.com/nasdaq/tenx/officer/2087842/gregory-pep...

- https://www.linkedin.com/public-profile/in/gregory-pepin-0a8...

And the Bahamas does annual reports on the total amount of reserves its banks hold, and the government numbers aren't close to what Tether claims to deposit in Deltec, even if Deltec were the only bank in the Bahamas.

You mean this interview?

https://www.reddit.com/r/Buttcoin/comments/l5m2my/gregory_pe...

See my previous comments, the Deltec Deputy CEO claims that he was simultaneously Professor of Finance in a Lebanon University, administering Swiss investment funds, oh and working for a company in Jacksonville FL. He gave his interview from his gaming setup, and talked all about seeing all the Tethers personally from their operations (Why? You're just their bank).

You're going to forgive me on being a little skeptical here.

Especially when his LinkedIn has him graduating HEC Lausanne in 2001 with a Masters in Science...

when he was fifteen...

Funnily enough, Deltec bank removed him from their website when this interview was published, then re-added them when people asked questions, and then arranged a very quick website complete "redesign" (I use that word lightly - this looks like a WordPress template that they've struggled to fill with any content whatsoever - most of the pages are effectively empty, many of the buttons to "learn more" are not linked to anywhere).

This is such a scam.

People have already researched that the total volume in-out of Deltec and it could not be more than a fraction of Tether's printing meaning:

1) They aren't holding the money as USD 2) They aren't holding the money in the Bahamas—then where? 3) They are printing money without a corresponding asset aka Ponzi Scheme.

As recently as a couple of weeks ago, I've heard people claim that Tether is still "1:1 backed with USD". Oh, and:

> Keep in mind that in relationship to tether, $1.5 billion is tiny. It's only 3 days of tether printing.

apparently depositing $3.5B a WEEK into some bank (unnamed of course, because Tether won't disclose).

While there is a large deal of potential, and some real value in crypto, there's definitely a non-negligible portion of True Believers, the crypto equivalent of Qanon.

> As recently as a couple of weeks ago

For more recent claims, just read the comments on this post in this site.

Bitcoin is going up because young people want to buy Bitcoin. Most young people are trading (i.e. WSB) and not investing in cryptocurrency. That has a lot to do with price fluctuations. Also taxes, vacations, etc are all funded by cashing out.

Absolutely absurd. The degree to which the people of New York are being infantilized, when the state is telling outside parties to not allow them to trade their digital assets, is a textbook example of why the philosophical underpinnning of the modern regulatory system are illiberal.

How trustworthy Tether is is completely incidental to my comment on the New York regulator.

Bitfinex isn't an American company. This is ridiculous

What’s ridiculous?

That the company’s home jurisdiction allowed them to defraud the public?

It's not even clear where the company is physically located. It's a Hong Kong company but all of the addresses here are just virtual offices and shell companies.

The full title ends with "Illegal Activities in New York", not sure why it was removed.

Because it's too long for HN (I instead replaced "Attorney General" by "NYAG", not ideal but an ok compromise IMHO)

"Bitfinex banned from New York."

Edit: I'm getting downvoted but I went soft on him. You know what, I'll say it. The choice of which words to retain (virtual currency trading platform??) and which to drop (in New York) is really bad and veering into suspicious, seems like it's trying to stir up panic.

It's the title of the linked press release, with a minor change to fit the maximum length required for HN submissions.

You make it sound like they have been taken down globally. That's not a "minor change".

How would the New York attorney general shut down the company globally? That doesn't make sense. But feel free to contact dang or other moderators and ask for a change of the title if you think that can be improved.

People here are from every part of the world. Many wont know what a "NYAG" is or what powers they have, in fact I bet quite a few Americans don't know either.

Oh well.. the new title is good.

Note the headline should add “in New York” or the like.

Do you expect to get away with illegal activity when you travel abroad?

A lot of people do. For example driving over the speed limit because they can't be fined.

Meanwhile, a group of hackers claim to have penetrated Bitfinex/Tether's bank Deltec:

https://deltecexposed.medium.com/deltec-bank-trust-and-their...

Grab some popcorn, the show is only getting started.

no evidence. looks like some random post.

America lied to the world when it claimed each dollar was backed by gold.

When the world figured it out and there was a bank run, the gold standard was "temporarily" put off by Nixon in 1970.

Bitfinex just seems to be playing the same game America has always been playing.

Link?

1. https://en.wikipedia.org/wiki/Nixon_shock

2. https://www.wikiwand.com/en/Exorbitant_privilege

thanks!

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