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Comment by tryptophan | Hacker News Reader

She doesn't mention the whole tether fiasco at all, which is the strongest point against bitcoin currently in my opinion.

Tether is a completely unregulated de facto 'bank' that makes up a very significant portion of the demand for bitcoin. If that blows, bitcoin will inevitably go with it.

Buying bitcoin is betting not on bitcoin, but on tether.

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You might be working on old information as the crypto industry has largely diversified when it comes to stablecoins and Tether is now actually #2 to USDC which is fully backed. [https://www.defipulse.com/usd]

If Tether fails it would definitely hurt but it's not an existential threat to crypto.

This measures total value circulating. In terms of market cap, Tether still has a pretty clear lead (though I suspect USDC will flip it within the next 1.5 years, and UST in the next 3-4 if it doesn't go into a death spiral before then)

Tether dominance in stablecoin land is down to like 40% or less. USDC alone is close on the heels of marketcap and nobody has issues with that one.

For Tether fear uncertainty and doubt, you kind of need to make a standard of where it stops being top of mind. Even Tether’s problems are only that its maybe 70% backed by fiat in a bank account, not like 10% or anything similar to the broader financial system.

Doesn’t quite ring true to me. Bitcoin was blowing up in price way before Tether came around. Although the Tether setup is shady, it’s not propping up Bitcoin. I would rather say that when Bitcoin falls next (it does in cycles) then Tether may collapse.

Tether came out in 2014.

This is a pretty good overview of all that's happened and why the parent's comment is actually relevant.

https://www.theverge.com/22620464/tether-backing-cryptocurre...

By 2014 BTC had already gone up from $0.0000000001 or something like that to $30. To be conservative you could use the early exchange prices of $0.10 or so. Do the math. It was blowing up way before Tether. Yes, Tether is one of the biggest frauds on the planet right now. I repeat, Tether’s fall would not cause the collapse of Bitcoin. These other comments saying “oh it’s smaller than usdc so btc would be fine” are even missing the point. It’s like nobody can mentally conceptualize an asset that has gone up 100,000% or much, much more. $1000 spent on MtGox in the early days would be over $200,000,000 today. It’s not one coin or one tweet or one company driving that absolute monster of speculation. But in my opinion Bitcoin’s collapse, a real one that goes to zero, would represent such a significant shift in the upward paradigm that it would mean the end of every single other cryptocurrency in their current iteration, including Tether and even Vitalik’s world computer. They would return in another form. Just my thoughts.

If you're worried about Tether, then you should be worried about the whole financial system. It's not very different from Tether, and that is one of the reasons why Bitcoin was created in the first place.

"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"

Tether is not even like a 'de facto "bank"'. Actual (modern, regulated) banks need to have all their liabilities (i.e. deposits) backed 100% with assets. This includes capital, liquidity assets like bonds and reserves, but mostly loans. Banks can and do originate money by issuing loans (creating a debt and a deposit in equal amounts), but if they don't have at least a decent chance of being repaid (and enough capital/insurance to cover defaults) then they are insolvent.

The difference with Tether seems to be that they appear to be creating the deposits (tether) without any evidence of actually having or creating enough assets to cover it all (either having money in the bank, or writing decent quality loans to back it).

This is not what I gathered from the documentary "Four Horsemen". Seems like actual banks are printing money out of thin air?

You are correct. In 2020 the federal reserve removed the reserve requirement. Banks no longer have to have assets to create money.

> Banks no longer have to have assets to create money.

Banks no longer need reserves with the Fed but they are still subject to capital adequacy regulations.

Central bank reserves aren’t the only assets that exist. Most countries already didn’t have a reserve requirement. CBRs are mostly required just for liquidity for interbank payments.

Banks that don’t have assets to cover all their liabilities (deposits) are insolvent. Non-delinquent loans are assets to the bank (liabilities to the customers) that are created when banks lend and create money (which become deposits - which are liabilities to the bank and assets to customers).

Only the central bank can originate money without creating debt.

Even the central bank can't originate money without creating debt. That's what money is, an exchangeable claim to resources, or assets. With base money, and the physical currency people hold in their wallet, the claim is notionally against the central bank's assets, that "back" the money and underly its value.

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