
One Tether Trader Didn't Cause the Bitcoin Bubble - felixbraun
https://www.bloomberg.com/opinion/articles/2019-11-05/did-the-bitcoin-bubble-come-from-one-bitfinex-tether-trader
======
chrisco255
From my perspective, watching the markets since 2013, the 2017 boom was caused
by Ethereum. Before Bitcoin shot up, Ethereum had shot up from $8 in December
2016 to nearly $50 a couple months later.

Now, Ethereum is a novel innovation on blockchain tech. The smart contract
hype was very real at the time. (For the record, I still think smart contracts
have tremendous potential) ETH had navigated a fork, secured corporate
alliances, setup several foundations to promote work and was starting to
generate a lot excitement around projects like Augur, Ox, etc. Then on top of
that, the ICO boom happened when several projects raised tens of millions of
dollars. That caused a run on ETH.

ETH boomed and then BTC followed, at least for the 2017 boom. And then the
speculators danced between altcoins, Tether, Bitcoin and ETH, trying to
maximize their returns while paying little attention to fundamental adoption.

I think we've seen certain technologies take over markets very quickly in the
past couple decades, like desktops and wifi and mobile and then smart phones
and social media...that we've gotten used to rapid disruption in tech.
However, with financial tech like blockchain and crypto, it necessitates slow
adoption. Why is this? Because it's real money on the line. It's cool to move
fast and break things when it's an app or a fitness tracker, but when it's
significant amounts of money on the line, maturity, trust, and security are
tantamount.

I still think blockchain will win in the long run against legacy tech. But it
will be a slow disruption.

~~~
grubles
Bitcoin has smart contracts, and has for many years now. Ethereum's marketing
for the phrase is kind of misleading.

Why the downvoting? Apparently a number of people haven't heard of Bitcoin
Script, or are upset I pointed out this very factual item about Bitcoin? Seems
somewhat odd.

~~~
bitcoinbutter
Ethereum's smart contracts are obviously more developer friendly and easier to
implement. Ethereum smart contracts are the go-to for dapps, despite having a
significantly smaller userbase and market cap than bitcoin.

To say Bitcoin smart contracts are equal to Ethereum smart contracts would be
akin to comparing Myspace to Facebook.

~~~
jimmaswell
And MySpace was better all around in objective terms, but facebook was dumbed
down for mass appeal so it won out?

~~~
ethbro
This is a false narrative.

Facebook better optimized for the fact that most people are too stupid to
avoid using full-page background images and auto-playing music.

~~~
jimmaswell
I thought it was a lot cooler back then. People got their own customized
little places about themselves, maybe with some fun media playing. Now it's
all boring and sterilized.

~~~
ethbro
It was a blessing and a curse.

The internet in general is probably "better designed" now, but also way more
homogenized and boring.

------
bouncycastle
Some great alternatives Tether and Bitfinex are MakerDAO and Uniswap. The
first one offers a decentralised & transparent stable-coin called DAI. The
second one is a decentralized exchange that is also 100% transparent.

These are transparent because they're running as programs on top of of a
blockchain (Ethereum). Each and every state change is recorded and the systems
can be audited in real-time.

The Maker DAI stablecoin currency is backed by collateral (Ether), and it's
currently overcollateralized by about 350%. The system has been remarkably
stable, even in the face of the bear market, which resulted on some crazy
swings in the price of Ether.

DAI also has a few fiat on-ramps, including Coinbase and Kraken. You can also
mint DAI yourself - there's a tutorial on Coinbase where they give you $20 DAI
for free, [https://www.coinbase.com/earn](https://www.coinbase.com/earn)

What's more is that since these systems are essentially programs (they can be
used and called by other programs as "library" ) which means that they can be
used as lego bricks to build new things. Some examples are "Pool Together -
[https://www.pooltogether.us"](https://www.pooltogether.us"), which is a no-
loss lottery system. It combines MakerDao's DAI coin and a decentralized
lending system called "Compound".

Please be mindful that all the above projects are still considered experiments
and cutting-edge stuff. It will probably still take a few years to mature -
however, a lot of new opportunities seem to be opening up in this area.

~~~
ShorsHammer
Are you saying Tether isn't run on a blockchain? Because it most certainly is.

The SEC crypto tsar recently had quite negative comments about MakerDAO at
SWSX, as in they may be in breach of securities law. Something to note.

The decentralized nature still makes it far less riskier to the end consumer.

~~~
chrisco255
Well the Tether transactions are run on a centralized blockchain, but the
underlying value of Tether is based entirely on trust in Bitfinex backing it
with actual dollars.

As for Maker, I really don't know how the SEC would begin to shut it down if
it wanted to. It's entirely smart contract driven and it's live on the
Ethereum blockchain, which is truly decentralized. Surely we need to update
securities law for the 21st century as I'm not sure the Howey test had
blockchain era in mind.

~~~
ShorsHammer
Can't speak for the _centralisation_ of Omni, you have any more info on that?
Know little about them, it's a word thrown around quite readily in the
cryptoworld for various reasons. They present themselves as decentralised and
were in the first wave of layer 2 cryptocurrencies. Tether tx's are anchored
into the bitcoin blockchain somewhere along the line.

RE: Maker, certainly agree, just stating the situation. There's no chance of
laws being able to keep up, it's a game of asking for forgiveness later for
most. If something blew up quick enough and got mainstream adaption the law
would bend for it (ie. Uber, AirBnb).

[https://decrypt.co/5940/secs-crypto-czar-stablecoins-
might-b...](https://decrypt.co/5940/secs-crypto-czar-stablecoins-might-be-
violating-securities-laws)

~~~
chrisco255
Well the exchanges that participate in the Tether blockchain each run a node
or nodes. The transactions are cryptographically verified, so there's a common
ledger between all these participating exchanges. But Tether has a couple
theoretical weaknesses due to this setup. A quorum of exchanges could
theoretically collude to manipulate transaction history or shut out other
exchanges. And Bitfinex itself is the centralized holder of the USD backing
Tether, so that makes it very vulnerable to any shortcomings in Bitfinex's
accounting. Ultimately to cash out Tether the exchanges have to go to Bitfinex
and request a fund transfer so they are a single point of failure for the
Tether chain.

~~~
jaycroft
There are certainly some trust issues with Tether, but in this case I don't
think that exchanges could easily roll back Omni transactions unless they were
to fork the Omni protocol. Omni transactions happen on the Bitcoin blockchain
- they are effected by extra data in otherwise normal bitcoin transactions. In
order to roll back the Omni transactions you would have to either (1) roll
back the underlying bitcoin transactions or (2) convince everyone who runs
Omni nodes to update their software to your branch which discards the
transactions you wish to roll back.

~~~
joosters
Option (2) has already happened. Tether got hacked and someone
issued/transferred lots of coins to themselves. In response, the whole omni
network was upgraded to blacklist these stolen coins!

------
rauchp
On a ski trip I took in 2017, I was in line to buy a lift ticket one cold
December morning. I remember overhearing the winter bros (the ones that
usually talk about gnar and their steezy tricks) talking about installing
Coinbase and buying Bitcoin.

I wouldn't underestimate the amount of retail investors that speculated on
Bitcoin during that time. It was on major news networks in America, but also
on national networks outside the U.S. My uncles and aunts were calling me
asking how to buy Bitcoin outside the USA. The FOMO was real back then. Did
Tether play a part in the grand pump? I'm sure it did, but I imagine it was
more of a catalyst, and not the primary driver as the original study
suggested.

~~~
pshc
Late 2017 was nuts. I recall my brother texting me “Hey should I buy XRP?” out
of the blue.

Wish I had had the presence of mind to realize it was time to get out.

~~~
k__
I can remember Bitcoin going to $200 thinking it was nuts.

I can also remember it going to $700 thinkin it was nuts.

Now it's over $9000.

So when was there really a reason to get out?

~~~
cwkoss
Well, in hindsight, $18k would have been a great time to get out.

~~~
mrb
You missed k__'s point which is that no matter what peak price you think was
the best time to sell out, it has always been followed 2-3 years later by an
even greater peak.

You have hindsight in the past but you are still lacking foresight into the
future.

~~~
EdwardDiego
Because predicting the future based on the past has always worked well.

~~~
alch-
And will always work well!

~~~
FabHK
Hume on induction in a nutshell.

------
ftufek
Having been through that bubble, I'm fairly confident FOMO had a huge effect.
Every single person I know was asking how to buy some. You can even see it on
Google Trends[1].

It's possible that the very first initial bump was manipulated (and crypto is
definitely manipulated each and every day...), but the crazy increase
afterwards probably wasn't due to a single entity.

1:
[https://trends.google.com/trends/explore?date=today%205-y&q=...](https://trends.google.com/trends/explore?date=today%205-y&q=bitcoin)

~~~
cwkoss
Next FOMO bubble is going to be exciting: it's getting much easier to acquire
Bitcoin, so the conditions seem ripe for the next bubble to be even wilder.
Keep an eye out for next spring, when Bitcoin block reward halves again.

(don't invest more than you're willing to lose _entirely_ it's very risky, but
having skin in the game during a bubble is very fun in my experience and will
quickly educate you in the emotionality of trading. Dollar cost averaging
weekly seems like the best strategy: easy to feel dread at best entry points
and greed at best sell points.)

~~~
sdan
How do you DCA?

~~~
krallja

        // parameters: $520 to invest over 1 year
    
        for(i=1; i<=52; i++) {
          buy(10 usd);
          sleep(1 week);
        }

~~~
sdan
Yeah I know how DCA works. Just wondering on what platform you're doing it on.

~~~
snodnipper
You can do that on Coinbase. There is a blog post here
[https://blog.coinbase.com/easier-recurring-buys-and-sells-
on...](https://blog.coinbase.com/easier-recurring-buys-and-sells-on-
coinbase-9a3cd7ea934e)

~~~
sdan
Feel like Coinbase fees are too high... even for Pro

~~~
chrisco255
You don't have to trade on Coinbase, you could just buy and hold on Coinbase
and send it to another exchange if you want to trade.

------
3solarmasses
Thank you for bringing some basic logic back to the table.

People love to imagine that odd phenomenon have simple solutions. This whole
"tether was the sole cause of the bitcoin bubble" theory is completely
ridiculous.

Go into a random bar in December of 2017 and you would hear people talking
about btc and altcoins...

------
EGreg
I was tired of hearing this crap!

This is when everyone finally heard about Bitcoin after the runup. And
continued it until the overexuberance ran out of steam. Not like it’s the
first time that happened.

------
rolltiide
article titles are _topic suggestions_ to espouse pre-existing beliefs,
exhibit a

yesterday had people saying “Aha! I knew it” alongside anecdotes that
completely neglected the role of a crowd and media to support their fictional
higher standard for a bitcoin pump over how literally any rally works

today has different people saying “yeah this makes way more sense” because of
the role of actual distinct buyers. this article is just using its platform to
surface that explanation higher

------
askmike
> Perhaps the takeaway is that when banks refuse to do business with crypto
> traders, or when a government bans trading altogether, it doesn’t stop
> traders from trading. It just forces them to find creative solutions. If it
> were easy for crypto exchanges to use the traditional banking system, there
> would be no need for Tether at all.

This is a point not many seem to understand.

~~~
EdwardDiego
The reason it's not easy is because of anti-money laundering/know your
customer legislation - which directly contradicts the few currency uses
Bitcoin has at this point.

------
neonate
[http://archive.is/dhAsU](http://archive.is/dhAsU)

------
dnprock
I find it difficult to defend Tether. I leave the investigation to regulators.
But assume Tether team has good intention and try to do the right thing, it is
easy to make mistake. Tether software may have had a bug that inflates Tether
coin over reserve. This is a problem with permissioned money system. It is
difficult to audit and verify transactions.

I think Libra is an improvement. They use open source software. But it is
still a permissioned money system. There's room for error. Who would be
responsible for the damage? I think every participants need to share the
responsibility. I've advocated for a new category: decentralized and digital
native crypto with constant inflation. Permissionless is a key feature. It
provides many advantages over permissioned.

[https://bitflate.org/post/2019/11/05/tether-problem-
highligh...](https://bitflate.org/post/2019/11/05/tether-problem-highlight-
the-need-for-inflating-cryptocurrency.html)

------
40acres
Tether sounds like the Federal Reserve's interface to Bitcoin.

------
CRUDite
The bitcoin "bubble" was caused by an invention in the ecosystem. Bitcoin was
"stuck" for a long time around $300, because it is not much good @ 10 mins tx
time. Then a solution was published, the lightning network whitepaper. A mere
5 days later volume exploded and a period of 6 months of accumulation occurred
where price was contained by large bid / ask walls. Volume dropped off after
this point and the price rocketed up. The ultimate destination was the joint
mcap of visa and mastercard, which it would in theory now be able to compete
with at some point, which worked out at 18k per coin at the time. The collapse
afterward is due to the fact that it must be used in this way and at that tx
magnitude to justify that valuation. Your basic buy the rumour sell the news
variation. It might thus range around 10k for a long time. Whether those who
accumulated used bots or tethers or both to drive the price up rather than it
being organic price action is debatable, and it seems difficult to prove. What
is interesting to me is how fast money went to work on this after the
technical hurdle was overcome.

------
ganitarashid
There was no bitcoin bubble. Bitcoin is currently 50% down from the high mark.
That is not a bubble. After actual bubbles, the low mark is may be 90% or more
below peak.

~~~
Nition
Is the definition of a "bubble" invalidated if the stock goes back up some
time after the crash? It did drop initially from $20K to a low of $3,200,
which is 84%.

~~~
ganitarashid
Yes it is. If you had invested in the stock market at the height of the
“””bubble””” in 2000 you would be off well now. In hindsight it was not a
bubble. You may disagree but sadly you probably didn’t have that perspective
at the time.

~~~
chrisco255
I prefer "boom" and "bust" cycles rather than bubble, to describe these
scenarios.

