It's not backed. Once the Tether scam unravels, it's not clear how badly it will affect Bitcoin's price. But it's going to be bad.
There's a chance that Tether has been pumping BTC.
There's a chance that Tether has been pumping BTC.
Which probably means it's Chinese dollar-denominated debt, perhaps stuff like Evergrande bonds that you could get for $0.05 on the dollar. So, it is "backed", perhaps, in that there are dollar denominated assets.
But, functionally, it's probably not backed in a way that does anyone any good. So your basic point is correct. At some point, people rush for the exits, and when they do, BTC may collapse with it.
He has been telling me to go nowhere near it for the last 5 years and I have not.
Ex-employee, whistleblower, service dependency, . . .
With billions at stake, there are highly motivated players. Similar to paying for dirt on mudge: https://news.ycombinator.com/item?id=32823548
It is a traditional ponzi scheme but with an additional layer that makes it far more resistant. It's essentially the same thing as government central banking but for crypto and without the threat of violence to control valuations.
Would you accept the lowest rated Chinese junk bonds instead?
Asking for a friend…
It’s hard to accumulate $100bn Treasuries without the dealers noticing.
- U.S. Treasury Bills: $28,856,434,491
- Commercial Paper and Certificates of Deposit: $8,402,426,505
- Money Market Funds: $6,810,253,431
- Cash & Bank Deposits: $5,418,232,067
- Reverse Repurchase Agreements: $2,992,015,954
- Non-U.S. Treasury Bills: $397,150,678
- Corporate Bonds, Funds & Precious Metals: $3,486,896,735
- Other Investments: $5,551,836,303
- Secured Loans: $4,494,373,260
- Total: $66,409,619,424
[1] https://assets.ctfassets.net/vyse88cgwfbl/2xJyKdUKicdRUWpC9b...
We've all been saying this for literally years now and yet here we are. The crypto market doesn't make any sense at all.
It has to crash sometime, right? I mean it is obvious to anybody paying any attention that tether is a scam. How has it gone on this long? What will finally do it in?
2. We would only see this on a massive sell off when Tether can't prop up the price fast enough with their reserves (by buying USDT with USD). This almost happened on May 11 of 2022.
3. The Madoff scam went years and years before finally being outed in 2008. Decades perhaps?
They are too powerful with too much money and too much centralized collusion to fail on their own. And the US policy still can’t define crypto, let alone police it properly. Only the full might of the US judicial system will make tether fail.
This did not almost happen. Do you enjoy writing fiction?
If you pay low or no interest, a Ponzi can be kept going for a long time. Eventually, though, the end of growth plus ongoing withdrawals catch up.
At least it’s a non-productive asset so that’ll keep the cost down a bit, no?
Tether was taking other end of bitcoin shorts for 5 years. Its fantastically profitable and you bought the manufactured story that they are about to collapse any moment.
Unfortunately, it is very difficult to know when.
If your point is that there isn’t infinite liquidity at the current market price for an equity or bond, you’re correct, but it’s irrelevant since tether is nothing like an equity or bond.
Heck, to generalize on this, this is kind of the ur-problem with crypto generally: a bunch of things pretending to be currencies but are actually securities. The whole subterfuge is intentional, to foist risky assets on people by lying about their nature, and to avoid the (hard fought and hard justified) regulations around said risky assets.
If you say that one of something is worth one of the other, you are promising that you have a bottomless supply of the currency on both sides of the peg. This almost never actually happens and whoever is running the peg will inevitably be caught with their pants down. Bankers specifically love breaking pegs and have the means to do so.
If USDT was run by the Federal Reserve nobody would question the system; because then they'd have the capability to issue both the USDT token and the dollars backing it. They would be considered as fungible as dollars in the bank versus dollars in your hand.
that's true, but only because the US (and the Feds) have had a good history of managing the system well (enough at least).
And if that's the case, USDT is basically USD. It's the same reason why the USD is a reserve currency in the world today.
Tether is attempting to tap into that reserve currency trust (ostensibly, to generate profit for themselves).
Meh, plenty of currencies—from the Emirati dirham to the Hong Kong dollar—are pegged [1]. International investors would just shit bricks if any of them dared the lack of transparency Tether pulls on crypto users.
[1] https://www.investopedia.com/articles/forex/061015/top-excha...
You're also buying a commitment from the Hong Kong Monetary Authority (HKMA) to convert between Hong Kong and U.S. dollars at fixed exchange rates [1]. That promise is backed by the HKMA's reserves [2]. Tether closely resembles a pegged currency, albeit a banana republic's.
[1] https://www.hkma.gov.hk/eng/key-functions/money/linked-excha...
[2] https://www.hkma.gov.hk/eng/news-and-media/press-releases/20...
Tether does not print their own currency. If USDT goes to zero, you have nothing. It's good nowhere.
Tether prints Tethers. The HKMA prints Hong Kong dollars. They both derive their value from the U.S. dollar. If the HKD goes to zero, one has as much as if Tether goes to zero. (This is tautology.)
The Hong Kong dollar is backed by the Hong Kong government. Tether is backed by no government. Tether is probably lying about its reserves. Hong Kong could just as well convert everyone's HKD to renminbi overnight.
Point is, there isn't something fundamentally currency-like about one versus the other other than state backing.
The fundamental difference between Tether and HKD (or any other currency) is that Tether is not a legally recognized currency.
That may mean nothing to you, or to various other people who think that laws mean less than code, but it means a hell of a lot to most of the world.
The reasons something is a currency is because it is backed up by the power of the state. This includes (but is not limited to) the recognition of its status as legal tender within a the realm of a state, the ability to pay taxes in it, and also the very real guns and batons wielded by said state to enforce said authority.
There is no such thing as a currency that is not backed by some state, or at least some entity enjoying the broad authorities of a state. Tether (along with literally every single crypto product out there) does not.
But because primarily crypto was invented to snooker people who find the entire concept of state authority to be objectionable, this fact will never quite land.
No, they don't. The HKD is pegged to the US Dollar. They engage in open market operations to buy and sell HKD in order to keep the value of it around 7.8 HKD to a USD. This can be very expensive for them to do sometimes, such as right now. There is nothing fundamental about the HKD that makes it worth 12.8 US cents. Its intrinsic value is derived entirely from the fact that you can pay taxes with it in Hong Kong. It can't go to zero because demand for it will always be higher than 0.
On the other hand, the USDT is ostensibly $1 because you bought it for $1. They claim to be backing it with $1 worth of assets allowing you to sell it back to them for $1. This entire thing is about how nobody actually knows what its backed with. It has no other intrinsic value. If Tether doesn't (or wont) buy it back for $1, it's worth nothing. It does nothing.
No, they don't. You are either genuinely confused or engaging in that tiresome crypto game of "well, if we pretend sovereign states (or even Hong Kong like entities) were the same as a corporation, then logically..." Sure. But they aren't, so it doesn't matter. Wishing this weren't true isn't really interesting.
I agree they are functionally similar, it is just a matter of scale. I can write IOUs pegged to the dollar. The only difference is the confidence others have in me.
It might technically count as a ‘crypto ecosystem currency’ since it is often used to exchange value between different chains/coins/exchanges. But it is very difficult to convert to a recognized currency, so a lot of folks also get unknowingly stuck with it thinking they have dollars. There is a reason USDT is the ticker they pushed for, not TETH or whatever.
When Voyager entered bankruptcy, quite a few people suddenly discovered that the USDC they held on the platform was not the same as USD, did not enjoy the same legal protections USD would have, and that much of it had been loaned out to 3 arrows capital and was not coming back.
The distinction became even more significant when the bankruptcy judge agreed that the bank accounts that were holding actual USD customer deposits were not part of the bankruptcy estate and had to be released back to those customers.
Also Terra was the algorithmically pegged stablecoin to Luna (not Tether in case that was the confusion)
This is not true: https://trading.bitfinex.com/t/UST:USD
https://i.imgur.com/FQbszHZ.png
A quick eyeball has January to July 2018 where a Tether was worth less than $1.
EDIT: Screenshot https://www.tradingview.com/x/I92ccibV/
As long as Tether has some liquidity, things will keep operating as normal. However, if the amount of money withdrawn is greater then the amount deposited, eventually Tether's reserves will dry up. Once that happens, anyone with outstanding USDT will be stuck with a worthless asset. Only Tether knows how close we are to that point, and they aren't saying.
I think Market Cap = (value per asset) * (total # of assets in the market). So the Market Cap of USDT SHOULD BE roughly equal to the number of Tethers on the market (assuming the price of a single Tether is stable, which isn't a bad assumption right now).
Since "every Tether is backed 1:1 by USD" and Tether is (more-or-less) pegged 1:1 to USD, if you see the market cap drop by a significant margin, it's likely that the drop was an outflow to currency. If we check the Luna crash event (~early May - ~early June 2022), we can see that USDT lost ~18B in market cap over that period. So (I think) we can assume that there was (roughly) 18B of dollar outflow over that period.
If any of my statements here are incorrect, please correct me. I'm a software engineer, not a finance artist or an MBA, and the last business class I took was summer school in High School in like 2006.
Couldn’t Tether burn tokens it holds on its own or affiliates’ books to create that impression?
I don't know of any way to find how much USDT is held by the issuer of Tether (or their coparties) and how much is held by other wallets at any given time. I suspect that calculation would require a significantly greater knowledge of the blockchains that USDT is on than what I have.
Tether does not make this claim, I'm not sure why you put it in quotes
A chance? It's an absolute certainty.
Not only most exchanges have only a USDT:BTC pair and not a USD:BTC pair, but if you look at recent (~1.5 years) sudden spikes in BTC price, they correspond almost always to a new supply of USDT being released by Tether.
The only upward momentum Bitcoin has had since the last ATH has been due to Tether printing money, so it's safe to say that not only it's pumping it, but it's probably contributing 80%+ of its value.
If Tether dies, it's the end of cryptocurrency, period.
Bitcoin is a failed open source project turned Ponzi. I can’t wait for tether to take it to the absolute bottom and end the current epoch of crypto-as-speculation. Crypto will have its uses as a decentralised application platform.
Spoilers: - saying "but there is fraud" is not an argument against NFTs, because actually an automated solution for NFT fraud is conceivable. And the fact that there is fraud does not take away from the thousands of artists using it legitimately. Plus, authenticating you are buying from a real artist in the NFT space is actually not that hard.
I actually think there is a huge potential to decentralized applications, but this is essentially faith for now so I won't add much more to the discussion.
My feeling is that the odds of anything useful coming out of this are small. After insane money and over a decade, nothing useful has resulted. Perhaps conditions will be right in another decade for something useful to emerge, but at this point it's all scams imo
Will they, when ETH collapses to being worth less than 10 bucks because you can't exchange it for funny drug money and it's only usable as funny slow distributed computer coins ? When users can't speculate on it, when stakers lose money on running a node because they're getting 5 bucks worth of rewards every other month ?
Thankfully for the Ethereum Foundation, they conveniently prevented people from taking out their stake then did the merge, so that now that someone is in Ethereum, they cannot back out of it. Some might say it was something that only a malicious actor would do, but then again, the crypto community has never really been that bright when it comes to detecting scams.
just curious because I haven't seen a practical use for the EVM, it just seems like the slowest, most expensive VM ever conceived.
Spoilers: - saying "but there is fraud" is not an argument agaisnt NFTs, because actually an automated solution for NFT fraud is conceivable. And the fact that there is fraud does not take away from the thousands of artists using it legitimately. Plus, authenticating you are buying from a real artist in the NFT space is actually not that hard.
Saying something wrong many times doesn't make it right.
They are signed URLs that you can trade around on an exchange. This solves no problem that anyone making art has ever had.
Yeah NFTs did exactly this and they’re doing a decent job. If you’re a digital artist it was really really hard to get people to buy your art without a gatekeeper/art gallery certifying it. Now it’s easy. So yes they work for specifically that purpose.
If you think coffee shops are a substitute for digital art to be sold in a permissionless global open market I don’t know what to tell you.
At scale we’ve been building completely decentralized applications for a decade and a half. They’re just internal to some organization not public. Taking this and placing the database in the users hands is an interesting way to go but not exactly an order of magnitude more complex at that point.
But this doesn’t require some dumbass blockchain currency and ethereum is super forced.
That's because technological decentralization is much easier with political centralization.
But technological and political decentralization together is incredibly difficult.
In my experience, federated systems are more practical than decentralized systems and provide 98% of the benefits.
I agree that cryptocurrency is not necessary (or ideal) for either.
So when people want to buy BTC they often do exchange from USDT.
The question then becomes whether the fiat going in matches the new Tether being issued, and that can't be answered without a proper audit.
> if you look at recent (~1.5 years) sudden spikes in BTC price, they correspond almost always to a new supply of USDT being released by Tether.
is what you would expect to see even if Tether was 100% legit. As you say, most BTC liquidity is in USDT, so people buying Bitcoin would first buy (mint) USDT from Tether, and then use that to buy BTC.
Lol, you think these transactions done with crypto? Don't be silly.
Silk Road … facilitating annual sales estimated at almost $15 million.
https://reason.com/2013/04/09/bitcoin-vs-big-government/
Researchers estimate that from 2006 to 2016, the total amount of money spent by Americans on these four drugs fluctuated between $120 billion and $145 billion each year.
That's what I thought about MtGox. How wrong I was.
It's mind boggling how long this has gone on, really. I've been following the crypto scam for like 10 years now and it just keeps going.
It doesn't take cleverness, just complexity.
Then again, neither is a typical bank account.
Source: https://www.fdic.gov/resources/deposit-insurance/faq/index.h...
> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category
If you want have more than $250k insured in regular accounts, spread it across multiple banks (or put some in a joint acct, but that has its own risks).
Opening a chequing account and a savings account at the same bank doesn’t give you $500k of coverage if you were to put 250k in each.
The only similar is that they are guarantees.
The FDIC can't run out of money because Congress would just re-fund it in the unlikely (and extreme) event that its current funding ran out.
Bank accounts with FDIC insurance are literally backed by the people who create dollars.
Banks are backed by FDIC insurance which, although it has been able to pay each claim ever filed, did get cold feet in the 2015 crisis and obviously does not hold a dollar for each insured dollar. In fact some cursory research shows they hold about $6 for every $10000 and in a major collapse like the 2015 crisis, which could have been even worse, they could very well get in trouble.
If a bank never takes deposits, they have nothing to lend out. If Tether was printing Tethers without having deposits in place, they're not doing fractional reserve banking.
If you don't have assets on your books, and have instead either walked with or lost a large portion of the money, then you're not doing fractional reserve banking, you're running a confidence scheme.
If Tether, as suspected, was largely "backed" by crypto assets and Bitfinex shares, then they're gambling with the bank funds... and the recent losses in the crypto markets mean that they have been losing those bets.
(I edited the last portion of this substantially to make it more concise.)
1. You deposit $100 in the bank. It keeps $30 as cash and lends out the rest to someone. The money is still there on the balance sheet (but with a risk that it might not be returned)
2. You deposit $100 with Mr. Paulo in return getting 100USDT. Mr. Paolo spends $70 on private jets and ho*kers. If you ever want back more than $30, you're out of luck.
From https://www.federalreserve.gov/monetarypolicy/reservereq.htm
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
--- Feel free to correct me on this; my financial knowledge is only just a bit higher than that 0% rate noted above.
Every US bank still has asset & liability requirements including having at least as many assets as liabilities and stringent rules on what the assets are. Further they have reporting requirements as well.
Tether is an integral part of the whole cryptocurrency ecosystem, and it's insane to claim that the global industry operates closely with a "scam that soon unravels" without the industry players being worried at all. Large exchanges are not some shadowy operations which can just close their eyes when they are exposed to risk.
is this sarcasm? because the 2008 mortgage crisis showed that yes, large non-shadowy institutions can absolutely keep their eyes closed.
This same comment could have been posted about LUNA and large crypto investors like 3AC 6 months ago.
> LUNA/UDT is an innovative part of the whole cryptocurrency ecosystem, and it's insane to claim that the global industry operates closely with a "scam that soon unravels" without the industry players being worried at all. Large investors are not some shadowy operations which can just close their eyes when they are exposed to risk.
The red flags around Tether are many, but the biggest is that it would be easy for them to prove that USDT is backed 1:1 with USD if it actually was. The fact that they've consistently avoided offering such proof is all the evidence I need. It's the same reason no one believes Craig Wright is Satoshi.
There is no evidence that they have been fabricating those numbers.
If you had a fund that provided that report instead of their normal reports it would have investors headed for the hills (independent of the regulatory requirements).