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U.S. Regulators to Subpoena Crypto Exchange Bitfinex, Tether (bloomberg.com)
495 points by chollida1 on Jan 30, 2018 | hide | past | web | favorite | 404 comments

So, how does this work legally? Bitfinex isn't a U.S. based company and doesn't work with U.S. citizens. The article says where it's based is unknown. Does the CFTC have the authority to subpoena them? Is it because they're claiming Tether is USD pegged, so they gain authority because of their use of the dollar?

Honestly just a curious question. (I'm not looking for snarky answers to the effect of "world police".)

There are two parts - one is the authority to request something (issue a subpoena) and the second is the ability to enforce penalties if the request is not satisfied.

They have the authority to issue a subpoena because Bitfinex had US-based customers.

The ability to enforce it is a bit trickier, but there are two things - first, it's plausible that they can get cooperation from local authorities; and second, they are able to seize USD transfers to/from them.

They claim to have the USD in a bank somewhere which means the US can come after them. This is why Wells Fargo dumped them (which is saying something!).

No. A foreign bank can hold USD without any US oversight.

> A foreign bank can hold USD without any US oversight

If they hold it as hard cash, practically, sure. If they want to be allowed to send or receive wires and generally not get sanctioned by the United States, no. The U.S. Treasury claims international jurisdiction over U.S. dollars [1].

[1] https://cblr.columbia.edu/the-u-s-jurisdiction-over-transfer...

Definitely have suprising powers. I once sent a wire payment in USD from my Hong Kong company’s HSBC business bank account directly to my China company’s bank inside China, where my bank in China would convert it to renminbi. I was shocked to find out the bank wire was somehow held up in NYC! Blew my mind. Nothing to do with the USA in this transaction, except the USD. The reason the wire was held up? I had wrote the word “Grenade” in the notes field of the bank wire. The payment was a materials deposit for an action camera mount product we make at my factory called “Grenade Grip”. I regularly write the product name in the notes field for my accountants. Mistake.

There is no such thing as a non-US bank holding electronic USD. All non-US banks hold USD via a US “correspondent bank”, and a USD transfer from one non-US bank to another amounts to the sender telling their correspondent US bank to transfer to the other bank’s correspondent (US) bank, and credit the account of the receiver.

Looks like I've got a new special alternative to "for a good time" to use in the memo field of all the checks I don't write anymore.

... because actual illegal arms dealers would write "Grenade" in the notes field of a bank wire? :)

some contractor sold some an artificial intelligence predictive crime product to catch baddies somewhere in that pipeline

I was under the impression that all of those transfers at some point ended up on an FTP server at the federal reserve before they were cleared.

That's where SWIFT is located, afaik.

Tether is looking a lot like Liberty Reserve, and that ended in seizure of assets.


Seems like the local government can still make it difficult for them to enforce the subpoena, but I imagine Hong Kong will be pretty amenable. [1]

[1] https://webcache.googleusercontent.com/search?q=cache:vl90MA...

Disclaimer: I'm not a lawyer, just found this from a cursory search.

I think of Edward Snowden. HK helped him.

Did the gov there actually help him? Or just not hinder him?

To not hinder is quite a lot of help. Considering it's going to piss off the superpower.

Well the way I understood it, HK doesn't really need to care who they're pissing off, since they're kind of used to pissing off their big brother.

Among many other reasons, due to the listing of Bitcoin futures on CBOE and CME the CFTC now has some oversight on the spot market.

If you touch United States dollars, then you are captured by United States regulators. The United States dollar system is only accessible via the federal reserve system, which is regulated by United States regulators.

Well, they definitely had many US customers until about a year ago, fwiw.

In 2014, As I recall, they were based in Hong Kong. I registered a business account with them for my own Hong Kong company back then.


FYI, when people ask “why is a private transaction between two willing participants a problem,” this is why. Nobody blames themselves for getting duped into a scam. No, it’s Bloomberg’s fault for calling the spade a spade.

no snark: if you wanna get into YC, and a YC partner calls you up and says Good news, You're in! Oh but we'll need you to cut ties with that local accelerator, theyre suing us and we don't want you to testify but no big deal now right? you're part of the YC family now!

Glendower: I can call spirits from the vasty deep. Hotspur: Why, so can I, or so can any man; But will they come when you do call for them?

William Shakespeare, Henry IV, Part I

There are actually two issues here: Firstly, on what basis, under US law, does the CTFC have the authority to issue a subpoena, and secondly, whether, under international law or treaty, it has any power to compel compliance. The link in sna1l's post has something on both issues.

The SEC took much stronger action with AriseBank.[1] Emergency asset freeze. Receiver appointed. ICO shut down. The SEC alleges AriseBank "falsely stated that it purchased [a Federal Deposit Insurance Corporation]-insured bank which enabled it to offer customers FDIC-insured accounts."

Clearly, the SEC has had it with people running these huge scams.

[1] https://www.sec.gov/news/press-release/2018-8

AriseBank wasn't only acted on by SEC.

For example, "Texas Banking Commissioner Charles Cooper finalized a cease-and-desist order on Friday that said the company, which is registered to a Texas address, is not authorized to engage in the business of banking in the state. The order also noted that Texas law prevents use of the word “bank” in a way that implies to the public that the person is engaged in the business of banking in this state."

That was on Friday ... and, in an astonishing display of ignorance and arrogance, they published an open letter stating that they refuse to comply. As the department said, they have had a bunch of cases where people have used the term “bank” in a name, but they had never ever seen a firm refuse to back down. So they sent in the sherifs to ensure that they actually do cease and desist.

They went completely over the top as a phony bank. Their web site is down, but archived by the Internet Archive.[1] They claimed to be a VISA card issuer. They claimed to own a FDIC-insured bank. They claimed to have ATMs. Plus they had a make-money-fast scheme where their "AIs" would invest for you.

The only real question is "why aren't they in jail yet?"

[1] https://web.archive.org/web/20180110101846/https://www.arise...

Easy: they're probably not based in the US

On business law, the US works well with Taiwan and Hong Kong. Mainland China is harder. But with China cracking down on Bitcoin, fleeing to the mainland would be risky.

At least if you're absolutely blatant about your lies. One quick call to the FDIC and it should have been clear that they were spewing bullshit that might come back to haunt the government.

Let’s throw a wrench in here, will they go after Athene he purposely called his “scam coin” and is claiming everyone knew it was a scam

Summary for newbs:

Bitfinex is a crypto exchange kinda based in Hong Kong and kind of based in Taiwan (this seems to change depending on convenience.) Taiwan recently started becoming more rigorous about monitoring international USD wires, and lots of Bitfinex users had their money stranded in Taiwan. Bitfinex stopped supporting US customers because of these difficulties (AFAIK most customers did eventually get their money out though)

Tether is a company/product that is a cryptocurrency that (aspirationally) has a value of exactly 1 USD. The Tether company and Bitfinex are (supposedly) two unrelated companies that nevertheless have mostly the same people employed as principals. Because crypto daytraders need easy ways to quickly pull their money in/out of crypto exposure, the Tether currency has been a massive hit as a way to convert into pseudo-dollars. Because of this, people have bought billions of these "tethers" from the company, but no one has a good handle on where these billions of dollars are safeguarded, if at all.

a little correction. Tether and Bitfinex were exposed in Panama Papers as sister companies. They are not two unrelated as they say they are. Even more reason to stay away from Bitfinex and USDT

correct. phil potter is director at both bitfinex and tether. tethers get deposited straight to bitfinex upon creation as far as i understand it.

source: https://offshoreleaks.icij.org/nodes/82024464

yes that's true. You can even see the tether printer and the sends of tether on the omni network. The omni network is a layer on top of bitcoin and is totally transparent

Can you show us where we can find these transactions?

this handy twitter bot sends a message every time new tethers are issued -- https://twitter.com/tetherprinter

Follow the trail related to Bitfinex's CFO (in the Panama papers, and elsewhere).

Pretty interesting findings.

Got a good link? This stuff is interesting.

You can search the Panama Papers here: https://offshoreleaks.icij.org

Good summary. There’s also the accusation that a lot/most of those tethers were not paid for at all and simply minted and used to purchase Bitcoin.

Exactly. There is some circumstantial evidence that Tether printing may be inflating bitcoin prices: http://www.tetherreport.com/

But it is just circumstantial at this point. There are a lot of ifs related to Tether, but it has that fishy feeling to it.

While I think there is a very good chance that Tether is not backed by USD, I think the regulators may actually be more interested in USDT being used for money laundering and non-reporting of investment proceeds. In fact, that is likely a larger crime with respect to US regulators.

That would be the SEC's domain. If CFTC is getting involved it's probably because they are potentially manipulating the price on a regulated futures contract.

But bitcoin futures didn't start until Dec 17, and the subpoena was sent Dec 6, so that would imply they're messing in futures based on some other commodity.

You are correct about the dates but the regulatory planning and preparation for the CFTC regarding the futures contracts has been a long process. CFTC had jurisdiction and interest in assessing asset pricing conditions leading up to the contract launch.

You're skipping a key bit here; billions of Tethers magically appeared on the market in the last month and were used to buy BTC in suspiciously regular fashion, in 100 million USDT amounts, and with no clear evidence that it was actually purchased by anyone using real USD.

Here’s what I don’t understand. You can exchange bitcoins for fiat currency. But afaik you can’t exchange USDT for fiat. So why is anyone willing to take the risk of holding on to USDT? Why are any exchanges even willing to touch it?

> Why are any exchanges even willing to touch it?

They’re earning fees from uninformed buyers coming from a community with an ideological aversion to governments. The first part makes it profitable. The last means the risk of their reporting you to the proper authorities is slim.

Not sure why you are getting downvoted.

Just guessing: The idea that the current value in bitcoin comes from crypto-anarchists rather than people speculating.

It lets the exchanges avoid dealing with USD, which they believe (IMO wrongly, but hey) exempts them from know-your-customer laws. A lot of Coinbase's customer service issues stem from KYC laws and the verification it requires.

Some of them are being very squirrely with their users, telling you your "USD" balance which is actually USDT.

Some may believe it's a fraud, but be happy to benefit from the apparent boost it's giving cryptocurrency values and think they're safe enough if it collapses.

>they believe (IMO wrongly, but hey) exempts them from know-your-customer laws.

but you need to be verified on bitfinex to withdraw both tether and (real) USD.

KYC comes into effect on account opening, not withdrawal.

That's where I also get confused. So far the reasons I could come up with are:

  - the exchange got bought out silently and is now owned/controlled by the people behind tether
  - the exchange got paid to use tether (for example 0.5% of the volume as incentive)
  - the exchange holds a part of tether's fiat as guarantee
  - the exchange is run by people who are inexperienced in appraising counterparty risk 
  - the exchange is run by people who like to take risks 
  - the exchange expects to cover any potential losses with the profits they made so far
  - the exchange has been offered proof that the 1:1 peg is genuine (backed by the Chinese govt using US bonds)
other ideas are welcome

What risks does the exchange incur from allowing the trade of tethers?

Exchanges make their money from people trading--not by holding their own reserves and betting on their values. If Tether value drops to zero, anyone holding Tethers would be upset, but exchanges would just have been profiting from all the trades necessary to bring that value down to zero.

Allegedly, some exchanges commingle USD and USDT without informing their users. For exchanges that don't do that, the question "Why would exchanges even touch it ?" is less applicable.

As to why end users would touch it, that's obvious - a (potentially misguided) belief that things will work out fine.

IIRC some exchanges don’t make it clear you’re trading USDT, not USD. If Tether were to implode users might be able to sue the exchange to try to recover the USD value.

For that case, maybe, but I'm correcting parent post's presumption that trading in tethers necessarily imparts some huge risk onto the exchange.

I have a much simpler explanation:

the exchange is a fraud.

You can't _easily_ exchange bitcoins for fiat currency, that's why USDT exists. Many banks are not accepting deposits coming from some shady offshore bank into a "normal people" account.

The average Joe who's paper rich because he has 100 bitcoins on an exchange and sells them, there's a good chance their local bank branch won't be happy if he's receiving a wire transfer of $1M from the Virgin Islands or Cyprus. So instead, they keep that $1M as USDT and they can keep trading with it and still be paper rich.

The same applies to exchanges, a lot of them are totally unbanked in the US. USDT allows them to play with Monopoly USD instead of the real thing.

> there's a good chance their local bank branch won't be happy if he's receiving a wire transfer of $1M

Eh. If I'm Joe Average cashing out my 100 bitcoin in your situation, I call my bank manager a few days ahead, telling him to expect a wire transfer along those lines.

I think the risk on such transactions is _far and away_ "will your exchange honor the cash out?", "how long will it take?" (up to 12 weeks for some exchanges) "will there be onerous restrictions on cash out limits?" (this example would be 100 consecutive days of $10K transfers) - much more so than "Will Chase Bank NA be happy to accept a wire transfer from Scotiabank BVI?"

A lot of exchanges have a hard time setting up traditional banking partners that can handle physical currency for them. If these exchanges don't offer USDT to their customers for parking money, they wouldn't have any customers anymore.

> A lot of exchanges have a hard time setting up traditional banking partners that can handle physical currency for them

This week in "Laws are hard"

I think the market believes that even if there is some level of foul play, bitfinex has the deep pockets to make it up to them, in at least the strange way they made it up to the people from the previous hacks.

Bitfinex DOES seem to have very deep pockets to be able to respond somehow to it. I doubt bitfinex could pull off the self-heist move and dissapear.

You can exchange USDT for fiat, on demand, for exactly 1 USD/USDT, but only at Bitfinex. For bank wires, they charge a .1% fee, so technically I guess 0.999 USD for each 1 USDT. For verified customers, there is no withdrawal limit.

Kraken offers a USD/USDT market that allows you to obtain fiat for your USDT, and the price stays fairly stable but the liquidity is low (thus slippage is high). It's currently trading at a discount; you could sell ~1M USDT for ~954k there. Kraken's withdrawal limits are way more severe than Bitfinex's, though, so it would take some time to get all of that out.

> You can exchange USDT for fiat, on demand, for exactly 1 USD/USDT, but only at Bitfinex

My understanding is this isn't the case. My understanding is Bitfinex will take your USD and convert to USDT which you can then use to buy crypto. But it won't take your USDT and turn it back into dollars. In fact, my understanding is the only way to turn USDT back into USD is either directly through Kraken or indirectly through another exchange by going USDT -> BTC (or ETH/DOGE/whatever) -> USD.

Bitfinex lost the ability to bank in USD a while ago, which is how this whole tether business was invented in the first place.

As a US citizen, I can no longer access Bitfinex. My personal experience, when I could, is that you are never exposed to USDT on the site at all except as an option to transfer your deposited USD to another exchange via tether. They may have changed that, but I don’t know.

As for withdrawing, you can’t withdraw to the US any more, but you can still make international USD wires to banks in other jurisdictions, specifically Taiwan and Hong Kong. I have not heard anything contradicting this, and have seen a fair bit confirming it.

> My personal experience, when I could, is that you are never exposed to USDT on the site at all except as an option to transfer your deposited USD to another exchange via tether.

One exciting "feature" of all this is that most tickers that price out crypto currency values treat USD and USDT as one and the same. I've yet to see Bitfinex, for example, show up on a ticker as "BTC / USDT" (which is what, in fact, the pairing is).

It worries me because people use these things to inform their "investment" decisions and my hunch is most of the data they use is not quite on the up & up.

There are exchanges (a lot of them, actually) that list USDT as part of a trading pair. Bitfinex, as I understand it, allows withdrawals in USD (modulo the restrictions above). From an end-user perspective, the only time you ever deal with tether is when you make a tether transfer. They are correct in not treating the on-exchange trading pair as BTC/USDT.

Just as when you deposit on any exchange, for example, Kraken, you don't have "USD" per se, you just have "Kraken USD credits" which you can withdraw, subject to their limitations, via wire transfer. Also, when you deposit your USD in Chase Bank, you don't have USD, you have "Chase USD credits" which you can withdraw, subject to their limitations, on demand.

In all cases you are dependent on the solvency of the institution, which is what is in question here. But Bitfinex is correct in not saying that you are buying or selling USDT -- you are trading with USD, regardless of what internal accounting practices they use to ensure that they are solvent.

> Also, when you deposit your USD in Chase Bank, you don't have USD, you have "Chase USD credits" which you can withdraw, subject to their limitations, on demand.

No, I have USD in my account when I deposit to Chase. I can go to Chase and say "give me my fucking money" and they'll give me sweet cold, hard dirty fiat dollars with, in general, no questions asked. I deposited in dollars, my account balance is denoted in dollars, my withdrawals in dollars. 1 USD == 1 USD.

All of these Bitcoin exchanges.... ...... maybe you can do that but good luck..... maybe?????

Unlike a real bank, your "Bitfinex Credit" is actually backed by USDT, not USD. When you go to Bitfinex and say "Give me my fucking money in USD", they'll laugh and point out that you never had USD, you bought something called tether which is. Tether being, of course, the space-age crypto currency that is pegged to the USD using ...$methods.... and has, according to their marketing website, been subjected to "multiple professional audits" (cough).

So what you see on all these ticker sites is a bunch of USDT that is silently folded into the USD marketcap and pricing models people use to make their decisions. All of it assuming USDT is actually legit. If USDT goes south, it is going to fuck over the entire crypto market because almost everything there is now completely mispriced. Worse, there is allegations that USDT was being used to drive up and maintain the current crypto prices... if that is true, crypto is double-fucked because even the underlying valuations are bullshit.

> Bitfinex, as I understand it, allows withdrawals in USD (modulo the restrictions above).

Show me an average joe retail "investor" who has been able to successfully withdraw USD from Bitfinex. People have been asking for that person to stand up and raise their hand for months. Crickets is all you get in response.

You try it - try to get more than 10,000 USD cash out of your bank, and then tell me how sweet that fiat money is (much less doing this without any questions asked). This is not to send out the ridiculous trope of “fractional reserve banking is a fraud” or anything; Chase, for the moment, is solvent, and recent events have made it clear that the Federal Reserve will sooner barbecue children than let a bank customer not have access to their funds, regardless of the solvency of the bank.

If you look in the Bitfinex subreddit, you’ll see tons of posts complaining about slow withdrawals, but the older posts all say that the situation was resolved. It might be that they’re just oiling the squeaky wheels, but on the whole it looks like things are working, just slow.

You say that “Bitfinex Credit” is backed by USDT, not USD. Why do you think that? And even if they do this as an internal accounting trick, it is only problematic if Bitfinex is insolvent. USDT seems like a red herring here - either Bitfinex has the money to back their customer deposits or they don’t.

The last time they were insolvent they managed to issue funny money to recover, and, inexplicably, kept their position as the market leaders.

The allegations of market manipulation are concerning, but the crux of it is that if Bitfinex is printing unbacked USDT and using them to drive the price up, that simply means that they are insolvent. Because there are essentially no operating credit markets in the cryptocurrency space, the ripple effects of a run on Bitfinex would be limited by that; not to say they’d be nonexistent, but other market centers trade huge volumes now indepently of Bitfinex.

I have no opinion about the soap opera of crypto currencies but the implication that it is hard to get more than 10k in cash from a bank is ludicrous.

I’ve gotten more than that out of a credit union located in the basement of a grocery store using literally the exact same form that is use to exchange coins for bills and taking less time.

Maybe the assertion is you can’t do it without an irs notice from the bank? Sure but you can easily get the cash.

To be fair this is very hit or miss, depends largely on your transaction history, the specific bank (and branch) policies, if that bank manager is having a bad day, etc. And that's the problem.

I've been hit by the insanity of "yes it's your money but you can't have it" from banks before, and it's one of those things you think everyone else must be a borderline criminal and/or exaggerating until it happens to you.

Anecdote isn't entirely useful here. The fact is they can do it, and even with sizable assets I had far fewer avenues of recourse than one may initially think. This made me really rethink banking security in a new sense.

I don't know about where you live but I have withdrawn ₹50 lakh (about $80k) from a bank account and the only way it was different from withdrawing smaller amounts is the time they took to count the notes. And they don't ask questions, it's literally your money.

One thought though...

> inexplicably, kept their position as the market leaders.

Only because there is apparently a large segment of people who do not have functioning critical thinking skills. I know HN doesn't like to do politics, but there is a huge overlap, at least in terms of thought process, in the people who support a particular president and those who support bitcoin. Both seem to lack any kind of critical thinking and both dismiss anything negative about their worldview as "FUD". It is pretty amazing human behavior if at least one of the two categories didn't have some very negative real world consequences...

Honestly, both could almost be considered a very large cult.

> I know HN doesn't like to do politics, but there is a huge overlap, at least in terms of thought process, in the people who support a particular president and those who support bitcoin.


No, you can convert USDT directly to USD. However, Bitfinex can only wire you that USD to a Taiwanese bank account. I can't verify that they actually will wire it, but this is what they claim. And I assume if they were refusing to make these wires to people who had Taiwanese bank accounts, people would be pointing it out.

My understanding is that their terms of service say that they have no legal obligation to do so, regardless of where you have a bank account...

Actually, it looks like sometime in the past few weeks Tether changed their terms to say they do let you redeem your USDT:

"About Tether Tokens; General Restrictions: Tether issues and redeems Tether Tokens. Tether Tokens may be used, kept, or exchanged online wherever parties are willing to accept Tether Tokens. Tether Tokens are fully backed by the currency or property used to purchase them at issuance. Tether Tokens are denominated in a range of currencies. For example, if you purchase EURT, your Tethers are fully backed by Euros. If you cause to be issued EURT 100.00, Tether holds €100.00 to back those Tether Tokens. The range of currencies available to denominate Tether Tokens is within the sole control and at the sole and absolute discretion of Tether. Tether Tokens are backed by money, but they are not money themselves. Tether will not issue Tether Tokens for consideration that is other Digital Tokens (for example, bitcoin), and will not redeem Tether Tokens for other Digital Tokens; only money will be accepted upon issuance, and only money will be provided upon redemption.In order to cause Tether Tokens to be issued or redeemed by Tether, you must be a verified customer of Tether. No exceptions will be made to this provision. "

(all typos and spacing are theirs. This change looks very hastily put together and quite sketchy)


It used to say some stuff about how USDT isn't actually redeemable, etc...

The catch is now "you must be a verified customer", and registration is conveniently closed for the time being. Users who got in before registration closed report it taking months to get verified. Also, no US citizens allowed.

They're doing their best to put up a good face here but good luck actually getting them to hand over cash. The thing is blatantly scammy, they obviously don't have $2.3 billion in cash reserves on hand and never did.

That's correct. However, in practice, they do do it.

> However, in practice, they do do it.

Anybody been able to actually withdraw cold, hard fiat dollars from tether or bitfinex? Show of hands please?

.... crickets ....

Nobody has ever redeemed a Tether [1], and there are a lot of people pointing that out.

[1] If you're a green-name who's skimmed up to here and you're about to say "but Kraken", I am not talking about selling Tether to someone else.

> My understanding is Bitfinex will take your USD and convert to USDT which you can then use to buy crypto.

So, who is selling BTC for USDT and why? Who is selling so many BTCs for USDT that they have to print 100 million USDT every other week?

I'd really like to understand that (see also my parallel discussion).

To safely "park" your crypto assets when it tanks in price. Many exchanges offer tether as a trading currency instead of fiat, to avoid regulatory hurdles.

> But it won't take your USDT and turn it back into dollars.

that's... unlikely. mainly because if that were true, nobody would want to sell anything at bitfinex, and cryptocurrency prices there would skyrocket. this happened at mtgox when they halted withdraws, BTC prices skyrocketed there.

Has anybody here on HN been able to go $ANYTHING -> USD on Bitfinex?

I haven't seen anybody anywhere claim they've gotten USD out of Bitfinex...

Search around on the Bitfinex subreddit. For example:


The thread here is about Bitfinex not writing money, but on the thread a couple of similar issues get resolved. Could be shills or Bitfinex oiling squeaky wheels. I too would love to see someone here on hn post about their experiences, though.

> Could be shills or Bitfinex oiling squeaky wheels. I too would love to see someone here on hn post about their experiences, though.

Completely agree. You'd think with the reach of this place, you'd get a couple people who have done it.

I'd like to verify that myself; I even made a bitfinex account (with vpn). But the withdraw USD option (both wire and USDT) are disabled unless you can verify your account.

Yes, that's exactly what many people think is going to happen, and in fact there's already a small but persistent spread in BTC prices between exchanges that price them in USDT (like Bitfinex) and those that use actual USD (like GDAX).

But that is exactly what happened. Bitfinex has not exchanged USDT for dollars since mid-2017.

The whole point of USDT is to use on it exchanges that can't get USD on it. If you can hold USD, there's no need for tether, and there's no need to go the extra mile put your faith in a foreign corp that supposedly has to money to back it (buy risking your USD to buy them).

The Tether foundation itself isn't going to buy back the USDT because then it will just have to burn them because it no longer has the supposed dollar backing it.

Up until this year many Americans could use USDT for accounting purposes. The IRS deemed crypto property (1031 exchange) meaning you could use like kind treatment and not pay taxes on the transactions ad they were both property. This treatment has officially ended in 2018.

Another key bit: Tether's website claims "frequent audits", but their auditor a) never completed their first audit and b) just severed their relationship.


I'm guessing the auditors weren't happy with "out of thin air" when they asked where the the backing currency came from.

The Tether folks were like "Our balance sheet is really simple! We just add numbers to this column until it evens out, what's the problem?!?" and the auditors are like "that's just fraud".

It's ridiculous; surely they could have made tons of money with USDT legally if they'd just been less greedy:

- Create Tether out of thin air

- Sell it to people for $1USD each

- Put that USD in a bank account to earn interest

Hell, there's probably still an opening for someone else to do it right.

- Create MyTetheredCrypto out of thin air

- Convince people & exchanges to accept it ???

- Sell it for $1USD each

- Unlike Tether, let your company be checked and audited frequently

- Get rich off the interest

I'm pretty sure they did try to do this legally, but then they lost the ability to actually send and receive USD from the US. If you tried to do the same thing you'd run into the same problem. If the effective point of your tether is to allow exchanges to avoid enforcing anti-money-laundering controls and skirting legislation requiring them to be properly registered in the states they do business, then good luck finding any US bank that will work with you once they figure this out (either to hold your account if you are US based or to transfer money to and from your international bank if you're international).

So what likely started out as a legitimate operation probably found it impossible to continue that way once it could no longer easily exchange tether for USD. So the options were probably to shut down or keep operating "untethered" and basically have a free money printer.

Why would anyone buy your tethers with usd?

It sounds like exchanges are using Tether because offering to cash out USD can be difficult if the exchange isn't in the US, so they let people use Tether as a proxy USD. e.g. If someone thinks the market's about to crash, they can sell their Bitcoin for Tether, then buy back Bitcoin when the price drops.

So if your coin has the same use case as Tether does now, people may not buy MyTetheredCrypto off you directly for USD, but they might buy it off you for Bitcoin or other cryptocurrencies you accept if it's not easy for them to convert to USD. Then you sell those coins immediately for their value in USD (you presumably having more access to do this than the buyer does) so you have your USD-backed tethered cryptocurrency with every MyTetheredCrypto backed by a real dollar USD.

Obviously I'm not really suggesting all this seriously though, there are lots of potential problems all over it.

The big problem being how you convince people to put real money into the system in the first place, especially if you want to keep the price fixed at 1:1. You end up with a huge quantity if BTC chasing tiny amounts of real USD. In a proper market the exchange rate should plummet due to the imbalance.

that's more or less what happens when you go and get a loan or a mortgage from the bank

Banks can repossess your property if you don't pay. If you're not putting in much money as a down payment, they'll also force you to pay for insurance (PMI) on the mortgage.

They're also not promising otherwise and claiming to be regularly audited while firing/being fired by their auditor.

Also, 'aspirationally' is doing a lot of work in the grandparent post. Each instance of USDT is supposed to be backed by 1 USD in tether's accounts, which is what's supposed to peg its value... However.

1. Tether will not convert your USDT into USD. You can only offload it to a bigger fool.

2. Tether's accounts have yet to be audited.

3. Tether has lied about #1 and #2.

Ok, so they printed billions of Tethers and bought BTC with them, I get this part.

What I don't get is: This means somebody sold BTC for billions of USDT (instead USD!). Who is doing this? Why would you sell for USDT instead USD?

Maybe there some daytraders on the exchanges that go in and out the Tether every day, yeah. But that should not account for that much. Who is hodling that giant pile of USDT? And why?

There are many traders that don't day trade. They set up a bunch of trades going forward a couple months and they just leave it. I've done this in the past. For example, you set up a bunch of buy orders starting at -25% of the current price and further down as it goes and a bunch of sell orders at +25% the price and a bunch up as it goes.

So then if you have volatility and you come back you can have double or triple your money. It's not a perfect system, but it's low work and you really only lose out if it goes to 0.

The problem with Bitcoin is that what do you sell it for? In many countries the only option is Tethers.

> They set up a bunch of trades going forward a couple months and they just leave it.

Yeah, why not. But does it explain the increasing demand for USDT? Why are they printing Tethers like crazy?

> The problem with Bitcoin is that what do you sell it for? In many countries the only option is Tethers.

The problem with Tethers is that what do you sell it for? The only option is BTC :)

> Who is doing this? Why would you sell for USDT instead USD?

On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset.

> On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset.

I'm sorry, but I cannot follow.

Let's say you want to sell a BTC, current worth about 10k. So you go to a shady exchange, click sell and 10k of USDT appear in your account.

Good, but what is the next step? The next thing you will notice that there is nothing that you can buy for your USDT. You cannot buy a house, you cannot buy a car, you cannot even buy food. The only thing that you can buy for USDT is BTC (or some other cryptocurrency). This is the only thing you can do next.

And the BTC is even worth more than the USDT, because there are actually people willing to sell you stuff for BTC.

But let's assume for a moment that people are really hodling USDT. This would mean that there is an increasing amount of such people, because Tether is printing more and more and more of USDT. This means there needs to be an increasing demand of USDT, and I really cannot see where this is coming from.

You sell BTC to USDT if you are not looking to cash out of BTC. Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops.

When you do want to cash out to real fiat, you have to sell to USD.

USDT allows a large number of exchanges to allow you to sell BTC and hold in something that looks like USD. Without USDT a number of exchanges won't see anywhere near the volume they get. By enabling a larger volume, USDT is indirectly helping inflate BTC (and other currencies) price.

> You sell BTC to USDT if you are not looking to cash out of BTC. Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops.

Why not just sell BTC for USD, and keep the USD balance that you get in the exchange? You can buy-back once the price drops. You don't have to wire transfer the money out, the exchange will happily keep it on their books for you.

If your exchange can't keep USD on their books, there's something seriously wrong with the exchange, and you should probably look into taking your business somewhere else.

If one cannot easily cash out USDT to USD or EUR or GBP or whatever else then USDT is also a garbage sea shell currency - you may as well sell for sea shells directly.

But if you're doing that, then the exchanges don't get to take their cut!

> Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops.

Yes, I get that. But as you mentioned this is "short term". How does it explain that Tether is printing more and more Tethers? Do you think more and more people are selling BTC for USDT for a "short term"? We are talking about billions here.

> How does it explain that Tether is printing more and more Tethers?

The demand for Tethers is high because the demand to be able to trade is high.

> Do you think more and more people are selling BTC for USDT for a "short term"?

More and more people have been getting involved in trading as the price of Bitcoin and other cryptos was spiking. Now those people are in the market, but Bitcoin has been dropping. It makes sense that a lot of them would want to hold a USD proxy under these circumstances.

Of course, that's the optimistic scenario. It's also possible that There's are being used fraudulently to pump BTC. Without proper transparency, it's impossible to be sure.

> It's also possible that There's are being used fraudulently to pump BTC.

My point is: How can you pump BTC with USDT? You need somebody to buy your USDT if you want to sell USDT. In fact, you need somebody to buy an enormous amout of USDT if you want to pump BTC.

Pumping BTC is not a one sided thing, and I fail to understand the other side. What I get from this thread is that that nobody really knows who is buying the 100 million USDT per week.

> How can you pump BTC with USDT?

Get people to believe it's backed 1:1 by USD when it's not, so that it is viewed as equivalent to USD but less problematic in regulatory terms, and then print a bunch of unbacked USDT and use them to buy BTC. To the market, the effect is as if a whole lot more actual USD were chasing BTC, effectively looking like higher demand.

> and then print a bunch of unbacked USDT and use them to buy BTC.

But who is buying and HOLDING the USDT? Sorry that I repeat myself but this is the whole point I want to understand.

Yes, somebody is selling USDT for BTC, I get that. It is nice but I want to understand the other side. Who is buying USDT for BTC? Why? Somewhere there is a billion of USDT lying around. Somebody bought it. Somebody is keeping it. WHY is somebody keeping it? Why is somebody buying more and more of it?

I think it is a very crucial point to understand. Yes, maybe you can convice some fools to sell their BTC for USDT. But they will notice, because there is nothing that you can do with USDT except buying BTC. So they will BTC again and try to cash out somewhere else. So who is holding the one billion of USDT?

I'm not sure how effective that would be in practice. Total Tether issued as of the end of 2017 was about 1.3 billion. Coinbase booked over $1 billion in revenue in 2017; the amount of money going into them was presumably much bigger than that. (There's also weak evidence from price differences etc between exchanges that the bulk of the demand has been coming from Coinbase/GDAX.)

> Total Tether issued as of the end of 2017.

Total Tether issued as of the end of January 2018 is about 2.3 billion.

The all-time-high was December, so anything issued after that didn't help in reaching it.

The people buying USDT are people trading cryptocurrency. There are many exchanges (probably most) that don't deal with USD, so USDT or other Tether varieties are the only way to execute trades that approximate trading fiat currencies for pure cryptocurrencies.

I think you may not realize how large the market has become. The top 6 biggest exchanges are currently trading more than $10 billion worth of cryptocurrencies daily, and there are many more that trade $100s of millions daily.

If that volume is sustained (it reached a peak recently with the price spike), it would put the annual trading volume well into the trillions, perhaps around $5 trillion.

100 million USDT per week seems pretty reasonable (if not small) to support that kind of activity.

If a lot of people are buying USDT with BTC, it means they don't have confidence in BTC going further up and want out in order to wait for the price drop, so that they can buy in later , assuming the price will drop as expected by them. If they had a way to short BTC/USD, they would simply do that instead.

> Do you think more and more people are selling BTC for USDT for a "short term"

Could very well be. BTC is on a general downward trend, almost as low now as it was in November. If people think that seeing 18k again in the next couple of months is likely, then why not?

There's a reason to temporarily move from say BTC to USDT: If you think bitcoin/crypto currency is going to trend downwards for a bit and your exchanges don't have fiat balances (so the vast majority of them?) you sell your cryptos for USDT, wait for cryptocurrency prices to fall, then re-trade your USDT for more BITCOIN or whatever. Then you have accumulated more bitcoin (the premise is that you think it'll go up again). Edit: ninja'd.

> There's a reason to temporarily move from say BTC to USDT

But what we are seeing does not look like a temporary move. All the printed USDT are "somewhere", and I want to understand where and why.

But why can't you just move from BTC to actual USD in this case? And hold USD until you think BTC is cheap enough to buy again.

> This means somebody sold BTC for billions of USDT (instead USD!). Who is doing this?

Bitfinex themselves? There’s no reason to assume that all the people buying USDT aren’t affiliated with the issuer(s) in some way.

actually if you put 10k to buy btc and then revert it to usdt your 10k becomes usdt backing. since you are buying something that needs to keep the price inflation kicks in and more is issued. nothing magical about that

I hear you and this whole situation is clearly shady af, but at the end of the day BTC is fungible with USD, so I'm not sure at this in and of itself is that big of an issue (besides any explicit legal concerns that I can't speak to). If you're providing a currency pegged to the USD, then selling tether for BTC might be one piece of a strategy to do this- The issue for me is more that no one knows what's happening to the USD/BTC/etc after such a sale happens.

You're missing the point, OP is suggesting that Tether isn't really backed by USD. So instead of trading something backed by USD for BTC, they're just creating worthless IOUs and buying BTC (typically bidding it up on down days). It smells a lot like fraud.

The fact that they don’t publish financial statements that have been audited by a major accounting firm on a regular basis clearly indicates that the whole thing is a massive fraud.

Bernie Madoff’s operation sucked in billions for years and years. Were there an audit at any point, the scam would have been revealed.

So you are saying instead of cashing out the btc into usd holdings they simply held onto bitcoin? Wouldn't that make them filthy rich?

No, I'm saying that when people on exchanges like Bitfinex "cash out" they're really getting freshly issued Tether that isn't backed by anything. It's fraud. The scam works as long as you can keep the price pumped up (new Tether issues seem to occur like clockwork during BTC sell offs), but if the price plunges they'll be insolvent in a hurry. Let's say they bought BTC with $100m of freshly minted USDT back when the price was $20,000 (round numbers are easier)... Instead of $100m in USD backing that issue they would now have ~$50m in BTC. Tough luck for anyone who wants to exchange their USDT for USD.

This would be something like a run on a bank, except without the FDIC to step in and make sure everyone gets their money out.

Accepting USDT is akin to giving Bitfinex an interest free loan with a high chance of default--no possible upside and lots of possible downside. No one should use any exchange that deals with USDT in any way.

It would make them "bitcoin rich". They still would need to convert to USD at some point. Which, if their buying and holding is what drove the price higher, would subsequently crash the price.

Issuing USDT when there's no USD backing it up is an issue when you claim that it is backed 1:1. That is called fraud.

I'm being 100% pedantic here (I fully agree tethers are ridiculously shady) but if tether one day rises to 1.05 USD, and the tether company then sells more for BTC to bring it back to 1.00 USD, and the tether company subsequently converts the BTC to USD, how is that fraud?

> but if tether one day rises to 1.05 USD

That's not the concern. The concern is that if you have a contract that promises to pay the bearer X and you don't pay the bearer X when they ask because you lied, then that's fraud.

It's especially frowned upon when X has 10 digits before the dp.

Now, I happen to think that the Tether folk have been a tad more crafty than some of the black and white commentary is making out. More specifically, if they've been careful with who they've allowed to set up accounts, it may be effectively impossible for them to be called out.

I also don't think the CFTC calling in Dec is that interesting. It probably precipitated their change in T&Cs at the beginning of Jan though.

Guess we'll find out.

Because they're not claiming "We can maybe somehow come up with the money that the Tethers represent in the future." they're saying they have the money right now.

And again, you're missing the point that it doesn't seem like they are selling the USDT for anything, BTC or otherwise. They're just printing it and buying BTC with it.


That may seem like splitting hairs but the point is they aren't issuing them in exchange for value, they're just creating them and then using the value they supposedly have based to purchase BTC.

An analogy if you still don't understand the difference; it's the difference between buying a $50 Gift Certificate to a store with $50 USD or just printing one on my printer. One represents $50 USD that exist and were exchanged to buy it, and the other represents nothing.

Buying bitcoin with it and then selling the bitcoin immediately for USD, and banking it would mean they are at least solvent, is they key point he is getting at. Im not sure why anyone would want to trust money to that without audits, but its certainly possible. And quite important!

Edit: the assumption seems to be that they are buying bitcoin and holding it, which would increase the bid and result in not being backed by USD. If they are not holding the bitcoin, then the buys and sells even out, and they are not adding to the bid, and they hold cash equivalent to USDT. I am quite interested to find out which it is.

They're solvent in that scenario, sure, because they committed fraud. That's the great thing about fraud, getting rich off of it.

Their assets equal liabilities in either case (whether selling USDT directly for USD, or cyclling them through BTC). Call it what you will, but in neither scenario is anyone rich. Tether if backed by USD at the end of the day is revenue neutral. What am I missing?

> Their assets equal liabilities

This is irrelevant, though. You can commit fraud without losing any money - Martin Shkreli was famously convicted of fraud a few months ago even though the victims all came out ahead.

In the USDT -> BTC -> USD trip, there is a point, namely the BTC part, where more USDT has been issued than USD has been accepted. If they claim USDT is backed by USD, but there were points where that was not true, they have committed fraud, regardless of whether they were lucky enough to come out ahead.

No argument there. There are multiple arguments about what Tether is or is not, and what part of this story interests people. Im most fascinated and interested in what form the proceeds of USDT sales are in. If they are holding bitcoins it has much bigger implications than if they are holding cash. Thats kind of why Im probing this. If they are really holding bitcoins, it means a spectacular implosion is coming. If holding cash, less so. If or why they all go to jail is less interesting to me.

So, whether their books line up is irrelevant to whether they committed fraud, perhaps, but VERY relevant to the price of bitcoin.

What you are missing is that they created money out of nowhere. No individual loses directly, but it affects the overall money supply. In this case, the price of bitcoin was inflated artificially by buying it with an asset that was created out of nowhere.

It's like having a printing press that creates legitimate money. No individual loses, but the prices of everything you can buy will artificially increase (or another way to look at that is the currency deflates) if you print enough of it.

If they hold the bitcoin, yes. I dont think anyone is missing that.

Tether being printed out of thin air if they're not backed by USD?

I dont understand your question.

I think the math is fairly straightforward. There is a USD/USDT driven cross. Creating and destroying USDT is straightforward there. There is also a BTC/USDT cross. That creates a drive for USDT. If that demand to sell BTC and buy USDT bids up USDT, then USDT would be created, and the BTC would convert back to USD. I agree that Tether is not forthcoming that this happens, but yes this is exactly what I would expect to happen. Its not mysterious sounding to me, or necessarily nefarious. I dont understand why Im beimg downvoted, its a discussion about generic market mechanics. We can leave bogeyman words out of it.

Because Tether obviously does not have $2.3 billion in cash reserves on hand, there probably isn't 1/10th that volume of fiat in the entire cryptocurrency ecosystem (not market caps, liquid cash that could be withdrawn). They're writing checks they cannot cash, plain and simple.

It's called "lying" and "fraud", your "but what if they did have the cash" is irrelevant, because they don't, and you're getting downvoted because you're aggressively refusing to address that point in favor of hypotheticals.

Could you hypothetically have a legitimate Tether token? Yeah, sure. Is the Tether Foundation on the up and up? Hell no.

There's a reason their auditor bailed before completing the audit.

Actually, you are the only one who has brought this up, that the liquidity dictates that they couldnt have sold BTC for USD. If that is true, then youve answered my question of what I was missing. I didnt aggressively fail to address this, it quite literally wasnt brought up. Thanks.

EDIT: This apparently is no longer a site to ask questions or to challenge assumptions in good faith to get at an understanding. Its a religious conversation. One takes things on faith, or GTFO, apparently.

I might be getting lost in the discussion, but I still feel you miss the core point - it's not about liquidity. Even if they could sell BTC for USD without affecting the crypto market, they still seem to have printed out USDT out of thin air and - as I understand - proceeded to buy BTC with them. That is, you could say they literally stole those BTC.

Going from USDT to USD in a roundabout way through BTC doesn't change anything if USDT themselves are bullshit.

RE your EDIT: it is, but deep downthread like this, it's always luck what you get. Also don't worry about the downvotes, everyone gets their share of them here :).

I do understand that, they engaged in fraud, slight of hand, whatever. But my main interest is what happened after they exchanged USDT for Bitcoin. When they did this, or as they did this, they added $2 billion or marginal demand that didn't exist in dollars to the bitcoin market. However, if they subsequently and along the way sold the BTC for USD, they also extinguished that extra demand, so the bitcoin market net-net had no extra demand - all purchases ended up being backed by USD.

I dont know the answer to the above, but its critical for the future price of bitcoin and is really really important. Everyone just seems to assume they held the bitcoin, which is a crazy move. If they could have sold for USD, it makes sense to me they would have...thats why I think its an important question. It doesnt seem to interest anyone else tho, which is fine.

The comment above said liquidity dictates they could not have, that they must still be holding bitcoin. But I also say today, bitfinex'ed, the blogger that has been on this story, says they redeemed 330 million in past 24 hrs. Which is far above the 10% of 2 billion number he said of the entire crypto market is backed by USD. So to say the liquidity doesnt exist doesnt seem to make sense, there seem to be a lot of dollars into crypto. 1 million people with $1000 invested is a billion alone. That isnt crazy.

That wouldn't be fraud (as long as they quickly converted from BTC to USD), but why would anyone do that?

Because its exactly equivalent to selling Tether for USD, which we know they do. There are arguments that they couldnt have liquidated so much BTC, but I don't see any specific argument that leads on to assume that they wouldnt have. Unless one puts fraud as the entire goal. Which can't be discounted, but its just not obvious, to me.

It's somewhat equvalent but more complicated and more expensive (Transaction costs at each step). It also has one huge downside, which accounts for why you wouldn't do it.

You'd be flooding the market Tethers nobody is asking for, which risks crashing the value of Tethers. They could buy back the tethers for dollars to stablize the price, but that would make the whole transaction useless.

There is also volitity risk. In a falling market they might lose money.

True on volatility and transactions, I shouldnt have said exactly. But volatility speaks to why you would want to exit BTC as quickly as possible, if trying to avoid. One could argue it should net out to nothing over time.

I dont see it as flooding the market with anything, the Tethers are created in effect by people exiting cryptos into Tether on all these exchanges that only deal with Tether rather than USD (potentially!).

Lets step back to Tether creation. There are zero out there. Someone gives Tether $10 million for 10 million USDT. Those matriculate out in the universe, and are being exchanged back and forth for cryptos. Someone somewhere always holds those 10 million Tether. The price of cryptos rises and rises. Now all of a sudden the demand for USDT has increased, as people who exit crypto on those exchanges need more units than before, rather than 8500 USDT per BTC its 20000 USDT per BTC. No one has given Tether anymore USD directly for USDT. What would happen in this scenario is the price of USDT would rise. One way, not the only way, but one way for Tether to bring the price back under control, would be to buy BTC for USDT, issuing new shares, to bring the price back down. Which at $1 means equillibrium.

Is that how things work, I certainly dont know. But that mechanism is one way it could work. And it could explain why USDT are created on down days. Its the demand of people getting out of BTC driving it.

Now they could totally take that money and spend it on hookers and yachts for all I know...but thats at the end of the chain.

Right, so in the situation you describe, they no longer have a dollar backing the issue of new tether, in fact they have conjured them up from nowhere and used them to buy cryptocurrency. So while the original 10 million in tether is backed by USD, the new stuff isn't. And the mass printing has conveniently propped up the BTC price as well!

And for those who want to know more. (Just a third party blog.)


Isn't this kinda similar to the fractional banking system we have already?

Not at all.

First of all, banks do have to balance their books. The 'fractional reserve' model taught in school is actually not how banks work in reality, and violates accounting rules.

Every single deposit in the bank does need to be backed by something - if banks just stored deposits then they would have to either have the full reserve backing, or other assets (cash, investments, etc.) backing every dollar. Lending seems different, but is really the same. Lending creates new money, by creating a new asset on the bank's balance sheet (the loan), and creating a matching liability of the bank (the deposit). But it is still backed by an asset - the debt to the person they lent to. (Central bank reserves don't actually come into lending, until the banks need to transfer money to other banks. Reserves are used for this, and the bank requires enough in their asset mix to maintain liquidity of their interbank transfers. They can just borrow reserves, for pretty close to the headline interest rate from other banks if they need some extra though).

So, Tether could be operating like the banking system, but, if they don't have full backing they would have to be creating matching debt for the remainder, with the intention of it being repaid. Otherwise their liabilities (the Tether) don't match their assets and it's just fraud.

Secondly, banking systems have a lender of last resort. If a bank faces a liquidity problem, they can still borrow reserves from the central bank. If Tether faces a liquidity problem, it's likely that nobody will lend them money, their business will collapse and all tethers will be rendered worthless.

And yet, Lehmann Brothers went tits up.

Well, of course banks can become insolvent (i.e if enough people default on their loans), which is why many governments now insure people’s deposits (up to a certain limit).

But Lehman Brothers wasn’t a commercial (retail) bank, which is what I was describing. They were an investment bank, which generally don’t take deposits or directly offer loans.

Do you want Tether to be audited and regulated like the fractional reserves of a bank? I'd sure find it entertaining while it lasts.

This is also moving the goalposts, because they claim that Tether is fully backed, not fractionally. Changing their story there would involve admitting to a billion-plus-dollar fraud.

Fully backed, has anyone been able to independently audit their reserves?

The auditing firm they hired to do that audit last year just (in the last two weeks) erased all trace of the relationship from their website.

No audit is expected at this point, we're getting close to the "exit" phase of the scam.

They've said an audit is coming for months now.

dumb question but how is it minted? Every time someone wants to buy one, they print one? they have a limit?

They just create one out of thin air and claim that it is backed by real money. But they don't tell you where that money is actually being held, and their auditor recently resigned, so there is no trustworthy independent verification that this money really exists.

They are probably holding Tether reserves in BTC, in a way gambling with the storage moeny. Figure that 2 billion dollars in sitting money generates very little interest, in comparison to 2 billion dollars in btc that might jump 10% in one week.

This bet however, inflates the price of btc alone, since its like someone selling a btc doesnt take any btc from the market (as a btc is traded for another btc concealed). This double spend increases demand for btc, and on paper makes tether rich.

However, if BTC drops below the cost of acquiring it, the fund becomes insolvent, and as it can't sell anything to recoup it can only spiral down.

Thats one theory anyway.

So, it's better to sell BTC when the market is higher, and convert BTC back to paper currency. Then USDT could in fact be solvent and possibly earn a profit with the a jump in BTC price. If they have billions of dollars in BTC, it might not be infeasible then to print USDT because their profit would guarantee people would get their money.

Thats like saying you can make a loan for the bank, and buy the bank's stock saying that the bank is making more profits on loans now.

It may work in an incredible bull market (which we have) but it has immense risk exposure. Also bear that the monet that Tether sells their btc, they depreciate their own reserves.

Its shocking how they have been allowed to continue printing "fake money" for so long. There were rumours going around long before christmas.

Its about time this 'scam' was exposed.

I'm not very familiar with this world, but that seems fast. I always assumed the world of financial crime enforcement moved like molasses. When I started hearing those rumors I just assumed it'd be months after the crash before the feds showed up. Maybe I'm just cynical.

But I 100% agree, its about time.

My impression from watching financial crimes play out in the news is this: there's a long, slow period of investigations, interviews, etc. and then suddenly people get dragged out in the middle of the night in handcuffs.

> Its shocking how they have been allowed to continue printing "fake money" for so long. There were rumours going around long before christmas.

The subpoenas were issued December 6; just because the news just broke doesn't mean that the government just got involved.

This is good news for quality cryptocurrency organizations. Bitfinex has problems, so does Tether and it's good to see bad actors in the crypto world getting weeded out, called out and put down.

In the long term, perhaps, but in the short term there's going to be MtGox-or-worse level carnage in the markets if Bitfinex/USDT is exposed as a scam and people start panic selling to cash out.

if they sell their usdt for btc, the btc price could actually rise. it just depends if they try to withdraw all together and the money leaves the crypto market

It would rise as priced in tether, with tether depreciating against the dollar. You will see larger spreads between tether exchanges and dollar exchanges, which already regularly grow into the hundreds.

If people were holding tether because they wanted to be flat with respect to the cryptocurrency market, they will likely sell their cryptocurrency on a dollar exchange, suppressing prices there.

btc would rise in terms of the real USD as well because the demand for it would increase.

I suppose it's possible, but holding all else equal? I don't immediately see why dollar demand would increase in the event of a tether collapse.

Dollar prices will adjust as BTC->Dollar and Dollar->BTC flows change. Dually the Tether prices. The only thing that keeps these prices in line is a Tether/Dollar arbitrage, but that arbitrage will slow and halt as people flee tether.

If anything, I would guess that a sudden increase in selling pressure from people doing Tether->Crypto->Dollar risks pushing people into a Crypto->Dollar fear feedback loop.

You're assuming the severity of this news would not cause Tether to devalue while BTC holders exit into real USD or fiat instead of Tether.

I keep reading about these magical places. Say that I have a 1000 BTC. What is the exchange that would allow me to sell 500 BTC and wire money to my account in:

a) Chase Manhattan Bank in New York City ( USD )

b) National Westminster Bank in London ( GBP )

c) HSBC ( Paris ), account in Euros.

The wire must show up live in 72 business hours and post to the account within 72 * 2 hours.

For my small ventures ( <1000 euro) I've used bitonic.nl. A dutch site using the standard dutch banking system iDeal. First time I bought it took a day for a test transaction of 0.01 to confirm my holding the account. When I recently sold (back to that same account) I received the money by 13:00 of the next business day.

Not sure how this works for non dutch citizens. Presumably a dutch bank-account suffices. They don't seem to be an exchange though. Instead they are essentially market making, keeping their own supply. You don't have an account there. Instead, when selling they present you an address to send to, and when buying you give them the address to send to, Moving 500 BTC there in a single trade would probably exhaust their supply. At the moment they report 250BTC+, I've seen ~150BTC the last few times I checked.

Still, it seems to be an actual functional on/off ramp for BTC - EUR.

bitonic has a spread between buy/sell of about 200 EUR (on an average price of 8000 EUR). That seems a bit excessive.

GDAX but there will definitely be a KYC delay the first time you do it with phone calls and ID checks and questions about where you got the money.

Second time, though, no problem. Less than 72 hours.

Presumably GDAX...? I’m sure it wouldn’t be as smooth as pushing buttons and they would likely want something stating where you got the coins.

yeah they only let most people withdraw 10k a day. some guy owed millions on taxes but couldn’t withdraw it fast enough to pay..

You can request an increase to your limits. For a customer with a large, verified portfolio I’m sure Coinbase would work with you if you needed to move funds in large amounts.

It may not be overnight, and there may be additional fees, but it’s not going to take 100’s of days to move $1M unless you aren’t trying very hard.

My bank does not need to work with me to send a multimillion dollar wire. They only care that

(a) i am already a customer and they have verified that I'm me.

(b) i have completed all needed forms before

(c) i have followed the authorization protocol, including verification via control phone number registered with the bank and controlled authorization code

Same goes for any brokerage.

Have an upvote.

You are correct, but even banks and brokerages have limits (AFAIK) that they can invoke as needed.

Those soft-caps are significantly above $10k/daily, however.

My main point was with Coinbase you can do the required prework to request the higher daily limits and receive similar service, but you need to think about it in advance vs. having it automatically in place.

I totally dig the downvotes. They keep illustrating that the voting population of HN does not know much about what it takes to run a business and what those who run businesses know to be an undeniable truths.

Haha presumably if you’re wiring the money directly to the US Treasury they would make an exception!

C'mon, say the "This is good for Bitcoin!" thing.

which is odd because I thought the libertarian dystopia that bitcoin is pushing us towards abhors this kind of regulatory interference

those libertarians have been expecting this and have traded their tether-pumped btc for gold, land, etc.

it's the late to the game profit seekers who have bought in over the past few months who will get killed by this. even if the tether founders have made off with whatever cash deposits they had and there's nothing in the vault, cryptocurrencies will still have value and will rise again.

I thought this was all "working as intended."

Bitcoin is a dinosaur that will either need to adapt or die.

This is good for Bitcoin.

Yeah all news are good news for greedy Bitcoin hodlers !

> This is good news for quality cryptocurrency organizations.

Are there any? I’m being honest and not snarky here: I’ve yet to see a single company in the space that’s not at least somewhat shady.

I haven't looked at it in any detail, but my impression was that shapeshift was fairly, uh, on the up and up?

Iirc, the idea is you say you want x amount of cryptocurrency M sent to address A1, and you want to pay in cryptocurrency N, and it gives you an address B2 and a quantity y, and you send it, then they send it. With this set-up, I don't see much of a way for them to behave dishonestly that wouldn't be immediately discovered, as either you get the currency or you don't, and if they don't, then you can quickly tell.

(I mean, the exchange rate they give might not be the best available, but it is the consumer's choice whether or not to accept the exchange rate for the convenience.)

Also, it is possible that I am substantially mis-remembering how it works, as I've never used it (I don't in fact own any of any cryptocurrencies, and never have except for testnet ether)

Also, I don't know if shapeshift is still around or not.

Still around, still works that way.

I mine eth and/or zcash in small quantities. If I want to buy a small quantity of something else I use shapeshift. This way I hold no accounts anywhere.

'course I have no way to cash out, but then my holdings total less than 1 ETH so it's no big thing...

Check out Gemini exchange. 100% professional operation

Of course, not before the owners of Tether have already loaded up their Swiss vaults full of sweet sweet cash.

What bothers me more than anything in this isn't the existence of Tether and the suspicious behavior of Tether/Bitfinex players...

It's that Bittrex and others are attempting to become mainstream and they've accepted these USDT since forever, and they continue to accept them well after the suspicions were public.

This is a black stain on the exchanges. It also personally makes me cynical of the entire space. I moved my mainstream coins off of Bittrex and back into GDAX where it seems safer.

<rant warning> Why can't profitable exchanges like Bittrex and Kraken self-regulate?? Over and over again the invisible hand of the market is proved to be eclipsed by the visible hammer of the regulator (which can't come soon enough, by the way). </rant>

Don't ever keep coins on an exchange. Use a hardware wallet. If you don't have them in your possession they're not really your coins and you can get "Goxed" - ie. the world's largest exchange at the time, Mt Gox, disappeared with most of the user funds.

Yes, all reasonable paranoia. However I do trust Coinbase/GDAX as far as BTC, ETH LTC are concerned.

It's a pain to store a few K USD worth of altcoins in my hw wallet (which I'm not even sure supports most of them). What if I'm at work and an event happens that makes me want to sell? The wallet requires an app to be installed.

If there's a hint of an issue with Bittrex, I'll trade to ETH and move them to GDAX.

Am I being a fool here?

You are being a fool. Exchanges have been known to close, be seized, and be stolen from, without warning.

Cryptocurrency frees you from needing to trust central banks/exchanges... so why continue to trust them? Especially un(der)regulated ones?!

At best, store only the smallest amount you're willing to lose, so you retain some liquidity for sudden trades...

Based on my research it seems like Bittrex allows the trading of Tether and lets people cash out to USD. Poloniex also. Seems like a round about way of getting USD out of Bitfinex.

If Tether is a "scam" backed by nothing, why would other Cryptocurrencies be more valid?

It's just software.

It's price fixed at the US Dollar.

So if I own USDT, I should be able to convert USDT to BTC (e.g.) or paper money. If everyone converts their USDT to paper money, the organization that backs USDT has to refund USDT to dollars. If there aren't enough dollars to cover the price of USDT selling, then the USDT market goes belly up.

BTC is buy/sell driven through some kind of exchange so the price can float.

They updated the article several hours later with:

'The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information.'

So when did the auditor quit? Before or after the subpoena?

I wonder if the auditor made a 'noisy withdrawal', basically alerting the regulators that this company is fraudulent.

If I was auditing and obviously fraudulent operation, the easiest way to cover my ass would be to notify regulators immediately.

This should be much more visible. The market is panic selling on effectively old news.

It's not “old news” if it wasn't publicly known in the past (and if the market had known it already, no one would be panic selling based on it.)

I'm just not sure why Bloomberg would choose to omit the date until being pestered online. Doesn't this change things quite a bit? If there was a true smoking gun, they would be shut down then and there already instead of continuing to operate/grow, such as issuing more tethers in the past month.

They don't operate in US jurisdiction or do business with any US corporations so they can run for a while ignoring the subpoenas and the wheels of justice grind slow but it will catch up with them.

Look up E-gold if you want to feel the experience of history repeating itself. For bonus points check the dates when E-Gold was shutdown and when bitcoin was created.

> if there was a true smoking gun, they would be shut down then

That's...an unwarranted conclusion.

If this were all done and resolved, then Bitfinex would have a strong incentive to say that clearly, specifically, and unequivocally. The fact that they aren't and CFTC isn't commenting strongly suggests that the process starting with the subpoena is ongoing.

It's not old news if we didn't know about it until now.

Agreed. Thank you for saying so. edit: is there a way to bold text in an HN comment?

Unicode to the rescue! Here's how to make 𝗯𝗼𝗹𝗱 text:


Looks a bit ugly, but works.

Thankfully, no there isn’t.

𝗡𝗼𝘁 𝘂𝘀𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝘂𝗽𝘀, 𝗮𝗻𝘆𝘄𝗮𝘆...

How trustworthy is Kraken?

Tether looks like a good short since if it is a fraud it will go way down and if it isn't a fraud it will stay right where it is.

I'm in the US and would like to short Tether. But I want to get paid if I'm right.

The best way is probably to sell BTC futures, if Tether/Bitfinex go down the market will be chaos and won't have the Tether protection team to bid it back up. Those are cash settled and you will 100% get your money. Shorting on any crypto exchange has a lot more counterparty risk.

Let's say I'm hypothetically inclined to sell BTC futures. Where would I go to do that?

The easiest is probably through a stock broker. Futures are risky (typically highly levered, though less so for BTC) and they usually make you have a decent chunk of change before they'll give you access.

I have a few brokerage accounts at a few places (Fidelity, E-Trade, Vanguard). Haven't done much margin trading and never worked with futures (done a little with options) so I just don't know what to look for in the interfaces. Is there a "ticker symbol" that represents a future contract for Bitcoin? Are there multiple parties offering such contracts? Is there a broker that you know of who's currently offering these contracts?

I found this, but it didn't clarify much: http://www.cmegroup.com/trading/equity-index/us-index/bitcoi...

Thanks for the help. If it's easier to follow up by email it's in my profile.

You would need to be specifically approved for futures, E-Trade definitely supports it (and the BTC contracts):


Two futures exchanges run Bitcoin contracts, CME (trading under BTC) and CBOE (trading under XBT). They're not a lot different outside of size, CME's contract represents 5 bitcoins while CBOE's represents 1. Here's a decent listing of the differences:


It's definitely worth reading up on how futures work before trading them, but it's similar to stocks in terms of using a ticker[1] and making buy/sell orders. A key difference is margin, but with the volatility of bitcoin both exchanges have really high margin limits so you can't get into too much trouble. The other key difference is you're trading a specific month so you need to be more correct on timing than you would for a stock.

[1] The tickers work a little different than stocks in that the root is XBT or BTC, but the full symbol for the contract includes the month and year. This is similar to options. Your trading platform should make this clear.

I have considered this in the past. The issue is that the kraken order books are rather shallow. Someone could intentionally cause a flash spike and force liquidation of any shorts rather easily, so its far from risk free.

Kraken allows wash trading (proof: https://twitter.com/Bitfinexed/status/957757842852806657), so really untrustworthy.

I've had good enough experiences with inter-cryptocurrency trading on Kraken, but I've never actually been able to get their site to let me wire USD in or out of it to a bank account. Always just site errors when I try to do that.

Good luck finding a counterparty.

> and if it isn't a fraud it will stay right where it is

I'm not actually qualified to give investing advice. But this part isn't strictly true. In a functioning market, the price could be depressed by the regulatory uncertainty. If that were the case and it was cleared up, you would see the price rise.

right but it’ll never go over something like 1.04 because it’s supposed to be pegged to a dollar

> How trustworthy is Kraken?

They spoof their order books and use wash trading bots...so draw your own conclusions :)



...on USDT. how are they even benefiting from this?

To keep the price pegged at around 1USD

Why would someone ever take the other end of that bet?

We're talking crypto investors here. The ones that preach diversification, and then sell every single one of their alt coins when the bitcoin bubble is deflating.

also the selling is often shockingly synchronised. just compare bitcoin and ether charts

What? See ether to btc here: https://coinmarketcap.com/currencies/ethereum/

let's just say when there will be a run to the banks, Kraken is not likely to be the one with the longest opening hours.

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