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Each scam is draining some money from the market. All these scammers are siphoning of real money from the ecosystem each time.

Fanatic and devoted fans there maybe, however they don't have limitless fiat money to play with. In the recent past, new found mainstream popularity has fueled inflows into all kinds of crypto products sustaining the strong bull runs despite significant and clear risks.

This popularity has little to do with widespread belief in distributed / unregulated financial systems, and more because these assets have outperformed traditional instruments spectacularly, the allure of making ton of money fast. Eventually it will fade either because there is not enough new people who can/will put more money or an unsustainable growth tapers off.

When ( not if) the second set of players leave inevitably after enough scams, the hardcore fans that will remain and prop up the market and keep it going yes. However without non fanatic users there is not enough money to come roaring back like in the past.

To be clear, it may take a few years or more and few cycles of what you say, markets can stay irrational for a very long time, it is unstable equilibrium nonetheless, and eventually will correct permanently

How do you feel about stocks that have completely unrealistic P/E ratios? Is that not the same speculation that happens in crypto? And yes, I agree, prices don't go up unless people are putting more in, but I'm just saying that crypto is not unique here. Yes, traditional companies can liquidate their assets, but my point is, a lot of what's going on in stocks, at least ones greatly differing from traditional P/E ratios, is also speculation.

Also, in terms of siphoning of "real money" from the ecosystem each time, if some of the money going in is fake, i.e. Tether printing without having 1:1 USD backed up, and that is going back into crypto, then how do we quantify that exactly, in terms of "real money" lost? Is it because "real money" is also buying at the inflated prices, or is it because some of the Tether that is buying other crypto is backed up by "real money"? I'm trying to understand the argument here.

Stock P/Es, while high, have a non-zero denominator, so it's hard to consider the same as crypto speculation. I think both have a lot of the same driving factors (low interest rates, get rich quick culture, etc.), but, to me at least, crypto is a much riskier endeavor considering the net negative nature of its value.

A high P/E ratio simply means that investors are willing to pay more for each dollar of earnings. But there are actual earnings. There are no earnings backing crypto.

There may not be $70 billion actually in tether, but some fraction of that people have paid them in exchange for the coin, a good chunk of that is already mis-managed/lost. A bank run would lose even more.

Issuing more tokens than the money they have is basically inflation and devalues all holdings.

Yes non profitable without a clear path to profit, or pre-revenue companies is a lot of smoke for risky value, however in most revenue generating companies there is underlying asset which generates some cash every year and that is always worth something.

With currency everything is abstract and depends only on trust in the system for its intrinsic value.

This is why U.S. is able to use the reserve currency status of dollar and issue a lot of new currency without equivalent inflationary pressures other currencies would face, they are basically leveraging trust in to generate seigniorage.

> If Tether did somehow implode and users left in droves, something else would come along to take its place and within a year or two and the entire Bitcoin ecosystem would come roaring back stronger than ever

Pick any of the already existing stable coins. We don't even need new technology to replace Tether. We just need international exchanges to support existing stables.

Exactly. Tether has some amazing alternatives. DAI for example.

DAI is critically dependent on USDC.

USDC recently received a Wells notice from SEC and had to amend their reserves. Still weird behaviour from them overall: they don’t disclose what their short term commercial paper is, its rating or how much of their cash equivalents it us.

Just today in the financial times Tether claimed USDC also issues USDCs backed by crypto.

And they have funny printing patterns: whenever Tether stops printing, USDC starts.

> And they have funny printing patterns: whenever Tether stops printing, USDC starts.

I noticed that, specially recently. What's going on?

Source for Dai being critically dependent on USDC?

It’s been around years before USDC and maintained its peg through the 2017 collapse, if I recall.

I know it has changed over time (multi-collateral Dai).

Can you (or anyone) give me a few more keywords to find more info about that claw-back of funds? I'm new to the crypto space and my google-fu is lacking today, can't find anything about Ethereum defective contract and subsequent claw-back of funds.

It was The DAO hack [1].

[1] https://www.gemini.com/cryptopedia/the-dao-hack-makerdao

https://www.gemini.com/cryptopedia/the-dao-hack-makerdao

A good overview can be found on the Wikipedia page for Ethereum Classic. ETHC is made up of the users and miners who didn't want to "claw-back" those funds.

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

Here's the wiki article: https://en.wikipedia.org/wiki/The_DAO_(organization)

IIRC, back in the day, there was the original DAO. They released this very large contract, citing "the code is the law".

The code had a bug, and someone drained the $50M or so contract.

Since everyone lost a bunch of money, the majority agreed to fork Ethereum and roll back the hack, leading to "Ethereum" (with the roll back), and "Ethereum Classic" (without the rollback).

"What non-users don't get is the fanatical level of devotion by users. It waxes and wanes with the Bitcoin halving cycle, but always comes back stronger than before."

Indeed. 80-90% pullbacks, multi-year bear markets, the seasoned crypto trader has seen multiple apocalyptic financial disasters, where this simply is a potential next one. It fails to impress.

The really clever ones thrive from these crashes, that's when they buy. Volatility is the feature.

I'm not sure you guys get this: Tether is the reason it comes back.

Tether drove the 2017 bubble (this is when Bitfinex'd got their start) and has driven the 2021 bubble to the tune of $70b.

This resilience wouldn't exist without Tether.

If I have to believe the research on the 2017 pump, tether had a 50% role in it. I'm not sure how much 70b does for today's market cap. Surely it's significant, but it would be an exaggeration to say there would be no demand without tether.

In the end, it doesn't matter. You can make money in crypto whether it goes down, up or is scalping.

Well let’s see, since 2018 total crypto market cap is about 3x but Tether is about 30x and total stable coins are over 40x what they were.

Diminishing returns to pumping.

Where are you getting this information from? Is it from this study [1]? Real money is also going into crypto [2, 3, 4, 5]. I think it's quite an accusation to say that Tether is always the reason crypto comes back. People also "buy the dip". In some cases, maybe it is Tether, I don't know, but saying in all cases that it is Tether making crypto bounce back seems like a stretch to me.

You assume you know why it bounces back every time after reaching whatever bottom it does, so, I'm also wondering, what do you think triggers it to start going down after reaching its tops?

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066

[2] https://www.microstrategy.com/en/investor-relations/press/mi...

[3] https://www.bloomberg.com/news/articles/2021-06-03/novogratz...

[4] https://news.bitcoin.com/kevin-oleary-crypto-exposure-greate...

[5] https://www.cnn.com/2021/04/28/investing/tesla-bitcoin/index...

Fair and square? It was a completely new failure mechanism found in one of the first major smart contract deploys.

BTC had a similar early-phase bug that minted tons of coins by the way, that they also had to “claw back”.

At least pretend to be unbiased.

Not even the same league of event. The value overflow incident was a flaw in the protocol implementation itself.

https://en.bitcoin.it/wiki/Value_overflow_incident

The DAO hack resulted from a poorly-written contract. Concerns about the quality of the contract were ignored by the team. The DAO itself wasn't even part of the Ethereum protocol, just an application running on it.

The DAO was like a Bitcoin transaction that spent all output value to miner fees, which has happened a lot. But at no time did that ever result in a rollback of history.

The response to the DAO was the Ethereum community slapping a giant asterisk on the motto "Code is Law." And the community is quite all right with that.

“ Ethereum allowed a claw-back of funds lost fair and square to a defective contract. Where is Ethereum now? Oh yeah, near an all-time high and a market cap approaching half a trillion dollars.”

Another interpretation is that courts customarily invalidate “defective” contracts, and therefore the “claw-back” actually inspires confidence by demonstrating consistency with contract law norms.

USDC (coinbase stable coin) is already around 50% of the market cap (value) of Tether. Tether influence is already waning. If it doesn't collapse in the next couple years, it'd probably be significant but a minor event/thing in the crypto space.

> It waxes and wanes with the Bitcoin halving cycle, but always comes back stronger than before.

Already forgot about 2008? Go check all theses banks values! Morgan Stanley is on an all time high right now!

> It may be counterintuitive, but the best thing that could happen to Bitcoin would be for Tether to collapse in a cloud of dust.

I share your opinion, and especially true if you have a ~5 year horizon on BTCUSD.

Just a note of wording: Almost everyone is a "non-user", speculators probably vastly outnumber the true "users" (money transfer, laundering, ... what else?)

The price of Bitcoin would rise precipitously as traders tried to exit tether any way possible, as would all other cryptos.

The price in Tethers would rise

Yes but long term? The big question is not if there are real USD behind USDT or not but if Tether has a way to pump the entire crypto market. Basically: did Tether make BTC go to 64 K USD, by printing non-backer tether by the billions and then use them to buy BTCs?

Short term if USDT collapses, BTC would probably skyrocket due to everybody looking for an exit out how USDT. But long term? What if the BTC demand is simply mostly all fake?

No, the price in USDT would rise and then as people promptly sold for USD it would collapse in USD terms.

What guarantees that everyone would sell that Bitcoin for USD?

If those people wanted to hold BTC, they'd have been holding it in the first place, instead of USDT.

They also may cash out to another fiat currency, no? I also am not sure I agree that they would all even cash out to fiat. I was asking what are the guarantees that they would cash out to USD, considering that why they may be holding USDT in the first place is to avoid US regulation? Something else to consider is that Tether is also more popular outside of the US. I'm just saying that I think it's an assumption that they all would cash out. It likely depends on how crypto as a whole is doing at that point, and I also think it's an assumption that crypto won't survive Tether's crash. There may be short term drops which lead to these assumptions being true, but really, no one knows for sure.

It doesn’t matter what fiat the sell into, all that matters is they are selling BTC. It will go down against all pairs.

They would be selling USDT.

Especially on short notice, with Tethers sitting on an exchange that may not have access to fiat, they will likely sell to BTC or ETH at least at first.

Yes, but the best way to sell USDT is via crypto legs: buy BTC/USDT and sell BTC/USD - the net result of this is selling USDT/USD. The actual USDT/USD markets just aren't real/deep enough.

So the price in USDT terms skyrockets and the price in USD terms craters.

I'm just wondering, now that they have USD, after selling BTC, what do you think they are they going to do with the USD? It's not like they can extract easily USD from Binance or KuCoin (two of the most popular asian crypto exchanges, where USDT is also the most popular). As I alluded to in a comment above, the reason they are using USDT in the first place is because they can't deal with USD (or fiat) easily. So do they go into some other stablecoin, or keep it in BTC (or ETH), and try to move that to another exchange which is better suited as a fiat gateway? What if this other exchange is a heavily KYC'd exchange that they don't have access to in their jurisdiction, or that it would take a long time to get access to, even if it is available in their jurisdiction? There's also fiat withdrawal limits to consider, which are generally lower than crypto withdrawal limits. Also, to even be able to withdrawal fiat, instead of crypto, requires even higher levels of KYC, more processing time, no guarantee that they will be approved, etc. So, what do you think they will do then? This is also what TimeBearingDown was referring to in a sibling thread.

They’d prefer holding USDT to BTC.

In this event we describe though, they may prefer selling for BTC or other cryptocurrency.

They may not have the option of selling for fiat currency, as well, at least not right away.

The assumption that an exit from Tether would lead to an exit from BTC is not necessarily well founded.

You're talking about people who have already exited BTC - that's why they are holding USDT.

People flock to stables/fiat when uncertainty/risk increases, yes? So you have a bunch of people ($70b worth) who are currently in USDT. Then you have to account for all the people currently in crypto who would sell into stables/fiat in a black swan event.

What's the argument against this? You say that the argument is not well founded. Ok, fine. I've outlined my argument. What's the counter? What's the line of thinking where USDT holders en masse flock back into crypto when the safe haven that they already wanted to be in implodes?