
Fears grow over Tether ‘printing press’ as auditors part ways - vanburen
http://www.news.com.au/finance/money/investing/without-this-scam-bitcoin-price-would-collapse-fears-grow-over-tether-printing-press-as-auditors-part-ways/news-story/308503ab61f82d320e92847a0b59a23b
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jandrese
Are there actually people in the world who think Tether's USDT pricing is
legitimate? I can't figure out how in the hell it could be. It doesn't make
any sense at all.

I have to admit that I didn't consider it's effect on the price of Bitcoin as
a whole. If it really is inflating the bubble that hard then yeah, it's going
to pop at some point. Probably sooner rather than later.

~~~
elif
It is /possible/ that their books add up, in a technical sense which would
make wall street blush.

They never claim that USDT are backed up by USD. They claim that every USDT is
backed up 1:1 by "Assets."

Here's the scene: BFX is hacked, loses banking, and has tens of thousands of
crypto millionaires ready to sue them. What they /do/ have is cold storage of
lots of crypto under their control.

Say they start with 0 holdings of their own, generate 100M in USDT, and use it
to buy up e.g. 10k bitcoin. However, due to that price movement, those are now
worth 120M. That gives them 20M of "assets" which are not 1:1 matched to their
tether, so they print 20M more. The cycle continues ad infinitum (until it
doesn't). Every time It becomes more effective as their previous crypto
holdings also increase in value.

Technically they are always "backed" 1:1 by "assets" for as long as they
sustain upward momentum on crypto prices. But really it only needs to last
long enough to dip set.

~~~
joosters
From their homepage: _Every tether is always backed 1-to-1, by traditional
currency held in our reserves_

~~~
argc_argv
Read the legal fine print... They say it's backed yes, but they did not say
how to redeem. (hint: they have full right of controlling how usdt is
"redeemed")

~~~
joosters
I'm not arguing that they're genuine, the quote was simply to show that they
_do_ in fact claim to hold $/£/etc to back the tokens, and not just general
'assets' that the parent comment described.

~~~
cryptoz
Your quote says "traditional currency", but now you are claiming that it is
dollars and euros. That's not what they said. Maybe they mean gold coins.

As an aside, I decided to google "traditional currency" and found that Google
has absolutely no clue how to do searches any more.

[https://imgur.com/a/3I5Ok](https://imgur.com/a/3I5Ok)

[https://www.google.com/search?q=traditional+currency](https://www.google.com/search?q=traditional+currency)

~~~
vinniejames
Seems ok to me. There was nothing to compare "traditional currency" to before
crypto currency came along, therefore no one would have been searching for it

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djrogers
This should be simple - either Bitfinex has ~$2.4B USD sitting in banks
somewhere, or it doesn't. It should not take too much auditing to figure that
out.

~~~
Havoc
It's not the amount of auditing. Nobody wants to be associated with it. It's
just not worth it from the auditor's perspective.

~~~
astrange
No, Tether fired the auditor because they were trying to actually do work.

> Given the excruciatingly detailed procedures Friedman was undertaking for
> the relatively simple balance sheet of tether, it became clear that an audit
> would be unattainable in a reasonable time frame.

~~~
Pyxl101
Yeah, it's because competent auditors aren't just going to verify the current
balance, they'll look at where all the money came from and where it went, and
so on. Auditing does take a lot of effort, but that's what it takes to prove
legitimacy. Firing an auditor is a big red flag.

------
mattbeckman
There are alternatives to Tether/USDT.

TrueCoin is most similar to Tether. It's new, and they promise "transparency",
and hopefully they learn from Tether's mistakes. Being completely transparent
is the only option for any stablecoin claiming to be backed by real USD.

Alternatively, you can look into those trying to build smart coins pegged to
USD that use other means of backing.

Personally, I use bitUSD when I need to. BitUSD on the BitShares platform is
backed by users staking BTS as collateral for margin trading. For example, I
borrow $1,000 bitUSD from the network by putting up at least 1.75x BTS at the
current exchange rate. Normally, I put up 6x due to volatility. If your
collateral ratio is low, you can be "force settled" where your collateral is
sold at the dropping price, so most people try to stake as much as possible to
keep their margins high. bitUSD is then used for easy trading between assets
on the DEX. Very transparent, but I wouldn't treat bitUSD as long term savings
account. It's not like it's FDIC insurance or anything.

MakerDAO has the "Dai", which sounds promising, but I don't know enough about
it to comment.

~~~
JumpCrisscross
> _Being completely transparent is the only option for any stablecoin claiming
> to be backed by real USD_

U.S. dollar backed "stable coins" share an inherent flaw. There is no way to
safely house large quantities of U.S. dollars without knowing their beneficial
owners. It's _prima facie_ what anti-money laundering laws are meant to
prohibit. If a country wanted to flout American international jurisdiction
that boldly, they'd do better simply re-permitting anonymous numbered bank
accounts.

------
Animats
How's Kraken doing? They have a market for USDT/USD, and claim they will do a
wire transfer to a US bank for $5. Do they actually deliver on that? Or do
they stall and make excuses?

It would be worthwhile for some trader to deposit a few hundred dollars worth
of Bitcoin with Kraken, convert it to USD, and order a wire transfer. Repeat
this every few days to see how well the process works.

(In the real world, when you order a wire transfer from a stockbroker, the
money gets transferred within hours. Even for big amounts.)

~~~
tim333
I'm fairly sure Kraken is ok. They just treat USDT as another coin. They also
let you short USDT, the only place you can I think.

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LittlePeter
I don't understand why Bitcoin will crash if Tether is indeed a scam.

Those who exchanged Bitcoin for Tether will be holding worthless Tether tokens
and will want to quickly exchange it for something else... like Bitcoin or
some other cryptocurrency.

Shouldn't the converse be true: Bitcoin price starts to rise as more and more
people start to realize Tether is worthless?

~~~
qeternity
Yes, the price in USDT terms will rise as everyone holding USDT sells it and
buys something else to transfer to another exchange. But that's only in USDT
terms, not in USD terms. So let's say the BFX price doubles as people come to
this realization. You pay $20k BTCUSDT and send to an exchange where it's
still trading $10k (or rather, you just start marking it in BTCUSD terms).
That's an instant 50% loss. And that's assuming that BTCUSD doesn't sell off
as people get spooked.

~~~
empath75
Bitfinex will likely be forced to sell bitcoin on USD markets to get dollars
so they can buy tether to prop the price up.

So prices on bitfinex will go up as prices elsewhere go down.

~~~
mentat
They can't though for compliance reasons, that's why they invented Tether.

------
socialist_coder
I would think that the orgs / people holding Tether would be the ones to
suffer the most, not the holders of BTC.

And who is holding the Tether that was exchanged for BTC? Probably Bitfinex,
right? So, if Tether does turn out to be not backed by USD, they would be left
holding worthless Tether. The BTC is already transferred out and gone.

I think this is much more realistic assessment on the risk to Bitcoin:

> Julian Hosp, co-founder of cryptocurrency payment service TenX, has listed
> tether as one of four big risks, with a 10 per cent likelihood of a crash
> this year which could pull the market down by 15 per cent.

So, 10% chance that Tether is a scam, and if so, it would hurt BTC (and
probably other coins too) by 15%. That seems much more realistic to me.

~~~
djrogers
> I would think that the orgs / people holding Tether would be the ones to
> suffer the most, not the holders of BTC

They will suffer, but the ~$2.4B in tether value is tiny compared to the value
of BTC that it's been driving/propping up.

If tether dies BTC would only have to drop about 1% to take another $2B off
the table. If it drops 10, 20, or 50% there will be blood.

> > Julian Hosp, co-founder of cryptocurrency payment service TenX, has listed
> tether as one of four big risks, with a 10 per cent likelihood of a crash
> this year which could pull the market down by 15 per cent. So, 10% chance
> that Tether is a scam, and if so, it would hurt BTC (and probably other
> coins too) by 15%. That seems much more realistic to me.

I'm not sure that I'd take the word of a crypto insider as gospel on the
chances of a Tether crash... Unless he's seen the bank statements with the
$2.4B USD in them, he doesn't have any authority there.

~~~
curuinor
Given the thinness of every crypto market and the rampant wash trading,
there's a real chance of something bigger than the magic the gathering
exchange fiasco

------
jcsnv
If Tether is not legitimate, wouldn't Tether holders sell their Tether for BTC
and other crypto assets which would increase the prices of crypto assets?

Does it matter if Tether is not backed by USD if none of the exchanges will
let you trade fiat for Tether anyways? What if people just want to believe
that its backed by USD?

What if Tether not being legitimate is already priced into BTC?

Wouldn't the supply of Tether need to be orders of magnitudes higher in order
to be a systemic problem to BTC and other crypto assets? Its market
capitalization isn't even 1% of the total crypto market.

~~~
hbosch
I think the main trouble is centered directly on Bitfinex, the exchange that
mints Tether. According to Bitcointy's charts[0], Bitfinex trading volume over
the past 30 days is roughly 1.59M BTC as of this post – that equates to over
30% of the BTC trading market. As I understand it, despite this massive volume
Bitfinex _will not_ convert to/issue any fiat in the form of withdrawals. This
is why they created Tether (USDT) with 1:1 parity to USD. (I'm sure you know
all of this, but I am much less knowledgable about modern crypto markets so I
have to explain it to myself as I type – sorry if I am coming off as
patronizing.)

If Tether is not legitimate, and the price suddenly crashes, I think the
effects would be hard to predict. My assumption is that Bitfinex is not liquid
enough in any coin to cover the losses of a crashed Tether as trust in their
entire exchange is tied to that particular coin. But at this point I have no
idea what would happen, I don't think anyone really does. If there was a run
on Bitfinex, the world's largest BTC exchange, I think the effects would be
pretty dramatic.

0\.
[https://data.bitcoinity.org/markets/volume/30d?c=e&t=b](https://data.bitcoinity.org/markets/volume/30d?c=e&t=b)

~~~
makomk
Bitfinex have been offering real USD withdrawals to bank accounts for a few
months now, in theory at least, though there's a certain amount of shadiness
surrounding them.

------
curuinor
See more David Gerard in r/buttcoin and the Something Awful YOSPOS bitcoin
thread, which is now basically free of anyone supporting any of this idiocy

------
colorincorrect
can someone explain to me why USDT's price is related to BTC?

~~~
dragonwriter
A number of exchanges don't actually trade $/BTC they trade USDT/BTC. This
accounts for enough of the market that the apparent $/BTC price is perceived
as largely being driven by the USDT/BTC price, such that a correction in
$/USDT price would see a similar correction in $/BTC price.

(In theory, this could be wrong, and a correction in $/USDT price could
instead be reflected in opposite motion in USDT/BTC price, but the theory is
that USDT has largely served as a vehicle to inject a bunch of fake dollars
into Bitcoin trading, artificially inflating the in-dollars price of BTC.)

~~~
notahacker
Tetherreport.com, for example, suggests about half of BTC's price rises last
year resulted directly from newly printed USDT being converted into BTC.

If you consider the other half of that price rise from <$1000 to $>10,000 in
2017 includes many inexperienced traders deciding to dive in after seeing big
jumps in the BTC price over the course of the year, the overall contribution
of Tether market manipulation to BTC's price change might be much greater than
half of BTC's current price, of course

~~~
skybrian
Who takes the other side of the trade? If someone is using a lot of USDT to
buy Bitcoin, don't there have to be a lot of people who trade Bitcoin for USDT
and then hold on to it?

On the other hand, seems like the Bitcoin price would rise due to people being
skeptical about this newfangled Tether thing.

~~~
notahacker
Well there's a notional $2.2bn worth of Tether that someone's holding on to,
which is certainly enough to have got the price of a perceived buy-and-hold
asset like BTC moving a lot.

If you can issue yourself newly minted Tether notionally worth a dollar and
exchange your own BTC for it on your own exchange it's also dead easy to start
pumping the price with wash trades (in theory you could do this by faking USD
transactions on your exchange too, and some exchanges probably have done at
various periods in the past, but printing USDT would allow you to actually
increase your BTC holdings by buying from real traders at the same time,
without having to worry about honouring the dollar payments)

~~~
lowdest
How does a wash trade pump the price any differently than just using a large
buy order?

~~~
tim333
Large buy orders are normal and may execute leading to you buying stuff. Wash
trades are fakery to make it look like money's being invested when it isn't.

