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Bitcoin’s Price Was Artificially Inflated Last Year, Researchers Say (nytimes.com)
574 points by Osiris30 on June 13, 2018 | hide | past | favorite | 388 comments

Today Matt Levine talks about this paper in his daily column:


"of these two explanations—

1) Bitcoin’s rapid and sustained rise is due to the fact that it satisfies a real economic need in an elegant way, and people have responded to that; or

2) Bitcoin’s rapid and sustained rise is due to a magical fountain of fake dollars that everyone just decided to treat as real dollars, and that can be used to manipulate its price any time it’s in danger of falling—

the second is possibly more impressive. Like, creating billions of dollars’ worth of value by building a useful thing is relatively straightforward. Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation."

Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation.

Creating money by printing is not a new thing. Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing. It is one very standard old thing.

That by itself doesn't prove bitcoin is this. But in analyzing investment that's rocketing up in value, one should remember that what Hyman Minsky called "speculative finance", ie, bubbles, should not be excluded or treated as "something really weird". "Are X many people really that foolish?" Well, how often has this happened before? There is an answer to that question.

> Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing.

Across so many people, and at BTC's market cap though? I think that's unprecedented. Penny stocks or pyramid schemes, sure, but they never affect this many people or hit 12-digit valuations.

(By the way, fiat money doesn't count as an example because it is backed by a variety of government support structures (which are very much not hocus-pocus) and it does not appreciate in value indefinitely relative to the cost of goods.)

That's an interesting question. Bernie Madoff’s Ponzi scheme is estimated to have lost clients $65 billion. The Bitcoin market cap is nearly double at $107 billion.

But Bernie Madoff's $65 billion is all real dollars paid into the scheme. Bitcoin market cap doesn't track the amount of the money that has been paid into the current Bitcoin market. It simply estimates the current market price, then multiplies that number by the total of number of Bitcoins.

So the amount currently paid into the current Bitcoin market is going to be much, much lower. Experts estimate that nearly 30% of current bitcoins are 'lost' forever in non-recoverable wallets. Also, the gal who bought 1000 bitcoin at 5 dollars hasn't re-paid another $6 million into the system. But, if Bitcoin crashed to zero today, would you also need to account for dollars lost by investors who built mining stations and gear?

I guess we will never know. But, I think it is fair to say that the Madoff scheme is in the same ballpark of Bitcoin.

Thank you. More people need to realize that market cap is meaningless in the context of crypto. It is just a multiplier of two numbers which makes it sound like a big number and thus interesting (which it is not). You explained it perfectly.

This horse has been beaten, but it trivializes the amount of money that entered late last year. I don't think it's all late money, but the money in BTC is not all "early" either.

It's not meaningless. It's still the only way to roughly compare the size of assets with different supplies.

"Market capitalization is just a fancy name for a straightforward concept: it is the market value of a company's outstanding shares. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding."

At least with bitcoin, there is no company. So, all it is is price * shares outstanding (held shares).

Given that there is some portion of btc that is 'lost' as well as the fact that we don't know what people paid for what is held, I don't see how anyone can come to a conclusion about the "the size of assets with different supplies."

In fact, the definition of market cap says nothing about that conclusion. The description says that it was just a way of grouping companies of various sizes. So, we are back at square zero, bitcoin is not a company.

Maybe I'm totally wrong in my feelings about MC, but at the end of the day, this is not an indicator I would use for TA or popularity of a cryptocurrency. For example, Volume is a much more interesting high level number.

24h trading volume for BTC/USD (excluding BTC/USDT and all non-USD fiat currencies) is over $500M [1], and has been at that rate or higher since last December. That's over $90B in real money that has exchanged hands for Bitcoin.

It's not quite the same as the Madoff Ponzi scheme, because in that, all the money went into Madoff's firm, and relatively little came out as redemptions. In a trading market, every dollar that comes in from a buyer goes out to a seller (minus exchange fees, which reportedly have netted Coinbase close to $1B this year, again supporting a >$100B trade volume). They can then be used to purchase more crypto later, and show up in the volume statistics again.

But this alone indicates that Bitcoin may be a bit more resilient than Madoff's ponzi scheme; when multiple people get rich off it, there's much less of a single point of failure for the scheme to collapse.

[1] https://coinmarketcap.com/currencies/bitcoin/#markets

That would assume that it is 'different' money changing hands would it not?

I.e. that %500M and $90B is unique dollars being transacted and not just promises being passed back and forth.

It does, and that's an assumption that probably doesn't hold.

Most things in the economy work that way though - the total supply of hard currency in the economy is only $3.6T, so when you speak of the $18T US GDP or the $20T US national debt or the $524T value of the derivatives market, it necessarily accounts for the same dollar changing hands multiple times. That's what makes it a currency, that it can circulate and change hands while holding its value.

Saying the 'value' of the derivatives market is $524T is disingenuous. The notional value - sure, but that's like saying the value of the lottery 'market' is the jackpot times all the outstanding tickets - http://www.newsweek.com/600-trillion-derivatives-market-9227...

That's my point though - that there are a lot of things in the economy where the total dollar value may be high but it's largely the same participants trading amongst themselves, and the contracts net out to some much smaller value. Bitcoin volume and Bitcoin market cap are not unique in this regard.

No exchanges are collapsing so its about as real as you can get. You might ask 'What if everyone withdraws to fiat at once?' I think if you posit that of any stock market the answer would be the same. Cryptos are a pretty pure free market, if it didnt have real utility or value for people the markets would collapse.

As others have pointed out Madoff might not be a solid example as it was a single firm committing fraud vs the possibility of multiple actors abusing a bubble (and possibly committing fraud as well).

It might be closer to the abuse of sub-prime mortgages and mortgage-backed securities. Is feeding a bubble the same as pumping and dumping? Sure can be.

> But, I think it is fair to say that the Madoff scheme is in the same ballpark of Bitcoin.

I was going to comment on this, but I was blocked by my time manager. :(

Current market cap of BTC, at $111M, puts Madoff's scheme at about half of BTC. Compared to BTC's peak in 2017, Madoff's $$ is about a quarter. (supply * rough BTC price of $20,000).

Additionally, Madoff's scheme affected 4800 clients. [0] The amount of users on Coinbase as of late 2017 is about 2400x that amount [1]. So while amount "paid in" is lower, market cap is much higher. The affected userbase is also many multiples higher than Madoff's clientele.

So, my point: the difference in $$ is higher, and the difference in userbase is far higher.

More practically, note: we are comparing BTC to the largest grift in history. That's a lot of money.

[0] https://en.wikipedia.org/wiki/Bernard_Madoff

[1] https://www.cnbc.com/2017/11/27/bitcoin-exchange-coinbase-ha...

The apples:apples comparison would be a total of amount of currency converted into Bitcoin.

Almost everything that happens today is unprecedented in 'affecting this many people'. It's probably more informative to ask whether it is affecting a larger percentage of people exposed to it than previous examples- and I don't know the answer to that, but I suspect it isn't.

I am not a bitcoin maximalist. But Bitcoin is a new kind of money that no one can take from you. Better than gold, cash or anything that came before in certain circumstances.

That said other tokens have similar characteristics..

> unprecedented

Mortgage crisis?

Sure, Bitcoin is different. But it's kinda the same...

usdt is a usd peg system with no fake money. did you ever read the technical details?

The problem is they have never demonstrated they actually have the money. It's very simple really to ask your bank to provide a certified and digitally signed account statement. This routinely happens in audits. Tether has never showed this. So the accusation is that its operation is basically fraud.

But it's claimed that it's not really a peg system at all - that Tether were fraudulently created while claiming they were pegged.

yes and because someone wrote about it then it's true right? I can't think of anybody wanting to spread FUD to profit from shorting...for the life of me, really. Who is the manipulator in this case?

Except Tether hasn't actually proved they have the cash they claim. So why should we take their word that they're a peg system when they haven't proved it?

Indeed, a cynic would say Bitfinex were just copying the Fed's QE.

Creating tether out of nothing to buy bitcoin is similar to the Fed creating dollars by QE to prop up asset prices.

Indeed, though states have boots and guns on the ground to a last resort backup the value of their currency (including protecting against competition).

So I'd pick "Fed-coin" as the last one to go down.

I've been reading up lately on how fiat money systems work, and it doesn't seem to me that boots and guns really help. Certainly there have been countries with plenty of soldiers who failed to maintain the value of their currency.

You have to pay taxes in the local currency, but if the currency crashes you just have to pay a higher nominal amount of taxes.

You can outlaw competing currencies, but you can only do that in your own country, and it doesn't necessarily keep your official currency from going down the toilet.

It can help. I'd argue that the US-Saudi deal [1] was in part facilitated by the US being able to offer the Saudi regime military supplies and protection. The military is arguably not the dominant factor, but that is a very debatable point. It is certainly a factor.

[1] https://www.bloomberg.com/news/features/2016-05-30/the-untol...

Fiat currency is essentially the government's IOUs denominated in themselves e.g. holding a dollar note entitles you to one dollar from the government.

It only has value because a government can ask others to settle part of this debt or take their property otherwise. Naturally, the amount of debt a government can issue this way is limited by the value of property it can threaten.

Zimbabwe, for example, cannot reach much of valuable property despite having some guns and boots. But the USA is a very different matter.

The US' military might is the only reason why all oil is traded in USD and the main reason why the USD holds value.

Ok but what about all the other fiat currencies of the world?

> Creating tether out of nothing to buy bitcoin is similar to the Fed creating dollars by QE to prop up asset prices.

Sure... if the Fed claimed some secret mega-investor was bankrolling it all, and that of course there are audits but uh they're not finished yet and we fired the auditor but this random guy says he saw our bank account balance so it's all OK...

Actually thats pretty much exactly how the Fed works.

I'd say there's a simpler explanation. Bitcoin has a limited predictable supply, so its price is mostly a function of the demand. And demand correlates with expectations, that typically follow the hype cycle [0]. I'm not sure how much someone managed to single-handedly manipulate the price, but the plain old human psychology, FOMO and the positive feedback loop for media writing about bitcoin demand definitely played their role. All by the book really.

[0] https://en.wikipedia.org/wiki/Hype_cycle

Whenever some kind of good has a truly limited supply, that can fuel the most massive of bubbles by making the “bubble” look rational at first. The bubble hides itself under the guise of being about “supply and demand”.

The one thing that leaps to mind is the Japanese real estate speculation in the 1980’s. Everyone claimed, very logically, that Japan is a mountainous island with very limited space, so real estate would be almost sure to go up in value. Ultimately, the market crashed, and hasn’t recovered even 25 years later.

Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income.

> Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income.

You're comparing national home prices in Japan vs national income in Japan. Then you're comparing local prices in SF to national income in the USA. You're then comparing these comparisons to show SF is super inflated.

This makes no sense.

In 2016, it seems SF median household income was $96,677 [1] and that the median house price was $1.31 million [2]. Couldn't find more recent number for income.

That a 13.6 median price to income ratio. 2018 median house price is $1.61 million, so for wages to keep up the 2018 median income would need to be $118,382 to maintain the 13.6 ratio.

Edit: I agree with parent it probably still doesn't make sense to compare cities with nations. These numbers are just for your entertainment. I think median price-to-income ratio for Tokyo now is now about 4. I am sure in the bubble it was much higher. Though again apples to oranges, it seems that the peak bubble average price to average income ratio for Tokyo was 18 [3].

1. https://www.deptofnumbers.com/income/california/san-francisc...

2. https://sf.curbed.com/2018/4/5/17201888/san-francisco-median...

3. http://japanpropertycentral.com/2014/08/apartment-price-to-i...

SF median household income is vastly distorted by rent control and prop 13, which allow very many people to live there who otherwise would not be able to afford to live there. Therefore the above measure is not an apples-to-oranges comparison to the Japan data.

You also have to account the rise in population, which translates to higher demand. Not sure Japan had similar Demand/Supply to SF before bust.

The average annual gain in SF since 2010 came to 11,173 persons, and the median is 10,824. The overall population increase of 78,593 amounts to an estimated spike of more than 9.75 percent. For comparison, that’s a higher year-over-year increase than seven of the ten most populous counties in the country, including number-one ranked Los Angeles County (up 0.1 percent since 2016), Orange County (0.4 percent), and San Diego County (0.6 percent).

Breakdown of how the city has grown since the last full census in 2010, with SF’s official population of 805,770 at the time:

2011: +10,524 (816,294) 2012: +14,112 (830,406) 2013: +10,486 (841,270) 2014: +11,988 (853,258) 2015: +13,062 (866,320) 2016: +9,783 (876,103) 2017: +8,260 (884,363)

1. https://sf.curbed.com/2018/3/26/17165370/san-francisco-popul...

It was said at the time that the Imperial Palace was worth more than all the real estate in California.


They should have sold the Imperial Palace and bought California

It was probably impossible to find a buyer.

As I understand it, for a variety of reasons, the value of a home tends to fall much more rapidly over time in Japan compared to the US. This probably means that if you're going to get a loan to buy a house in Japan, it's probably going to be for a lot less (relatively) and/or for a shorter period of time than you could generally get in the US, which will put significant downward pressure on home prices (again, as compared to the US).

Put another way, the more people are spending razing and rebuilding on a given supply of land, the less they'll be able to spend on the land itself.

Why are you comparing regional prices to national income?

I'm an economics noob, but is `comparing regional prices to national income` in some way technically wrong or misleading in some way?

Is the supply really "limited"? Sure, there's finite number of "coins" that can be generated. But unlike physical objects, there's not really any special property of that unit. Also, you can just generate a new currency of more units and similar utility (as has happened many times recently.)

Objects in the real world have utility that's directly linked to their unit value. That's not necessarily true for Bitcoin... if it goes up 10X, I can just use 1/10 as much and get the same exact transaction result. So why is it "limited" from a supply/demand perspective?

> Objects in the real world have utility that's directly linked to their unit value.

But that's not true of money...whether it's official fiat money, many local currencies, or even gold, which has some utility but not near enough to support its total value.

I'd say that an analogy with diamonds works: There is an infinite supply of lab-made-diamonds, however they are not fungible with real diamonds. Them being substitute goods, lab-made-diamonds may have negatively impacted the price, but real diamonds are still considered scarce.

> There is an infinite supply of lab-made-diamonds, however they are not fungible with real diamonds.

Ada Diamonds sells lab-grown diamonds and jewelers can't tell https://news.ycombinator.com/item?id=17228369

De Beers admits defeat over man-made diamonds https://news.ycombinator.com/item?id=17183603

There is nearly an infinite supply [for all practical purposes] of mined diamonds, for that matter. And lab-made diamonds are real, and aside from the early versions being a little too perfect they are indistinguishable from mined diamonds.

There's an infinite supply, but there's non-zero cost associated with accessing incremental units in that supply. (And some would say diamonds are an artificially constrained market anyway.) With crypto, there's arguably an unlimited supply at zero cost.

> With crypto, there's arguably an unlimited supply at zero cost.

I like that one. Makes it seem like its a perpetual motion machine and we all know how that ends.

The mining cost is actually quite high for bitcoin, there's a friction involved that's being overcome.

They pretty much are fungible with natural diamonds. High quality synthetics can't be told by eye from equivalent quality naturals.

If they're < 1ct., it doesn't pay to have them analyzed.

"Real" diamonds have always been considered scarce, but only because of marketing. De Beers, AlRosa, etc. have very large reserves of natural diamonds. Over time, they will become genuinely scarce, as the industry agrees that economically recoverable deposits of natural gems will decline after about 2020.

This analogy isnt complete though because it doesnt take into account network health. Its easy to make a cryptocurrency, but hard to build a network large enough to defend against various attacks. There are many, man coins out there suseptible to double spending - bitcoin is the most secure, and this security adds some value in itself.

Maybe you're jumping to the conclusion too fast. Most coins don't have publicly declared vulnerabilities (ie there might be many 0days). But it might be untrue that bitcoin price is not being manipulated (an attack itself on the network) based on multiple articles on HN alone.

So bitcoin might not be too unique or valuable.

Diamonds aren’t scarce. They are just unevenly distributed, and a few cartels own the means of production. The resale market for all but the most valuable diamonds is complete crap, because deBeers keeps bringing enough new diamonds to market every year to meet demand.

while the supply of digital coins is infinite (you could fork btc, or any other chain, or create different coins that could then be forked) the supply of Bitcoins is finite & knowable. this is a component of the argument by "maximalists" who suggest that alternate coins/tokens are bullshit by design, and anybody who thinks they aren't is necessarily in favor of inflationary money.

> Objects in the real world have utility that's directly linked to their unit value.

Could you explain what this means to you? I don't understand what you're saying

Bigger diamonds are more desirable than larger diamonds, not because of the price, but because they look better and are sparklier and harder to lose and all sorts of other real-world metrics.

If I want $1000 of bitcoin, I don't care whether that value is in 1 BTC, 100BTC, or 0.0001BTC. They are otherwise identical to me.

Therefore, the fact that the total of all bitcoins in circulation can't exceed 23 million is irrelevant unless you care about the value of 1 BTC, which is only the case if you are trying to sell them for more than you paid.

What he said above: unless you have a long or short position, you don't care whether you get a full unit or some fraction thereof.

There are some elements of behavior economics that counter this - people like to buy lower-priced coins and stocks because they get "more" of them, from a unit perspective. But rationally, there's no reason to consider 1 BTC @ $10 any different from 0.1 BTC @ $100, hence the number of "units" seems potentially irrelevant.

but is the same not true of trading USD for EUR? If I want $1000 of EUR, I don't care whether that is 1 EUR, 100, or .01. The value is in the ecosystem.

Bitcoin is still at the beginning of the beginning of any sort of ecosystem. Everyone expects way more from it than is possible. It is/will deliver on the things it is designed to.

You're correct that I don't care about the value of 1 BTC (or 1 EUR) unless I can sell it, but you imply only selling it for USD again. When it is widespread enough to be a currency, you can 'sell' it for goods and services.

Yes, but people argue that the finite supply of Bitcoin is a fundamental advantage vs. currencies. The supply of a currency isn't really infinite, but it's quite flexible when you consider that giving credit effectively "creates" more currency and expands the monetary supply. (I'm not clear why BTC won't eventually have this issue as well if folks start lending / borrowing it.) All the BTC really avoid is increases in the monetary supply via the printing of additional currency, which is arguably a feature of traditional money, in that the central government can intentionally tighten or ease the monetary supply to help manage economic volatility.

while the supply of digital coins is infinite (you could fork btc, or any other chain, or create different coins that could then be forked)

This is bull. It's not zero cost to fork a cryptocurrency. It's not zero cost to mine. The supply of a digital good might well be very large. However, it will most certainly be finite.

You could fork the cryptocurrency and let miners decide their reward.

Then you're limited to "What's the biggest number that a miner can name in the finite amount of memory available?", which has the ultimate limit of a Busy Beaver function.

BB(n) for n > 1500 behaves like an infinity in many important ways.

Then you're limited to "What's the biggest number that a miner can name in the finite amount of memory available?"

Then just apply my original argument. It's not zero cost to mine. It's not zero cost to fork. The supply of cryptocurrency will be very large, but it will be so many x orders of magnitude smaller than BB(kerjillion), that x itself might be larger than the number of every cryptocoin ever made and every cryptocoin that ever will be made.

The useful thinking is about the computational limits of our current civilization, not infinities or redonkulous numbers.

You don't need to fork it, or mine it. You just use a smaller amount.

My point was that other traditional "store of values" have inherent value based on their utility per amount, which means that the finite supply has implications for people who want to use it. Bitcoin doesn't have that - it's purely useful in terms of what you can trade it for (much like a dollar.) Hence the fact that there's only so many "units" is kind of uninteresting, because a fractional unit is no less useful.

Why can't it be both? (Hype cycle and manipulation).

Indeed, any theory of manipulation has to involve a managed hype cycle.

If a small number of people and organizations controlled both bitcoin supply and bitcoin trading and had the ability generate tether, they could "prime the pump" of the hype cycle to get attention and a rise in price. They'd then cash out money from the folks who put dollars into bitcoin. But once the hype cycle turned, they could slow down trading in bitcoin, slow down the cashing-out of tether, and print new tether so that a bust wouldn't be evident in the price, and so that an actual mass exodus from bitcoin into real dollars wouldn't be possible.

Thus bitcoin prices could be sustained at an apparently high level, with even a few upward bumps, for a while.

> Bitcoin has a limited predictable supply

Lots of things have predictably limited supplies. Most of them don't go through a hype cycle.

Agreed. I heard millennials (mainly) looking at the desolate financial future that awaits them and deciding to roll the dice and throw what little cash they had into Bitcoin.

Sad on many levels.

i just want to tip my hat to such a succinct, and in my view accurate summary.

While I love Matt's column and read it often I think there is a third possibility. "Real" (as in do it for their day job) foreign exchange traders looked at it and said, "Gee, there are all these tricks we get slapped for if we trying them on manipulating exchange rates, but these noobs either don't know about them or don't care, let's see how high we can push this thing..."

Watching the BitCoin saga from Mt Gox to today has often felt like watching a financial crimes historical reenactment society having an annual get together.

Fraud seems to be easier than you might think. For comparison Bitcoin is about the size Madoff was dealing with. Bitcoin is still loose change in terms of the global economy.

Too bad it isn't also loose change in terms of global energy use :(

a fraction of a percent is pretty much the definition of loose change

Seriously, the way people talk about it you would think that a third of the world's energy supply was getting pumped into NVidia cards.

The global average energy consumption is 110,000TWh.

Every cryptocurrency in circulation collectively uses about 55TWh, or 0.05% of the world's energy usage.

And yet it isn't providing value to 0.05% of the world's population. Even if it did, the energy would go up (exponenially?)

I'm not sure the tradeoff is worth it.

When I am playing a game, my computer's power consumption increases by a lot. I am using more energy and ultimately generating more entropy in the universe. Is it worth it?

Your computer's power consumption increases by a lot - so much in fact it might hit it's cpu and gpu rated max wattage - perhaps 300 watts in all for a high-power PC. A kettle uses around on average 1800 watts while on. Washing machine is 700 watts. On the scale of home gadgets, a fairly beefy home PC is only really in the middle of the pack for power consumption.

Depends on the game.

While this was almost certainly a joke, to the downvoters: Did you know about Foldit [0], the protein-folding game that actually contributes to scientific research?

[0] https://en.wikipedia.org/wiki/Foldit

> Depends on the game. lol

> When I am playing a game, my computer's power consumption increases by a lot. I am using more energy and ultimately generating more entropy in the universe. Is it worth it?

Yup, that's the right answer to a collectivist sentiment. Value is subjective

Mostly what we think others should spent their money on is irrelevant.

For example the global pet care market has sales of approx $100 billion. Many people think that is a waste.

H Other examples more than 0.05% simple to find!

> Mostly what we think others should spent their money on is irrelevant. Yup yup. One would think this is almost a tautology but sadly isn't

Actually it may be more worth it than most energy sucking things.

If it becomes an actual currency, the proof-of-work system will put everyone in an arms race of power/compute efficiency unlike any other.

That's actually a great point.

FPGA and GPU development has been granted quite the stimulus package from the crypto craze.

There are secondary benefits to this technology.

I bet the economic incentive got a lot more people into coding than before too.

It could be providing value even if only used by a small percentage of the world by serving as a price floor on electricity.

It de-risks and incentives clean and cheap energy generation like solar.

Indeed, as I mentioned in a sibling comment, to put those numbers in context, Bitcoin consumes as much power globally as a single large power plant, and roughly 10% of the world's data centers [1].

To be sure, it's the growth rate of that consumption that is more concerning. But at the same time, there are lots of reasons to believe that Bitcoin's electricity consumption will naturally moderate and flatten over time.

If you think Bitcoin has even a 1% chance of changing the world for the better e.g. via increased financial inclusion for lower-income populations, I think that amount of electricity is a reasonable "investment" to make (for now).

[1] https://medium.com/@petershin45/bitcoin-is-killing-the-plane...

If there is one percent chance of bitcoin making world somehow better place, I wonder what are the odds bitcoin makes world somehow worse place ( e.g. fostering criminal endeavours, pseudolegal scams,failed monetary policy and environmental problems) and how does those odds change the equation?

The same could be said for any new technology – they are always a double-sword, and it's our responsibility as technologists to do what we can to maximize the upside and minimize the downside.

The internet has changed society for the better in innumerable ways, but it's also robbed us of privacy and freedoms. Cars allow greater access to economic opportunities for people living outside urban centers, but they are also responsible for most of the world’s air pollution, and millions of people are killed each year as a result of traffic collisions.

This is the reality we have to face as people who work in technology.

1% chance of changing the world for the better says nothing unless you also specify how much better.

Local bakery makes world a bit better, but not really worth if you needed a whole power plant to run it (intentionally ridiculously extreme for demonstration purposes).

> unless you also specify how much better.

That is impossible for anyone to say with any certainty, because the future impact of new technologies are, by their nature, impossible to predict.

The oft-cited statistic is that 2 billion adults worldwide are still completely “unbanked” and don’t even have a basic checking or savings account. One percent of 2 billion is 20 million people (roughly the population of a mid-size country), many of them living in poverty.

A global decentralized currency like Bitcoin could eventually allow what happened with M-Pesa in Kenya to happen more easily in any country in the world.

I've written about this as well. You can skip to the section titled "How Bitcoin can help the poor and unbanked" to read data on how m-Pesa has improved life for many poor and rural Kenyans.


A global decentralized currency like Bitcoin could eventually allow what happened with a global decentralized currency like Bitcoin to happen to the 2 billion unbanked too. I'm not convinced that foisting 50% weekly price swings, MtGox-calibre ecosystem security and Bitfinex-style creative accounting upon poorly educated people who rely on those savings to not die is a net positive for society.

Aside from the obvious downsides, Bitcoin doesn't even do any of the good bits of m-Pesa (local currency denominations, works on dumbphone, instant transactions, intuitive because it's basically mobile credit, loans and repayments)

I agree that everything you say is true or has been true of Bitcoin at some point.

However, the more important question is how all of those things will change going forwards.

Is Bitcoin's volatility decreasing? Yes.

Will Bitcoin ever become stable enough to be a reliable store of value comparable to gold or the US dollar? We'll see.

Will cryptocurrency security and management improve? Most certainly.

Will new regulations help weed out bad actors? One would hope so.

Will Bitcoin become easier to use on mobile devices? I can't see why not.

Will Bitcoin transactions become instant or near-instant? Many people in the space are working on it.

Will Bitcoin become more intuitive? I would bet yes.

To put the "single large power plant" whose output exceeds Bitcoin usage in context, it's one so big that 1.3 million people were displaced to build it...

If one wanted to help lower income populations, it could be difficult to conceive a solution less likely to help them than bidding up energy prices to safeguard the proceeds of wealthy hackers' speculation. I'm going to go out on a limb and say that Bitcoin neither provides nor ever will provide as much utility to the world as, say, Ireland.

> so big that 1.3 million people were displaced to build it.

The fact that China built a large hydroelectric power plant (Three Gorges Dam) that displaced a lot of people, shouldn't be an argument against Bitcoin. There are ways to provide electricity for Bitcoin mining that are green and don't displace people.

> safeguard the proceeds of wealthy hackers' speculation

The people who get richest from the stock market are those who are already wealthier to begin with. Are you against the stock market and securities in general?

> nor ever will provide as much utility to the world as, say, Ireland.

Apples to oranges comparisons aside, a better comparison would be Bitcoin eventually becoming a popular alternative for gold investment, and/or an alternative to Western Union.

Gold mining causes direct physical destruction of landscapes and ecosystems [1]. I think Bitcoin mining largely displacing gold mining is a good thing.

Western Union charges as much as $95 to send $1,000 [2], and their customers are generally poorer working-class people. M-Pesa in Kenya has already demonstrated that mobile money services can lift hundreds of thousands of people out of poverty [3]. The Bitcoin protocol doesn't have a corporate profit motive and can become a cheaper and more globally scalable version of Western Union or M-Pesa.

[1] https://www.brilliantearth.com/gold-mining-environment/

[2] https://www.nerdwallet.com/blog/banking/western-union-review...

[3] https://news.mit.edu/2016/mobile-money-kenyans-out-poverty-1...

> The fact that China built a large hydroelectric power plant (Three Gorges Dam) that displaced a lot of people, shouldn't be an argument against Bitcoin.

It was an observation about how much of an understatement "a single power station" was, not a suggestion large scale hydroelectric was the world's only power source. I mean, another way of putting it would be 10+ large coal fired power stations which is probably a more accurate reflection of how the additional power generating capacity is supplied...

> The people who get richest from the stock market are those who are already wealthier to begin with. Are you against the stock market and securities in general?

No, but I'd never pretend that, say, an HFT trading shop was going to save the poor, still less that it had such potential to liberate the poor it would be worth using the same amount of electricity as Ireland to run their trading algorithms

> a better comparison would be Bitcoin eventually becoming a popular alternative for gold investment, and/or an alternative to Western Union.

Whether you love gold or find its appeal faintly ludicrous, its demand has survived over several thousand years of increasingly advanced alternative investments, and continued to increase after the end of a gold standard, so arguments that the existence of Bitcoin might seriously dent gold mining are hard to take seriously even before we get to the stage where the actual litmus test is dent gold mining to the extent it cancels out the energy use consequences of Bitcoin

I've used Western Union to send myself amounts in the $1k range to a developing country before. Cost including currency conversion was nowhere near $95 (people have paid more than I did for BTC-BTC transactions!) and I got cash I could actually spend. And I don't think a better Western Union (everything in the history of Bitcoin suggests catastrophically worse Western Union) would be a good use for more energy resources than a typical developing world country either, and am confident relatively few remittance-recipients in those developing world countries would agree. For the tech and price savvy, cheaper options already exist.

0.05% of a $30 000 per year income is $15. Sure, it's not a massive proportion compared to some entirely nessacary things, but I can't imagine someone on that kind of income happily spends $15 where they don't have to.

A little over two more orders of magnitude price increase before the next two halfenings and it's guaranteed to cause a world energy crisis.

Since Coinbase fees dominate mining rewards, each halving event also halves the equilibrium energy consumption. Since mining is speculative and capital intensive, you don't see a concomitant jump in hash rate, but the overall effect is obvious.

In other words, it's worth remembering that mining is currently massively subsidized through inflation, and as such future market dynamics must account for this.

Agreed. What a waste.

I don't like sports. Why do these cities keep spending all this money and resources on sports arenas when there are homeless people? There is no value to me. What a waste.

Or I can realize my interests are a very small subset of human interests.

Total myth.

Nobody has ever formulated an accurate prediction without gaping holes in the logic.

Also, even with their exaggerated calculations is still a tiny, tiny fraction of that used by traditional banking. (and not even on the same scale as internet use).

Yeah, I would think that legit value creation is the harder problem.

>magical fountain of fake dollars

The problem though is that if ether really were a "magical fountain of fake dollars" that would be reflected somewhere in the market price of tethers. Look at the price charts for tether->USD it's pretty nominally 1:1 https://cryptowat.ch/markets/kraken/usdt/usd

The most contrarian one could argue is that people who sold bitcoin for fraudulent tethers haven't tried to withdrawal them /at all/ and therefore the tetherUSD liquidity hasn't been tested.

One problem with the market price for tethers is that it is actually very hard to sell them for USD. For example, Bitfinex does not allow USD withdrawals, only Bitcoin withdrawals.

>it is actually very hard to sell [tether] for USD

Kraken offers a USDTUSD pair. How is that hard at all? https://blog.kraken.com/post/206/kraken-announces-support-fo...

Very little trading volume, and I'm not sure how easy it is to withdraw USD from them either. There's generally a lot more volume and market depth available for trading Tether to Bitcoin and that to USD. Also, for some curious reason, during most of the time the Bitcoin price was going through the roof that Bitcoin was actually worth more USD than it was USDT - the effective exchange rate via this route valued Tether at a small but very noticable premium to its face value.

>For example, Bitfinex does not allow USD withdrawals

Not true, bitfinex reenabled usd withdrawals in November.

not too hard. kraken and bittrex both do USD/USDT pairs (which, at 1.0 is a good metric of USDT health)

True for Kraken (although their USD withdrawal policies are very restrictive, so not a huge improvement over getting your money from Bitfinex).

Bittrex has a public pair between Tether and "True USD" [1], but their fiat USD market is not yet available to the public, and I don't know where we can find pricing data for the non-public market.

[1] https://bittrex.com/Market/Index?MarketName=USDT-TUSD

> although their USD withdrawal policies are very restrictive

What is "very restrictive"? Cap on max amount for a given period?

> "The most contrarian one could argue is that people who sold bitcoin for fraudulent tethers haven't tried to withdrawal them /at all/"

Or they're just matched by the number of people with 'legitimate' tether who haven't withdrawn?

> Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation.

That's silly. Ponzi-style schemes have been around since at least the late 1800s.

If anything, Bitcoin is closer to the even older Tulip-mania than to a Ponzi scheme.

A Ponzi scheme is a specific kind of fraud based on the promise of an unreasonably high return on investment which is actually payed by late adopters. Bitcoin doesn't make promises and it doesn't have a cover story to hide the source of the money. It may be a bubble, but it is not a Ponzi scheme.

As good a story as tulip-mania is, it seems it may not quite have been what we think.


The South Sea bubble is by far a better comparison. It even had ICOs (sort of) and token trading!

See "Memoirs of Extraordinary Popular Delusions and the Madness of Crowds" (public domain on Gutenburg[0]) for both of these and more!


Someone really needs to do a "For carrying-on an undertaking of great advantage but no-one to know what it is!" ICO

Hey, some ICOs even make it clear that you won't get any of the profits, so perhaps the description can be reduced to just 'For carrying-on an undertaking but no-one to know what it is!'

Bitcoin doesn't make promises? It is supposedly rendering money obsolete!

The primary market force was pretty obvious -- fraud like cryptolocker and money laundering. Shockingly, fraudulent exchanges and practices were/are pervasive.

could you explain how tulips had a technological innovation? i can't understand how people can even bring it up as a legit comparison

One of the innovations that drove the tulip prices was new strains/the newness of tulips in general.

>>A university study in 1593 led to the discovery that tulips could withstand the harsh northern-European climate... With their intensely colorful petals, tulips were unlike any other flower popular in Europe at that time [0]

Additionally, another innovation that drove the bubble was the widespread introduction of futures trading, allowing year round trading, as well as traders to speculate without needing to take delivery of the crop.


That's also the regular banking system. It's interesting that holders of lots of assets from different angles converged on a similar method for propping up the value of their assets.

So has caffeine but people still find a way to repackage it.

Washtrades and Bitfinex's tether were no doubt a huge factor. Someone wrote a great article about it back in November-December, but I can't for the life of me remember where/who.

Probably "bitfinexed". I think I know the article you're talking about, but could only find another quickly peeking through my history, but perhaps it'll serve as a breadcrumb for you.


That appears to be correct author, all of the pieces are very insightful.

His arguments are pretty terrible to be honest, but people had trouble grasping that cryptocurrency bears can also be wrong. The worst one he successfully pushed on suckers was his claim that institutional investors obviously weren't be paying Bitfinex to create Tether because they could buy it cheaper on one of the other exchanges. There wasn't nearly enough available on that exchange to make this worthwhile, and he clearly knew this because one of his previous arguments was that the shallow order book and low volume there demonstrated Tether was a scam. (I calculated the amount of money the supposed institutional investors were giving up by not using that exchange, and it was around $200 if they bought up every single Tether available for below par. For comparison, Tether was being issued tens millions of dollars at a time.) He knew what he was saying was a lie, said it anyway, and people believed him.

A lot of the other stuff was dubious to outright wrong too, but it was harder to prove he didn't genuinely believe it.

> "Of these two explanation the second is possibly more impressive."

This is really frustrating to read, this is a false dichotomy, there are plenty of other plausible explanations. It's not limited to "EITHER Cryptocurrency's value is fake magic OR it satisfies a real economic need."

I don't see any reason the two are mutually exclusive.

It's quite possible (some) people have a (")real(") economic need for a magical fountain of fake dollars.

I put the scare-quotes in parentheses because by real I mean a manic need, in the sense of mania - an excessive enthusiasm or desire; an obsession.

In either of these situations it seems like hodling until victory pays off. The real loser is, well, the planet as the network continues to consume more and more power.

Bitcoin could go the way of any number of other cyptos; back to zero.

In any case, nobody uses Bitcoin as a currency because it's logistically harder for 99.9% of people, and nobody uses it as a store of value because its insanely volitale. Bitcoin is really just a speculative asset.

I just made a transfer to someone just yesterday that had never dealt with Bitcoin before. Beyond explaining why "confirmations" were needed, it was surprisingly simple to get a total beginner set up with an account somewhere suitable, and even though I was transferring from an exchange account where I had to get verified (the account predated new KYC requirements), it tooks ~10 minutes to complete the verification process.

So it may be logistically harder, but it's doable enough that it was worth it to avoid having to do an international wire transfer with banks in many cases still stuck in a world of paper and faxes (my bank manager actually boasted about the amount of manual, paper-based back and forth setting up my business account required when I opened it two years ago).

I recently helped a techy friend with this and there were a number of pitfalls when dealing with the addresses and the long confirmation timed. The UTXOs abstraction is super unintuitive. Ethereum's account system is much simpler.

Still eithet are a piece of cake and lightning fast compared to normal banks.

I haven't used Bitcoin, and from what I've read I have two questions about it being a currency:

If I attempted to buy an ice cream cone with Bitcoin, will the money be transferred before the ice cream melts?

What costs more, the transaction fees or the ice cream cone?

> If I attempted to buy an ice cream cone with Bitcoin, will the money be transferred before the ice cream melts?

It will not.

>What costs more, the transaction fees or the ice cream cone?

There have been times where the average transaction cost was about $20. It's hovering around $0.80 cents now, to the best of my knowledge. So it depends on the market.

I belief that the current strategy is to convince others that bitcoin is a great transaction medium for everything under the sun (i.e. ice cream) and then cash out in dirty fiat once the price reaches a target so you can buy Lambos full of ice cream. It's really not a sincere attempt to create a currency as it is to masssively enrich early adopters by encouraging use by normal people.

Bitcoin as a great transaction medium WAS the strategy in the early years. This was the big promise.

As price and transaction fees rose the transaction medium for everyday things(like me paying for Namecheap hosting/domains in BTC in 2013) went away.

Many big vendors such as Steam actually stopped accepting BTC directly(or through 1 step processor such as Bitpay). It was too much trouble/risk and annoyed customers.

Cheaper/safer/more convenient than bank transfers. That Bitcoin promise has not been fulfilled.

SEPA is way cheaper/more convenient/safer than Bitcoin in Europe. Even in countries with troubled banking systems such as Venezuela, it is not normal to pay for regular items with BTC.

So Bitcoin "pivoted" to store-of-value strategy. Promise that offchain solutions like LN will handle transactions "any day now".

Hilariously Bitcoin.org just put back the low-fees part. https://news.bitcoin.com/bitcoin-org-reverts-back-to-fast-an...

"It's really not a sincere attempt to create [X] as it is to masssively enrich early adopters by encouraging use by normal people."

So it's basically a trash startup.

Small transactions should be happening on the lightning network. It's live now, allows for transactions which are optimistically both fast & cheap

I am not sure why nobody else mentioned this but there is a second layer called Lightning currently running very well ontop of Bitcoin. It enables basically instant transactions with fees at thousandths of a cent and people are using it Right Now to pay for VPNs and other goods online.

At this moment, the recipient of the payment will receive notification of an unconfirmed transaction in about 10 seconds, and the fee will be about $0.63.

>>If I attempted to buy an ice cream cone with Bitcoin, will the money be transferred before the ice cream melts?

The transfer is instant. To get a guarantee of settlement takes 6 confirmation, or about one hour, which is much quicker than the 6 weeks it takes for a credit card transaction to become irreversible. Unless you're purchasing something like a house, you don't need the payment to settle to complete the purchase, with either cryptocurrency or credit card payments.

Ethereum's confirmations take 15 seconds, to Bitcoin's 10 minutes, and you need about 12 to have a virtual guarantee of irreversibility.

Only the large-cap cryptocurrencies can provide a high assurance of irreversible payments:


>>What costs more, the transaction fees or the ice cream cone?

In (small-block) Bitcoin, at any reasonable level of adoption, the transaction fee, which is why small transactions could only be economical using an off-chain protocol like the Lightning Network, which has been in development for several years and is still largely unproven as a full substitute for regular Bitcoin transactions.

Bitcoin (Cash) guarantees low fees into the future as a result of a high maximum block size. With Bitcoin Cash, there is a higher risk of settled transactions being reversed with a 51% attack, given it has only 10% of the hashrate of (small-block) Bitcoin.

Ethereum's transaction fees are currently much lower than the cost of an ice cream, but that wouldn't persist with higher levels of adoption. That could change once it implements sharding, with promises to increase maximum transaction throughput 100X, or has the sub-chain plasma protocol deployed, which potentially enables virtually infinite scaling.

The long irreversible period of a credit charge is not a technical limitation, it’s a feature.

It's a feature that creates certain limitations in utility, as this article from Elaine Ou elaborates on:


Nobody uses Linux as an operating system because it's logistically harder for 99.9% of people. It's still incredibly important and foundational, and will continue to be, even supposing this never changes, even if that same 99.9% of people never know what it is.

Nobody used the Internet in its early days because it was logistically hard for 99.9% of people. However it made completely new things possible and over time, companies figured out how to make it not logistically hard to use for the majority of people, who enjoyed these new possibilities without having to worry about the complexity of the system underneath.

Actually everone uses it and you don`t even realize. Cellphones are all linux/bsd derivitives. All financial transactions will eventually be on a cyptocurrency but maybe nobody will realize it.

This is exactly the point I was attempting to make :-) Probably not all that clearly though, thanks for clarifying it a bit.

can you back your claims? cause billions of dollars are stored as value and many people including me use it to buy stuff.

I know people who use Bitcoin as a currency.

I know people who use 'hours of babysitting' as a currency too.

I know someone who uses their nobel prize as a kind of currency.

I'm more impressed by the guy who managed to figure out how to transact in bitcoin.

Bitcoin's absolute power consumption isn't at a critical level yet — Bitcoin consumes as much power globally as a single large power plant, and roughly 10% of the world's data centers.

However, I agree that its rapid and consistent growth rate is concerning and can't be ignored.

It's an area I'm really interested in and have been reading a lot about, because most of the news and "analysis" of the issue on both sides has been obnoxiously biased.

I tried to write a balanced summary article of the situation (below). Long-term, Bitcoin's electricity consumption could really go either way i.e. flatten or continue growing indefinitely. There are some causal factors like price that are out of our control, but there are others like the Lightning Network that are both feasible and in our control, and could significantly moderate Bitcoin's electricity consumption.


> Bitcoin consumes as much power globally as a single large power plant, and roughly 10% of the world's data centers

Well first of all, according to your own blog post, it is not as much power as a single large power plant, but as much power as the single largest power plant in the entire US. And thats just an estimate. It potentially uses twice that amount.

And 10% of the power of all the worlds data centers is absolutely bonkers. That isn't a small number, its spectacularly large.

And all of this for something that has yet to be adopted by 99.9% of the people on the planet.

I think your point about US power plants is a nitpick – The largest power plants in the world are not located in the US, and either way my point still stands because it's meant to be a rough approximation.

Unlike data centers where electricity consumption is directly correlated with internet usage, Bitcoin's electricity consumption is instead directly correlated with its price (which attracts more miners), and is very indirectly correlated with the number of users or transactions.

It's very possible that Bitcoin could be adopted by a significant (e.g. 10% or more) percentage of the world population even as its price remains fairly consistent, which would mean its total electricity consumption would remain fairly consistent as well.

As mining is an economic investment, they want cheap electricity. Cheap electricity is where there is excess that is not being used and would be otherwise wasted. That's why there aren't many large mining operations in NYC but there are in upstate NY near hydro.

they do not have any proof. anyone can say anything they like. Tether system cannot keep a value peg without having the reserves and the biggest bank of NL holds an account for them. I think it's time to get suspicious of these articles in times when people can short. I would short for sure before I posted this article online. Easy money, makes me the manipulator though.

> Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation.

That's what modern banking is. 95% of money in use is created by the private banks themselves.

> 95% of money in use is created by the private banks themselves

Through a highly-regulated process. We haven't had a bank run on regulated deposits since the FDIC came into being.

Have you never been to an ATM that has run out of cash? You can't make a run on the banks any more. They'll just tell you, sorry, they've run out of cash. You'll still be able to pay your bills and taxes using legal tender, though (bank dollars).

I've already told you the fact that 95% of money doesn't exist outside of the private banking system. What kind of regulation do you think is stopping everyone from wanting to get paper money for their entire life savings?

For those who don't immediately see this, just think for a moment how much of your income ever leaves the banking system. Do you get paid in paper money? Pay your rent in paper money? Did you buy your car with paper money? The answer to these questions for everyone is increasingly no.

> What kind of regulation do you think is stopping everyone from wanting to get paper money for their entire life savings?

That's missing the point.

The point of regulation is building a society where you don't need to do that. A bank collapse no longer means you lose your money - the FDIC insures a good-sized chunk, and the Feds come in and take over operations temporarily. Bank runs are prevented not by having enough paper money on hand, but by making people feel confident in the entire system - that your money will be there when you need it.

Fascinating read on how relatively seamless this now is: https://www.npr.org/templates/story/story.php?storyId=102384...

The paper money doesn't exist.

Who do you think is footing the bill when the government has to step in? The banks or the government? Wonderful regulation...

> Who do you think is footing the bill when the government has to step in?

Banks pay insurance premiums to the FDIC.

> The paper money doesn't exist.

Who cares? A college diploma that's not printed out is still a college diploma. I don't need to be able to physically hold it in my hands, and if a hundred thousand people all asked the Bursar's Office for a copy, they wouldn't be able to do so in a timely fashion either.

The original article is a joke. Large buy orders will obviously increase the price, and to describe this as manipulation is completely misleading.

There's also zero evidence that Tethers are a scam. I'm pretty sure it would have been discovered by now, and also unlikely that Circle would pay $400m for an Exchange whose main currency is USDT if that was the case.

Both NYT and Bloomberg seem to love an inaccurate Crypto article, seems like their editorial standards are non-existent in this sector. Sure that will change once they have bought in.

There is also zero evidence that it’s not a scam.

This conversation is 6 months old though.

Quite suspicious the New York Times have come to this incredible revelation now, yet didn’t mention it in Nov 2017 when it was actually a hot topic.

I must admit I find most crypto journalism hard to agree with. Hopefully that will change.

Well, they're reporting on the recent release of a notable paper written by an academic who has a reputation for "uncovering fraud in financial markets," at least that's what the article says. Presumably that paper was released today or this week or something.

I'm not arguing that the paper is or isn't actually worthy of having this NYT article written about it, but what is your suspicion regarding the timing, exactly?

the second choice would be true if tether were fake. the evidence suggests it's backed by real money

maybe there is a third option:

3. it was just a bubble pumped by people looking to get rich quick and who are now holding the bag.

What evidence have you seen that tether is backed by real money? I haven't seen "definitive" proof/evidence either way, but it would seem there are certainly strong suspicions that tether is not backed by real money (e.g., never having completed an audit and being fired by their auditing firm).

Research rather than speculation: https://blog.bitmex.com/tether/

That was a decent report considering the source has the incentive to be pro Bitcoin.

And the best that positive report could come up with was:

* serious lack of Tether transparency is not necessarily fraud.

* some correlation with deposit balance in Puerto Rico

I will eat my hat if a respectable audit firm releases a Tether audit showing that Tether has been 1:1 backed by real USD reserves in all of 2017.

Which evidence? Because around December when they were printing about a billion dollars worth of tether there was zero evidence it was backed by anything other than wishful thinking. Maybe that’s changed?

My theory is that it was initially not backed fully but after the fact it became backed. A billion or two dollars is not that much money to eventually get, especially if you also hold a lot of valuable BTC as a result of this manipulation.

Basically the unbacked tether allowed them to purchase BTC and with the great price increases that become worth way more than the unbacked tether allowing them to leverage that to actually get backing for the tether, either via selling BTC or merely promising it.

Thus I believe that tether is likely backed now.

I think it was an impressive scam, very ballsy.

This scheme would likely have fallen apart when they were printing and BTC continued to go down...they were no longer able to keep the price rising, so they likely weren't able to buy more USD than the USDT they printed.

To me, it really looks like Tether was propping up a significant portion of the valuation of BTC for a few months; they were printing enough to buy roughly half of all miner output (and in a market where most coins are in a state of HODL, the miner output and demand for it determines the market price). Probably much of the climb up to 10k was market manipulation by Tether. Yes, lots of dumb money went into the market in response to the climb, but when the printing slowed, the market fell pretty fast.

So, I agree it was ballsy, but I strongly doubt it's fully backed even now. I think when they started printing a hundred million Tethers every few days is when the market began to tip against them, and they were desperately trying to keep the BTC price climbing. They're gonna walk away from this scam multimillionaires, unless they go to jail, but they've never been sitting on 2+ billion USD in cash reserves (I just checked, there are currently 2.5 billion Tethers in circulation). I find that idea literally unbelievable.

Frankly, I'm out of crypto until Tether is, or until there's an audit by a reputable firm which I'd wager will never happen. Somebody's gonna get hosed on the deal, and it's gonna be pretty much everyone involved in crypto who isn't running a massive ponzi scheme, I'd guess. If there's anyone left that meets that description.

How can it "become backed"? Anyone who buys Tether expects to get Tether tokens. If the issuers created Tether tokens from nothing, there's no way they can become backed. Where would the money come from?

Tether isn't redeemable, anyway. You can't go to the Tether issuers and demand a dollar for your Tether token.

Financial Times: Meanwhile, the supply of Tethers rapidly ballooned, from $50 million to $2.2 billion. That led to an increasing number of questions over whether the dollars that were meant to back the cryptocurrency really existed. It was reported in January that both companies had been subpoenaed in December last year by US regulators, who wanted to look into this.[1]

[1] https://ftalphaville.ft.com/2018/06/13/1528904202000/Has-bit...

> How can it "become backed"?

1. Create 1m Tether out of thin air (unbacked).

2. Use them to buy 1000 BTC (when the price was 1000$).

3. BTC Price goes up to 10,000$.

4. Sell 1000 BTC for $10m. Keep $9m, and put $1m into a bank account to "back the tether".

The big generation of Tether occurred around the top, as Bitcoin neared US$20,000. Now it's around $6,000. If that was their strategy, they lost big.

No no, if you can acquire a $6,000 bitcoin for $0 and sell it, your scam has a 100% margin. It is still profitable whenever you can run the scam, at whatever price above $0.

Right, but if they acquire $6000 for 20000 tether (that they paid $0 for), and promise that tether is full redeemable for $20000, they are $14000 short when the tether holder comes knocking.

What if tether is the tether holder and they simply decide to never call in that debt against themselves? That would mean they lost their own money, but they still may have made enough money over the course of the entire scheme to pay off their "legitimate" customers and thus avoid getting publicly called out.

> What if tether is the tether holder

Why should they print more tether if they are already holding them?

So long as the printing press keeps running, the solution is to print yourself another 14000 in tether, convert to BTC and sell the BTC for 14000 in real USD.

What you're describing is fraud which could still be uncovered by, say, an accounting firm hired to audit. Interesting how none has been allowed to complete an audit.

1. What proof do you have?

2. Even if this was their play from the beginning and they've actually pulled it off (I'm doubtful) why should we trust that they won't hit us with some other scam some point in the future?


1. I have no proof, it is "my theory." 2. I wouldn't trust them in any way.

This report:

1. Is not an audit to be used for assurance purposes. The disclaimer at the top states that it "should not be used or relied on by any other party."

2. Is rather old now.

3. Was conducted by a firm that no longer conducts business with Tether, probably because Tether would not comply with information requests needed to conduct an actual audit, which is not as difficult as Tether makes it sound here: https://www.coindesk.com/tether-confirms-relationship-audito...

Or in other words, it isn't proof of anything, and the fact that Tether has not been able to produce an actual audit for assurance purposes in all this time, speaks volumes.

why is it super hard to believe they may have actually the holdings since their intetest is aligned with bitcoin?

Yes, third point is the most likely, a lot of that money was coming from ordinary people. I know people that are not tech savy at all and they invested in bitcoin when it was worth 15k and holding because they don't want to sell now for 2x times less.

One of my mining rigs was bought by farmer, second was bought by guy selling audio hardware etc. The bubble was so strong, everyone wanted to get in either by buying mining rigs (not understanding how minining/difficulty works) or buying crypto.

What's the difference between a real dollar and a fake dollar?

All dollars are first-order fake.

What's the difference between a fake promise and a real promise?

The government guarantees that dollars are acceptable for paying taxes. For a promise, that's about as real as you're going to get.

Thanks for this analogy. I've spent a lot of time explaining that the fact that a currency is officially supported by a state makes all the difference, but your comparison is just perfect.

This may be true, but the government also has the power to control inflation, which limits the purchasing power of those dollars.

See: Venezuela, Zimbabwe, Germany ~1920

Debt instruments are based on faith and credit.

Those events are indicative of scenarios where the market lost confidence in the faith and credit of those nations. When you can't sell bonds anymore, you implicitly borrow by devaluing the money.

That's where the derogatory treatment of "fiat" money by goldbugs and cryptocurrency advocates falls down. A government can declare that something is worth a dollar, but the market determines what a dollar is worth.

> A government can declare that something is worth a dollar, but the market determines what a dollar is worth.

So what happens when the government declares that a candy bar is worth a dollar, but the market determines that a dollar is worth half a candy bar?

The Simpsons did it: https://www.youtube.com/watch?v=dErRj6V8_xQ

Tethers are Itchy and Scratchy money.

To paraphrase Woody Allen, as fakes go, it's one of the best.

You can only pay taxes with real dollars.

A dollar is a dollar.

A fake dollar pretends to be a dollar.

Is it that hard to not to feign ignorance and not be pedantic when you CLEARLY know what it means.

Real US Dollars have a very large arsenal with unimaginable destructive powers propping up their value.

The dollars may be fake but the man with the gun who is standing behind them is very real.

You're forgetting about the army of hackers who are propping up the value of Bitcoin and other cryptocurrencies.

Why own weapons when you can control the people who own them?

As our software systems get more complex and as we become more reliant on them, hackers become increasingly influential politically and economically.

Lawyers, doctors and financiers have had thousands of years to figure out how to gain unfair zero-sum leverage within capitalism, software engineers, on the other hand, didn't exist until recently but it's only a matter of time before they group together and get their leverage.

> only a matter of time before they group together and get their leverage

it's already done. see, for instance: - the impact of digital campaign outreach in the 2008 election - various 3letter "cyber" groupos since early 2000s - anonymous circa 3 years ago - btc manipulation last year

there are probably more

This is the internet, and those weapons can't fire down here. Try, instead, to delete a two week old transaction from the bitcoin blockchain. You will find that even with military-sized funding, you can't. That's what is backing up bitcoin's value

Heh, reminds me of the time Anonymous tried to fight the Mexican drug cartels, thinking "this is the internet, and those weapons can't fire down here."

The cartels found one poster in a local internet cafe. They did their cartel thing. I didn't hear any more about that fight.

Something everyone forgets. If you can reach something, that something can reach you.

The ETH/ETC fork essentially reversed a month old transaction. It's not Bitcoin, but they still have a 1/2 marketcap. If the value comes from irreversibility, their marketcap should be almost 0. [Moreover, ETC is the irreversible chain and the value is 1/30 of the value of ETH.]

First of all, both ETH and ETC are irreversible. If someone tried to reverse something on the ETH or ETC chain, there would be another fork and there would be 3 Ethereum chains.

Also, the ETH/ETC fork did not technically reverse anything. The fork allowed the inclusion of an "irregular" transaction that moved funds from the DAO account to a "Withdraw" account.

I know, but why I useful an immutable log if nobody looks at it?

They used a magic fork to create the irregular transaction. They could have removed the original transaction and use the magic to declare the intermediate has valid. (I've seen this "solution" in discussions about what to do if someone puts illegal content in the blockchain.)

"Try, instead, to delete a two week old transaction from the bitcoin blockchain."

So that is literally true, but is it really true from a pragmatic sense? If the US government used their military might to destroy a significant portion of large mining installations, would bitcoin really be in any way resistant to that? If the NSA and DOE used their combined supercomputing power to outhash everyone else, couldn't they take over the bitcoin network and do whatever the heck they want with it?

the same is literally true for a nuclear-armed opponent and the dollar. piles of cash would still exist in bunkers and wallets around the world, and would retain some value.

a more interesting evaluative plot-element might be something like:

how many developers would need to die for bitcoin to be exterminated?


how many economists would need to die for the dollar to be exterminated?

frankly, if some gov wanted digital coins (or their supporting networks) destroyed... I think it would be easier than reducing a traditional, national currency to rubble.

You do not live on the Internet, you live in physical reality. Very much in reach of the police. Or a cruise missile.

At USD$6.5B for a 51% attack (scraped off a website)...

... that's a smidge over 1% of the US military budget.

51% lets you censor transactions. You need more than that to reverse a week old tx. Way more. You have to outrun the rest of the world and gain a week of advantage. So if you have 90% of the hashrate, you go 9 times faster than the honest miners. Every day, you can erase 9 days of blockchain. But that 90% means that you build a mining farm that is 9 times greater that the current hashrate. Redo the math on the costs and logistics of that.

Doesn't mean it's easy to get approval to spend that "smidge" on an attack.

"smidge over 1%"

It's not easy, but it's not impossible (to parent's bombastic assertion).

I believe the Manhattan project spent something like 0.55% of the US military budget (against ~2013USD$900b yearly budgets, which seemed the peak in 1942-45).


Because it had hard-won political approval; a bitcoin attack would face similar barriers.

And I know what smidge means, I was expressing ire at your attempt to sound folksy.

Fwiw, I'm actually pretty folksy.

I can't exactly delete a physical transaction with real money, so that provides zero new benefit.

The Fed can inflate away the value of those transactions anytime they want and not only do you have zero control over this process, it is not even possible to predict it.

The complexity of the financial instruments used by the Fed is intentional and serves to obscure the fact that they are essentially giving free money to large banks and corporations.

Corporations are not getting bigger because they're more efficient at delivering value to consumers - They're getting bigger because the Fed makes sure of it.

The Fed is like a river; those who are closest to the source can get the most out of it. In this case it means bankers, financiers and corporations. Regular workers are far downstream, they get whatever is left.

> The Fed can inflate away the value of those transactions anytime they want and not only do you have zero control over this process, it is not even possible to predict it.

Be real. Between USD and BTC, one has lost 70% of its value over the past ~7 months.

You're not wrong but you're also choosing a specific time frame that makes your point sound stronger than it might necessarily be. I could do something similar:

>BTC is worth the same as it was in November 2017

>Between USD and BTC, one has increased ~150% in value over the last year

>Between USD and BTC, only one is worth ten times as much now as it was worth two years ago

At the end of the day I am pretty sure I agree with the point you're trying to make (USD is a lot more stable/predictable/reliable than BTC even taking into consideration inflation) but you shouldn't use arguments that someone who disagrees with you could easily attack.

Which is why the US dollar is always falling compared to other currencies?

Deflating currencies are terrible things for economies

People can create new cryptocurrencies to increase the total cryptocurrency money supply.

If the world's financial stability is at risk due to crypto-currency, you will see how easy it is for the government to effectively shut down the internet. What good is the bitcoin blockchain when all ISPs have been locked down and the only internet traffic is going directly through military run equipment?

It would be an economic suicide for the first country that decides to disconnect itself from the internet. Or do you think that for the first time in history of mankind, every single government will come together against bitcoin? Besides, there are satellites beaming down bitcoin transactions, so...

I'm talking about the scenario where cryptocurrency is already threatening to destabilize the world financial system. And it's trivial for the world's governments to shut down all the satellites that might transmit bitcoin transactions. Now if a small group of people could figure out how to launch swarms of rogue satellites quicker than the gov could shut them down, that could be a way to keep crypto going.

Why are you interpreting my comment as somehow anti-btc? Everything isn't binary.

Why is that valuable?

But centralisation makes it safer, all quirks aside

Once Tether gets audited, indicted, etc, you'll be able to pay taxes with one, but you won't even be able to use the other as toilet paper.

One is backed by taxation of the citizens of the government who print it.

A real dollar was a certificate redeemable for a ounce of silver. The British pound was redeemable for a whole pound of silver.

A fake dollar is borrowed at interest against thin air, fiat currency, from a private bank called the Federal Reserve. It isn't Federal and there is no reserve. The Federal Reserve Act was written by Samuel Untermyer and others, including the Warburgs (who financed the Bolshevik revolution) and was passed on Christmas Eve. It is said Samuel Utermyer blackmailed president Woodro Wilson with a love letters. The same Samuel Utermyer funded the Scofield bible. But I'm going on to other subjects, hope I sparked interest into our history.

Levine (assuming he is not being deliberately dishonest) clearly has no knowledge of history of currency because the thing he calls more impressive is a fairly routine failure mode (even when not a deliberate outcome of a planned scam) of privately-issued currencies, especially but not exclusively those pegged to national currencies, and a not infrequent failure mode of national currencies themselves which both the modern government taking a general monopoly on many forms of such currency and the common structure of independent central banks is designed to mitigate, as in part are securities regulations which affect many currency-like instruments that don't fall into the scope of prohibition of government monopolies.

It occurring in a currency affected by actors acting either outside of or in wilfully defiance of the regulations designed to mitigate it is about as impressive as an unlicensed, untrained, underage, blind, drunk driver managing to get into a collision.

His column is sort of a tongue-in-cheek take on the day's financial stories. He's actually very knowledgeable and has the ability to explain some really esoteric financial market shenanigans in a way even a layman can understand.

There's always a theme of wonderment at the crazy and illegal things people do written from the perspective of an old Wall Street guy.

Right, its been the argument for the past year in the crypto space, and this is because of a lack of transparency from Bitfinex, which is the right move for Bitfinex. Many people are just assuming the worse, as they have no proof for the best case or the worst case.

Every OTC desk I talk to always brags about how much demand there is for large buy orders, especially during the dips. If Bitfinex's Tether works as created, then any surge in demand will result in new tether's being created, this is the only way Tether can sustain it's peg.

IF current cryptocurrency owners are storing value in Tether so they they don't lose money, then more Tether's should be printed.

ELSE IF new cryptocurrency buyers are sending fiat to Bitfinex and get Tether, then new Tether should be printed

The main gotcha is that no Tether's have been destroyed, to my knowledge. And this is from just looking at the OMNI Tether asset on Bitcoin's blockchain. But has demand for Tether ever really dropped?

> IF current cryptocurrency owners are storing value in Tether so they they don't lose money, then more Tether's should be printed.

Why ?

Tether is supposed to be printed when (and only when) new dollars are given directly to them.

If cryptocurrency owners want to store value in tethers, they must buy existing tethers with their cryptocurrency. That's how this is supposed to work.

If more tethers are printed to fulfil demand for tether by people wanting to sell cryptocurrency, then the peg they claim to have (1:1 backing) is a lie.

From the Tether FAQ:

> The Tether Platform is fully reserved when the sum of all tethers in circulation is less than or equal to the balance of fiat currency held in our reserve.

That is to say, they offer no guarantee that 100% of USDT in circulation are backed by USD at any given moment.

On the home page at https://tether.to/, it states:

> Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.

> That is to say, they offer no guarantee that 100% of USDT in circulation are backed by USD at any given moment.

It's right there on the front page, a claim that they have 1 to 1 backing.

This seems to me like a blatant lie, along with their claims to audit.

Not that I would trust them, but literally the next sentence;

Through our Transparency [1] page, anyone can view both of these numbers in near real-time.

[1] - https://wallet.tether.to/transparency

And right beneath that,

"Our reserve account is regularly audited".

By whom? Where can anyone see these audits, for transparency's sake?

Tether fired their auditor for asking too many questions.[1]

[1] https://www.coindesk.com/tether-confirms-relationship-audito...

Tether fired their auditor for _wanting to conduct an audit_, and not being willing to "rubber stamp these bank statements for us and call it good".

okay, then for your case only the ELSE IF is important.

For my case?

Do you not mean "for the claims made by tether on their homepage to be true"?

no, not really

Tether can already exist and be in circulation and people can be willing to buy it at a higher price from existing holders. In this event, Bitfinex/Tether needs to be willing to create more Tether, diluting the current supply to offset the greater demand and keep the peg.

To me, it isn't important that "each Tether is backed by USD [in their bank account]", but they may accomplish it that way for consistency anyway. Each Tether is still backed by a notional value and was exchanged for such.

Their willingness to do this could help arbitrageurs try to front run and sell their own Tether when a premium exists.

> diluting the current supply to offset the greater demand and keep the peg.

Their peg is created explicitly by being 1:1, not by manipulating their supply. This is how they create trust that they aren't subject to market conditions or threatened by a run on redeeming their tokens.

To you it may not be important, but it's right there as a bold claim on their home page, and it's why they've been used.

Note that I did not say that their peg could not conceivably work without 1:1 backing, I said that their claims would be a lie. As are their claims to have been subject to frequent audits - they've never completed a single one.

I am fully prepared to receive negative points for this comment, but I do not believe there is anything new here. This narrative has been pushed by the media for almost a year now. The article even claims:

> This method is not conclusive, but it has helped government authorities and academics spot suspicious activity in the past.

I haven’t read the entire 66 page report yet, but assume for a second that the relationship between Tether and US dollars is 1:1. This would mean that during a bull market, when the price started to decline, big players invested money to buy up the available supply. Nothing about that seems suspicious to me. They may have chosen to use Tether instead of US dollars for any reason. Perhaps because there are more exchanges that have USDT trading pairs than there are with USD pairs. Or perhaps because it made arbitrage easier (transferring USDT from one exchange to another is much simpler than USD where you would have to first move it to a bank account then wait days for a new transfer to take place).

There is a chart at the end of the report that shows that the Tether issuance continued to increase even as the BTC price was falling. Also it shows that less than 25% of BTC trading volume came from Tether while over 60% came from USD (page 38).

It is funny that claiming that the price decline in BTC since December is manipulation will lead to you getting flamed here and people will tell you that it is just going to its “natural value of zero”, but the idea that there was a conspiracy to pump up the price last year is greeted with open arms, and everyone latches onto it (The reality is probably somewhere in between). The math regarding Bitcoin’s price increase is actually pretty sound, and I encourage anyone who disagrees to read this article:



As a side note, I think if you said this exact same thing about the stock market, it would not be big news at all: “US dollars were used to pump up the stock market after it experienced big dips”. And meanwhile BTC is 0.3% the size of the stock market.

> The math regarding Bitcoin’s price increase is actually pretty sound, and I encourage anyone who disagrees to read this article:


The article doesn't prove the math is sound except quote some people about price prediction and talk about how pricey bitcoin will get because population, gold market size etc.

And then it also misses why people don't invest in bitcon. It has nothing to do with Kanehman's psychological studies etc but because people still don't understand what is the use case of a bitcoin.

Additionally, it is these kinds of poorly written articles used as proof which dissuade people even more because the narrative is - if prices are going up then it must be good. I am sure many said something similar about housing prices in 2005.

> I am sure many said something similar about housing prices in 2005.

The difference is that the housing prices were clearly in a bubble and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment. This is much much different than Bitcoin. I would argue that Bitcoin is the only asset class that is not currently in a bubble.

> The article doesn't prove the math is sound

I suppose you are right, but I still think it brings up some good points. The Bitcoin market cap is minuscule compared to any other established market. What gives gold its value? It is not that it is used in jewelry. It is that there is a limited supply of it, it can’t be easily created/counterfeited/reproduced, it is divisible, and it can be used to store and exchange value. Bitcoin has the exact same properties, but is even easier to purchase, store, and exchange. I fully believe that Bitcoin and Gold market caps will reach parity some day. Maybe it will take 10 or 20 years, but I believe it will happen.

What you are quoting about banks and bubbles is all in hindsight. At that time everyone and their grandmother thought real estate could only go up.

So, if you have data to backup the fact that bitcoin is not in a bubble, please show that. Until then it is just your gut feeling nothing more.

> What gives gold its value? It is not that it is used in jewelry.

But statistics disagrees with this point:


I haven't calculated but quick eyeballing tells me jewelry beats investment by a far far margin.

Additionally, gold for the most part is a risk-off (safe harbor) asset. As in people rush to gold when markets are crashing because it is supposed to be divisible etc. On the other hand people rush (and encouraged no less) to put money in bitcoin when markets are booming. So my gut feeling is that once we hit a rock in these booming times and S&P drops people will still prefer gold. But let's see how bitcoin performs during a market crash before we talk about it's investment potential in the same breath as gold.

All valid points. I personally am very eager to see what happens to Bitcoin and crypto currencies during the next recession.

It's an interesting question, but rationally it seems like BTC should decline during a market crash / recession. It's arguably a way to store value as other assets decline, but given that it has no yield, the rational thing to do after that decline is over would be to cash in your BTC and use it to purchase those other assets that have declined, such as real estate, bonds or stocks, and now have either attractive yield or a strong potential for future asset growth.

(And you see this kind of rebalancing effect in general when a major asset class declines - eventually it pulls down other, unrelated asset types because as it goes down in price, it becomes a relatively more attractive investment.)

I wrote a bit about my opinion in a reddit thread a while back. It is here if you are interested, but a fair warning it will probably be quite an unpopular opinion with the hacker news crowd:


The problem isn't that it's unpopular, it doesn't seem (from the post) like you have some kind of underlying economic or financial principle supporting your argument.

* why would it have an inverse relationship with other assets? It's not a short. It's still valued based on purchase price vs sale price, adjusted for risk. If risk has risen and nothing has changed about purchase or sale price, why would it rise?

* if Bitcoin was at a market-clearing price before a downturn, and other assets are now much cheaper, why would BTC then be comparatively more attractive in terms of expected investment returns?

Well can we at least agree that no one knows with absolute certainty what will happen to Bitcoin and other crypto currencies during the next recession?

The reason I believe it will be inversely related is because it is still a relatively new market whose market cap is minuscule compared to other established markets.

During a recession people will naturally look for other places to put their money and gold will be the obvious choice. Bitcoin has all the same properties as gold except it is cheaper to acquire (fees), cheaper to store, has a fixed mining rate (with gold more supply is created when the price increases which drives the price back down), and has only 1% of gold’s market cap. The way I see it, it would be silly not to at least hedge a small amount of money into BTC/crypto.

The other economics reason is pure supply and demand. The supply of Bitcoin is shrinking every day as more people decide to hold it long term. Many more get lost or stolen. Every couple years the block rewards get cut in half as well.

All of that said, the rise and fall in the last year has definitely shaken the public’s confidence so it may take a long time before new money starts flowing into it. All of my timelines are years down the road. (10-20 years)

Obviously, nobody can predict the future, but the whole point of talking about what's likely to happen is to make reasoned guesses based on the best available data and economic models.

The nature of a hedge, in particular, is that you do it before a market downturn, not after. Once the market has dropped, you want to unwind that hedge, which in the case of gold or Bitcoin means selling. If you look at gold's performance during recessions since we unlinked it from the dollar, it's as likely to decline as rise. That makes it a poor hedge against recession.

In terms of supply and demand, it's true that supply is constrained, but that's only half the equation. Demand is extremely volatile, as there's no inherent "consumption" of crypto currencies (aside from lost wallets and other breakage), not is there any production occuring that requires btc to continue. The demand is entirely composed of people buying it with the expectation of a future sale at a higher price... that's speculative demand, and it's not a stable or dependable type of demand.

>The difference is that the housing prices were clearly in a bubble

The above article shows that Bitcoin was at the very least, in a bubble last year, and may still be one.

>and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment.

And nearly every coin has an ICO which is a "sure thing". Everyone is selling their coin like it's a low risk investment.

>This is much much different than Bitcoin.


>I would argue that Bitcoin is the only asset class that is not currently in a bubble.

So, you're living in denial then?

> So, you're living in denial then?

No, I believe that Bitcoin is going through a more general adoption wave.

So yes, it was in a bubble last year, but it is all part of a larger adoption pattern. It is the same way Amazon stock was in a bubble from 1998 to 2000 when its value rose from $3 to over $100 and back down to $5, but where is it today?

> The difference is that the housing prices were clearly in a bubble and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment.

That's exactly what Bitcoin looks like to me. Places like Goldman Sachs are getting involved in selling Bitcoin derivatives. These are akin to subprime mortgage derivatives; the bankers know their current value is inflated with respect to their fundamental value, but for the time being people clearly want to buy them, so they can make lots of money selling them. Once they are making money selling them, it behooves them to downplay the risk. They can point at a BTC graph, talk about it is the future, draw a line up and to the right, and make it seem like a no-brainer.

The issue with using Tethers to pump up the price is that it implies there's billions of U.S. dollars backing up that Tether. If there isn't billions of USD to be found then... what?

The USD pumping up the stock market is undeniably there, but if the Tether pumping up BTC isn't real (real being defined by the 1 USDT = 1 USD), then the price is essentially being pumped up by nothing.

But the article and report do not prove that Tethers are not backed by USD. In fact, it constantly says, “If Tether is not fully-backed by dollars”. All it definitively claims is that Tethers were used to buy Bitcoin when the Bitcoin price fell last year.

There's exceedingly strong evidence Tethers are not backed by USD - the Tether website claims "frequent professional audits", but they never completed their first one, were fired by their auditor, and cited a document explicitly stating it was "not intended to be, and should not be, used or relied upon" as proof of their reserves.

It's a demonstrably fraudulent claim right there on their home page.

That is not strong evidence that they are not backed by USD. That is strong suspicion.

> Lack of transparency does not necessarily indicate fraud


Shouldn't it be incumbent on them to prove that they are backed by USD and not on me to disprove it? They are the ones making the extraordinary claim here.

Given the little we do know about the company the most reasonable assumption is that it is a slightly reworked Ponzi scheme.

What makes the claim extraordinary? If I wanted to make an easily tradable form of USD on the blockchain, I would take a similar approach. Take deposits in US Dollars and issue an equal number of “dollar backed coins” on the blockchain that can then be sent around from exchange to exchange. Nothing about that seems extraordinary to me.

It is very likely the federal reserve is going to do something very similar in the coming years. They will also print more of their coin at will, but no one is going to make a stink about that cause they have already been doing it for a hundred years.

The extraordinary claim that people pumped billions of real US dollars into an upstart exchange with no proper accounting.

Ahhhh. Okay that makes more sense. Although at the time they did have accounting and audits. The last audit was September 2017, I believe.

No, Tether never completed an audit. Their auditor fired them. Their claimed "frequent professional audits" on the home page encompasses precisely zero completed audits.


> 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. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.

Wrong. They were fired after their audit in September 2017 which is available here:


That's not an audit. It's a memo.

It explicitly states on the first page that it cannot be relied upon.

When Tether posted it (https://tether.to/announcement-transparency-update/) they stated " These consulting services do not constitute an audit or attestation engagement, which would include a significantly expanded scope of procedures and take substantially more time to complete."

And into a bank that has no US dealings or holdings, because Wells Fargo dropped them, and there are challenges with them using a US banks.

A bank that, through 2017, raised no questions when they were supposedly depositing multiple hundred million dollars, _multiple_ times a week.

I agree that there are dubious actions surrounding Tether, but I still want to see proof.

I think the bank argument is a little weak since banks are the exact group that crypto currencies are disrupting and stand to lose the most if crypto currencies succeed. If I were a bank I wouldn’t want to be involved with any company that makes it easier for people to trade US dollars for crypto currencies either.

> Lack of transparency does not necessarily indicate fraud

Fraudulently claiming "frequent professional audits" that don't exist is good evidence of fraud.

So is having a big link "proof of funds" on the home page that links to https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co... which says "not intended to be, and should not be, used or relied upon by [non-Tether parties]".

Clearly we do not agree so it is not worth continuing to argue. Honestly, I just want this whole thing resolved one way or the other. I have no personal ties to Tether, and do not care if they are backed 1:1 with USD.

I agree with you they should have an audit done to prove definitively one way or the other that they are backed by USD to put this entire thing to rest.

As it is now, it keeps coming back up every few months in the media, and the narrative is getting old.

Do you not think that perhaps the media should keep coming back to the possibility of multi-billion dollar fraud like this?

Valid point, but there are also billions of dollars created out of thin air by the Federal Reserve to pump up the stock market, and perhaps that deserves some media attention as well.


Those actions did garner media attention. Massive amounts of it.

Do you feel that the narrative about Theranos was getting old, too? Continued questions about fraud and deception?

Putting it another way, there is no evidence that Tethers are backed by dollars.

Then they are doing a REALLY bad job at managing their presence, because "Transparency" is one of their hallmarks:


... supposedly.

Those are very specific numbers to be touting without anything supporting them.

People will simply look the other way on this as long as it benefits their worldview. Once things go south the cries will be "Tether lied to us, how could we have known?"

I don't know. There's a certain level of cognitive dissonance required. They will say...

Tether was FORCED to print, even if they didn't have the USD. The amount of FUD, and active attacks from the traditional banking system suppressed the price of bitcoin. Tether were trying to SAVE us... and so it goes.

Of course they don't, the only reasonable way to prove such a claim would be to make a full audit of Tether. Which as of the moment is out of the cards due to lack of a willing auditor.

I don't think there is a lack of auditors that would take the job. I think there is a lack of auditors that would release the report that Tether wants.

Good comment, I just have one picky edit (attached to a story I enjoy). You wrote, "during a bull market, when the price started to decline."

It's the opposite. Bull markets are when price starts to increase. Bear markets are when price starts to decline.

Years ago, I had an amazing macroeconomics professor named Alex Kelly. Dr. Kelly was an amazing educator with an incredible sense of humour, a penchant for telling the truth as he saw it, and genuine glee when he'd see students start to understand his material.

I'll never forget the class where Dr. Kelly stood up, did his impression of a bear standing on his hind legs, growling and pushing down the market. Then showing the converse, snorting like a bull and pushing up the market.

Afterwards, he did his usual shrug, reached into his pocket to fish out his everpresent Rolaids, quipped "now if anyone gets that wrong on the midterm..." and shook his head menacingly.

Dr. Kelly could flat out teach and I quote him to this day.

Oh I am well aware of the difference. I meant what I said though. During a bull market it is smart to buy up the dips. During a bear market it is smart to sell the rallies.

For example last year there was a point during the bull market when the price dropped from $5k to $3k and that was one example of “when the price started to decline”.

Thanks for the story!

Yeah, this narrative has been around for a while and there have always been two major problems with it:

- If Bitfinex was buying Bitcoins on their own exchange with fake USD in order to push the price up, they wouldn't do so by printing Tether because USD on Bitfinex is not backed by Tether - it's supposed to be backed directly by USD in Bitfinex-owned bank accounts, with Tether only being minted as necessary to handle Tether withdrawals. (Someone even found externally-visible evidence that there wasn't enough Tether in existence to cover the Bitfinex USD balances - naturally, this was seen as further proof it was a scam.)

- During the period in question, it was Coinbase/GDAX which was pushing the price up, and that exchange never accepted Tether. The price of Bitcoin on Bitfinex and the other exchanges was pretty much always lower than GDAX, or to put this another way, Tether USD was worth more than its face value during the time when Bitfinex was supposedly printing it to push the Bitcoin price up. This is the exact opposite of what should have happened if they were doing so.

It looks, at a quick glance, like this still has the same problems.

Edit: this is more clever than the previous arguments, in that it also uses evidence from round-number trading biases and odd end-of-the-month behaviour of the kind you'd expect if Bitfinex had to make the Tether shortfall disappear for their monthly audit, and also examines outflows of Tether from Bitfinex to other exchanges. (The round-number stuff is less convincing since the divergence between exchanges and even between currencies on the same exchange was particularly bad around round numbers.)

They also attempted to test the hypothesis that the Tether printing was a reaction to demand by comparing the amount of printing with the Tether-USD price. Unfortunately, they used the price on the Kraken exchange which had almost no volume or market depth compared to the potential Bitfinex-Bitcoin-GDAX route. Basically, no-one actually used it, and so it didn't accurately represent how much it'd cost to actually exchange any substantial amount of Tether to USD or vice-versa. It's entirely unsurprising that it wasn't correlated with anything of note.

Yes. The fundamental issue they don't seem to address is that strongly positive correlation between Bitcoin prices and Tether issuance is to be expected even if there is no manipulation, or, at most, manipulation from unrelated 3rd parties that are actually pumping real dollars into the market via Tether. Tether could indeed hide the manipulation, but there still doesn't seem to be a smoking gun.

In addition, a willful design for manipulation of the whole cryptocurrency market would strongly motivate Bitfinex to hide or manipulate public Tether data precisely to make such a link impossible to prove.

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