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Are pixie fairies behind Bitcoin's latest bubble? (amycastor.com)
80 points by amycastor 3 months ago | hide | past | favorite | 112 comments



I don't really get it (as always if tether is involved). If someone is printing tether to buy bitcoin, then who is selling bitcoin for tether and keeps the tether?

I mean, if I had substantial bitcoin, I'd not sell it for tether. Maybe I'd use tether as some intermediate currency, but in the end I'd either buy stocks or real estate or yachts. Or I would keep the BTC. But I would never sell BTC and keep tether. Who does that and why?


My understanding is that tether is printed (by Tether the company) and used to buy btc at just a couple exchanges (one is bitfinex, I forget the others) who are in on it.

This initial purchase drives btc-usdt up, arbitrage bots then buy btc-usd so that it matches btc-usdt. The media and people notice the price increase and jump into btc-usd because it's going up, narratives are created to justify why the price went up (paypal, fidelity, rich investor), btc-usd further increases, and now Tether (the company) sells its btc for dollars, so that they make a profit, and also to cover whomever else wants to redeem tether for usd, thus maintaining the illusion that tether is fully backed by dollars. Tether then decides to start the cycle again after a certain amount of time.

So, if the above is true then yes this is a scam and there's gonna be a lot of bagholders if/when tether is kaput (they are under investigation by NY AG).

Note, that since March 2020 Tether has printed $13 billion in tether. Is this really a result of organic growth/demand? (https://imgur.com/i78BTXg)

Most of the tether is in storage at the exchanges: https://i.imgur.com/eIKDzJl.png

So it looks to me that they know it's worthless.


Bitfinex is one of the largest exchanges, and Tether is also used by many other exchanges like Binance.

It's not implausible to think that there's $13B of inflows to BTC this year.

This whole Tether speculation / hit piece is basically people thinking "It's implausible people want to buy bitcoin on the largest bitcoin exchanges".


If Tether were in fact receiving real USD to support the billions in USDT it keeps issuing, then why hasn't it handed over financial docs to NYAG, which is investigating it for fraud? Why has it not had a third-party audit? Why does it keep printing USDT in larger and larger numbers (a sign that the real $$ may be disappearing from the system)? Why don't we see a similar growth in other regulated stablecoins?


Because their banks keep shutting down their accounts. They've been playing whack-a-mole with regulators for a long time, and they probably view the NYAG's request as a backdoor way to find out where and how they're banking in order to shut them down.


So nobody knows if Tether is backed because:

* it isn't and Tether wants to keep people in the dark

* it is, but a hammer is ready to fall that probably involves OFAC freezing funds

Any other options I'm missing? Because neither of those look good.


People have been saying this for years now. Not only has nothing materialized, but the price has barely ever deviated from the 1:1 peg.


Danny you have that 100% backwards.

> This whole Tether speculation / hit piece is basically people thinking "It's implausible people want to buy bitcoin on the largest bitcoin exchanges".

This whole Tether speculation / hit piece is basically people thinking it's implausible that people are physically capable of redeeming Tether for USD, ever. Not a single audit has ever been conducted - except for one that was started and then the auditor literally quit half way through. If you begin there, the rest all falls into place.

Come on, you've got a super shady organization based somewhere between a virtual office in Hong Kong and a corporate entity in the BVI. [0] Who pretended not to be involved with Bitfinex until the Paradise Papers showed it to have the same principals. [1] Who lost banking access repeatedly - being cut off by Wells, before issuing a letter that they were now banked in Nassau, Bahamas with Deltec that Deltec then denied ("The bank previously declined to confirm any relationship with Tether when reached"). [2] For about as long as I can remember they promised to release an audit, but of course, their most recent auditor literally walked out once they got a peek under the covers [3]. Then when Bitfinex (care of Panamanian company CryptoCapital) had $850M seized they just transferred it from whatever mattress is keeping Tether funds and left Tether with an IOU [4]. And are now the subject of 5 or 6 ongoing investigations and lawsuits, most significantly by SDNY [5].

If I didn't have sources for all this you'd think this was the most absurd conspiracy theory ever. It's all true, though, and what sane person could possibly believe $2B of fresh new money is making its way to their big ol' Bahamian mattress?

Bitfinex is a massive fraud, and Tether is a massive fraud, it's plain to see for anyone willing to take a quick peek.

[0] https://craft.co/tether-holdings

[1] https://www.icij.org/investigations/paradise-papers/paradise...

[2] https://www.coindesk.com/tether-produces-letter-confirming-d...

[3] https://news.bitcoin.com/tether-severs-ties-with-its-auditor...

[4] https://www.wsj.com/articles/bitfinex-used-tether-reserves-t...

[5] https://cointelegraph.com/news/new-york-court-rejects-bitfin...


You could have $13B of inflow to BTC with only $1B of Tethers because they should be reused. Who is holding them and why?


Who is holding USDT? Likely traders who went onto Bitfinex (Tether's sister company) and sold their BTC there for what they thought was a good price. BTC, in this scenario, is a bridge to USD, because it can be moved to an OTC desk or a banked exchange and sold for cash.


So they're going to hold USDT until the crash, then re-buy BTC and move that out? Plausible, but it sure seems complicated.


If arbitrage bots try to arbitrage between BTC-USDT and BTC-USD markets, and the USDT markets are the ones pushing the price up, then it's the arbitrage bots that would end up holding huge amounts of USDT. So what are they doing with it? They should mostly be trying to maintain equal holdings to handle arbitrage, so they would have to sell it on USDT-USD markets (or redeem it from Tether, if that's actually possible).

If the tethers are actually unbacked, then the USDT-USD markets should be dropping hard as arbitrageurs try to unload tether bags.


I think the ponzi continues to work for now, the arbitrageurs can cash out, while the illusion that tethers are backed prevails. So indeed if no one does redeem these USDT as I keep reading could the arbitrageurs just slowly buy the cross to USD over a period of time after the trade? Alternatively USDT seems to be a proxy-currency to move across exchanges and networks, so it may indeed be transferred off to other pairs/tokens to fund alternative trades...


Arbitrage isn't magic. The only way arbitrage can push BTC-USD prices up to match BTC-USDT is if the arbitrageurs are selling a proportional amount of USDT for USD. Either they're redeeming them with Tether, which some claim isn't actually possible (?), or they're selling them on USDT-USD markets. Since those markets still trade around $1, it's safe to assume there is not some massive imbalance for selling USDT over buying it.

Tether might be shady in all kinds of ways -- their operation has a lot of red flags to it. But it basically can't be responsible for massive BTC rises all on its own, because the rises happen even at pure USD markets, and that can only happen when a lot of real USD actually got injected.


>they're selling them on USDT-USD markets.

My hypothesis is they get dripfed onto these markets so as not to spook them. Or just transferred off to collateralize other trades - hey it's free money to them, why not set up another trade elsewhere while they are in?

It is not safe to assume anything based off market price action. You seem to be assuming there is some essential relationship between volume traded and price. These are market prices, they can be totally irrational, especially if there is some fake news (Tether is fully backed) behind them.


There exist a pretty huge number of OTC desks in SE Asia (mostly in China) that deals with USDT, they provide significant liquidity and could feasibly support cashing out of the arbitrage bots.

Also, because the order book is pretty thin on most exchanges, it may not take much arbitrage for the USD price to catch up.


Thanks, that is very enlightening. So Tether are all about maintaining the apparition of a 1:1 backing of USD to USDT. It's the lynchpin of the whole scam. Otherwise the step above you mention around the arbitrage bots buying btc-usd no longer occurs, and the game is ruined for them.


Here's a study that performs analysis showing that tether prints the coins and someone at bitfinex uses them to buy BTC at optimal points to support it's price.

https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12903


This can be explained as whales/institutions telling BFX "I want $100M of BTC" and a human OTC trader at BFX executing it optimally.


Why on earth would a legitimate whale be dropping money into bitfinex and tether lol, they barely have banking relationships. They have at times literally not had access to withdrawals — because they were pretending not to be who they are and were caught by Wells Fargo. A few times if memory serves. You think a whale is dropping $2 billion dollars of new money into tether prints via bitfinex?! What kind of mad man would do that when they have access to Coinbase and Gemini, where they could actually get their money back out?

Remember this is newly printed tether which means net deposits of new actual usd, if you believe them - and of course I do not.



Look all I want to see is one measly audit of a $20 billion dollar money pile is that so much to ask? You’ll have to forgive me if I don’t take yet another rando with vested interest word for it. Well one auditor who doesn’t quit half way through because, and I assume this is true, it was too on the up and up to bother finishing the audit.


It's almost quaint how this December 2019 article talks about "the concern surrounding the creation of large swaths of Tether in 2017", when about $2.5 billion of Tether was issued.

In the time since it was published, when Tether had issued about $4.5 billion total, there have been over $14 billion additional Tether, a 4X expansion of the total supply, or 7.5X what was described as "large swaths of Tether" in this article.


IMO if a few billion is cause for an CFTC investigation then $20B merits an emergency injunction.


Couldn’t agree more.


I have the same question. The only answer I can think of, is people that want to get out of Bitcoin but aren’t able to sell for real USD because of AML / tax purposes.

Even if the tether is only worth $0.70 it’s still a better deal for some people who can’t exit their BTC position legally.

It still doesn’t really explain who is holding almost $20 billion of Tether though.


I've been doing some small-scale arbitrage trading in Uniswap and other Defi exchanges. As part of that I hold a fair bit of Tether, USDC and other stable coins.

The reason being is that I want to keep my capital pegged to the dollar, but need something that's native to the Ethereum blockchain. If there's a trading opportunity, I need the ability to swap Tether for [X] token in a single blockchain transaction. There's no time to route actual dollar deposits from a real bank.

Considering that there's something like $13 billion locked in all the various defi protocols, that's a lot of potential demand for stable coins.


It's likely that most/all of that stablecoin was amassed by selling other crypto, which is zero sum. It's extremely unlikely that people took fiat currencies, and bought USDT directly from Tether, which is what they claim is happening.

No sane person would hold USDT over USD.


Unfortunately there's this story https://www.theblockcrypto.com/post/48857/former-head-of-cir... which says that legit investors wanted to buy on Bitfinex instead of a legit exchange so they had to first buy Tethers.


Totally irrelevant, the man's got a vested interest. Believe nothing short of an independent third-party audit from an auditor who doesn't walk out half way through like the last one did.

The reason I say this should be pretty obvious to anyone whose familiar with the inner working of a Ponzi scheme or other similar investment scam.

Bitfinex and Tether wanted to legitimize the use of Tethers, so they found one guy, Matuszewski, they knew was in a position to help them do so. They actually set aside a relatively tiny slice of capital (a few million out of 3 billion) and treated him the way they should be treating all customers but weren't. Then they let him loose on the talk circuits to tell the world of the sheer upstanding nature and legitimacy of Tether.

This is exactly the kind of stuff Madoff did.

Audit, or gtfo. (To Tether, Inc. not you of course)


One large use for Tether is transferring value either for abitrage or to buy assets on another exchange not available on your current exchange. Sending real USD via the banking system could take weeks whereas sending Tether will take minutes. Also if Tether is trading below $1, Tether (the company) could buy them back and burn them for profit, assuming of course that each token is backed by one real USD.


But they are not backed by real USD, and Tether themselves have admitted as much: their FAQ now states simply that it's backed up by "Tether's reserves", which apparently consist of other cryptocurrencies.


Please link your sources, their reserves as I understand may in some part consist of unspecified collateral, even if they are crypto which I seriously doubt due to its volatility the fact remains that Tether is trusted enough to be supported by the majority of major exchanges. The imminent demise of tether has been predicted for many years now. You can short tether at Kraken or choose to use one of the many other USD stable coins.


> The imminent demise of tether has been predicted for many years now.

One thing that has stuck out at me from a white-collar crime reading spree is the amount of time that passes between something widely being seen as fraud by those who looked closely and when the walls actually start crumbling down. Enron, Madoff, Theranos, etc. all had people ringing the alarms long before the music stopped.


Wirecard was one of Germany’s largest tech companies with a market cap of $25B until recently.

Short sellers first identified suspicious activity at the company around 2006. But it took 13 years for the house of cards to collapse. For over a decade, Wirecard stock just went up.

The company is bankrupt and worth practically nothing today.

If/when shit finally hits the fan at Tether, the crypto bagholders will look back with the same bewilderment as Wirecard investors did: “Wasn’t all this talk about fraud proven false long ago?”


This isn't even new news: Tether changed their terms last year, and admitted/claimed to the NY Attorney General that they only have 74% cash last year.

https://cointelegraph.com/news/changes-to-tethers-terms-of-r...

https://bitcoinmagazine.com/articles/holders-are-not-at-risk...

Note that all of this is over a year before the Tether printer kicked into overdrive around April this year and started inflating from $4B to the current $18B+.


Never short crypto it's a rigged casino, first of all. Second, the fact tether is trusted and used by exchanges is more out of necessity than desire. They would die if they had to ask their so called customers to verify their identities and so both sides look the other way and pretend in a classic emperor has no clothes situation. I'm sure the tether based exchanges are squirming in their pants as tether prints another 2 billion fun bucks per month.

Unless of course you have a theory about where an institution without a banking relationship, let alone an American banking relationship is storing just shy of twenty billion dollars US? And why legitimate investors are plowing two billion dollars per month into this scheme instead of putting it somewhere with audits and regulation like gemini or coinbase.


Kraken has many banking partners and do require KYC. A larger issue is that not everyone is in America but still require USD as is it is the most liquid exchange pair. I guess that this leads to many trusting USDT over American based tokenised dollars that are more subject to US courts. A better option could be DAI . though that is only backed by crypto assets thus far.


(1) Kraken is way more likely to have the money but that's not what I mean by a rigged casino. Arbitrage bots ensure that prices remain in lockstep between the frauds and the more legitimate, so while they may be good for the payouts, the price action remains as rigged as ever. I believe it's this model that Bitfinex relies on when they buy BTC with fake Tether, as they can then move it into legitimate exchanges that arbitrage bots have brought into lockstep and sell for cash.

(2) A larger issue is that not everyone is in America but still require USD as is it is the most liquid exchange pair.

Sounds like what they need is more liquid exchange pairs in global currencies instead of fictitious money.


> Even if the tether is only worth $0.70 it’s still a better deal for some people who can’t exit their BTC position legally.

I don't get this part. What can you buy using tether, even if it is worth only $0.70? (Well, obviously you can buy bitcoin but this doesnt make any sense to buy the bitcoin back that you just sold. What else can you buy?)


You can trade tether for other crypto in some exchanges.


Yes but then someone else has the tether.


Tether's biggest holders presumably are people with cash balances at exchanges without us dollar banking. At such exchanges the account will show USD not tether.


>> then who is selling bitcoin for tether and keeps the tether?

People who believe (in varying degrees) that 1 USDT == 1 USD.

In countries with strict capital controls (China, Russia, etc), USD is inaccessible to most people. And the fact that USDT has been trading at 1 USD for the most part is the proof that most of its users either believe 1 USDT == 1 USD, or they simply don't care.

In these countries, you have large amount of OTC desks due to lack of access to exchanges. Those OTC desks have to provide liquidity for large amount of trading activities (very large but I wouldn't think it's anywhere close to the 13b USDT that was printed in the last 6 months), and therefore they have to hold sufficient amount of USDT for that purpose.

Once you have a group of people (miners, traders, etc.), USDT could act as as a token valued at 1 USD among those people, and at any given point, there would be a significant amount of people holding large amount of Tethers. After all, the Tether "FUD" has been ongoing for years and nothing bad seems to have happened, right?


> People who believe (in varying degrees) that 1 USDT == 1 USD.

I totally get that part. But then what? With USD I can buy, e.g, a house or a yacht. With USDT I can buy what? I guess only other crypto currencies. So what is the endgame here?


Since many exchanges use USDT and USD interchangeably, the endgame is for arbitrage bots to bid up the exchange rate between BTC:USD at legitimate exchanges to match BTC:USDT at Bitfinex. This allows Bitfinex to transfer the BTC they bought with Tethers to legitimate exchanges, sell them for USD, and transfer the USD back to themselves. They could care less about anything beyond that.


That's what I believe too, but once thing I don't understand is you would think by doing so they would depress the price on USD exchanges, and eventually cause the price to decouple between USD and USDT, but that doesn't seem to be happening this time.


Exactly. With USDT, your aim is to buy crypto low and sell them high and become bigly rich, THEN you cash out (which is the end game). It's just greed.

Notice that the general confidence in the crypto ecosystem (HODL culture), and in Tether itself (it's just a FUD, it's been so many years and nothing have happened) contribute to the desirability of USDT. Also notice that when I say cash out, I'm not talking about redeeming USDT, but buying crypto then selling the crypto on an exchange or OTC that has an off-ramp.


Despite all its controversy, Tether's technically a stablecoin, so it's should be more stable than Bitcoin, which may be desirable to some people.


Tether is literally a short on bitcoin that is quick and cheap to transact in, it is keeping the price down rather than up. There's only 21 million bitcoins, but there's infinite tether. People really need to take a step back from mindlessly repeating things and think about what that actually means.

Go do a search of "tether site:news.ycombinator.com" to see how laughably wrong HN has been for the last 4 years on this subject. The adherents simply refuse to give up and many still identify with this "conspiracy"

I'm not sure we have enough eggs for the number of faces.


What conspiracy theories dude? We said it wasn't backed by dollars, lo and behold, $850 million or 30% of the entire backing amount at the time had been siezed by authorities for being the proceeds of money laundering. It was all held by CryptoCapital, give them a quick Google lol.

We said it wasn't backed by dollars, they admitted it wasn't backed by dollars and instead crypto and swaps, and other ious. We said you couldn't redeem them, you can't. We said they didn't have a banking relationship, they don't and didn't. Crypto advocates keep pretending none of this is real because number go up.

The fact it's still around doesn't invalidate a single thing anyone's said and if anything time showed this all to be quite accurate.


Ah, articbull as usual.

So after the govt seizes almost one billion from tether, they are not fully backed anymore? Color me surprised!!


And yet going from 1:1 backed (ostensibly but not ever audited) to 1:0.7 backed it still traded 1:1. That’s my issue with it. The fact that they got caught with their pants 30% down is the least surprising thing ever imo.

In fact as I recall they continued to tell people they were backed 1:1 for many months after the seizure.

Remember BFX and Tether pretended to be two separate companies until the paradise papers because of course those clowns used Appleby. [1]

[1] https://news.bitcoin.com/paradise-papers-reveal-bitfinexs-de...


I agree with you, I just find your consistent and persistent myopia interesting: for you, nothing can ever be good in crypto!


Well, I wouldn’t call it myopia (naturally, I suspect anyone with such a myopia wouldn’t haha by virtue of not being able to see past your blinders - but I digress). I’ve done and continue to do a lot of research to challenge my opinions on this subject and any other I feel passionate about. For instance, I’m a lefty and I watch a ton of Fox.

I simply do not believe that the core tenets of crypto (decentralization, trustlessness, irreversible, “hard money,” etc) are good things to have in a currency. I don’t think trustlessness extends past cryptocurrency in a meaningful way beyond things captured entirely on the blockchain as that breaks down at the boundary between on and off chain (ie garbage in garbage out). I believe humans are fallible and trust is a massive optimization - and a system that doesn’t take those into account isn’t worth the NAND it’s stored on.

I’ve yet to see anything solved with a blockchain better than a classical solution - 12 years and billions of dollars scammed later. Such a thing would change my mind, and I would certainly eat my, err, hat (Hi Mr McAffee) and admit publicly, on Twitter, and here, and anywhere, that I was totally and incredibly wrong.

At least I’m on message! :)


Print tether, buy bitcoin, sell bitcoin for real money.

Day traders use tether to slip in and out of positions in a volatile market. Unregulated exchanges use tethers in place of real dollars.


> Print tether, buy bitcoin, sell bitcoin for real money.

But to buy bitcoin for tether, you first need someone to sell bitcoin for tether. And this guy then has tether. What is he going to do with the tether?

> Day traders use tether to slip in and out of positions in a volatile market. Unregulated exchanges use tethers in place of real dollars.

But day traders close their positions at the end of the day (or at least regularly) so they will not hold tether.


A number of exchanges like bitfinex are in on the scam and are just holding the tether in cold storage: https://i.imgur.com/eIKDzJl.png

The exchanges will make money if btc goes up and more people buy it through them. By accepting tether for bitcoin they help pump up the price. Holding useless tether is fine as long as more retail comes in to them for bitcoin with USD.


> A number of exchanges like bitfinex are in on the scam and are just holding the tether in cold storage

But how can that be a scam if they hold the tether? It can only be a scam if someone else now has the tether and they have the real money. I'm trying to understand who is getting scammed here.

Moreover, why are they printing tether if they already have too much?


Bitfinex benefits from the increased business from retail investors that are lured by the bubble mania, that is one solid source of profit from running this scheme. While Tether, the company, makes a killing by buying btc low and selling high, they now have cash to back sufficient tether to cover whomever wants to convert their tether back to usd, such as say, their co-conspirators bitfinex.

Tether is pretend-dollars that allows them (bitfinex and Tether the company) to fraudulently pump btc. As long as enough people believe 1 tether = 1 dollar, the show will go on. Tether has yet to be audited to prove their reserves, and the crypto community believes them even though they talk about trustless systems all the time.

So this is a two party scam, one is Tether, the company, printing money out of thin air, who then the exchange, the second party, accepts and gives btc in return as if tether was backed 1:1 by USD. This transaction is what kicks off the chain reaction that pumps btc's value. Tether, the company, now sells btc for USD at a profit, and can use that money to convert tether back to USD if say, the exchange comes to them looking to trade tether for btc. So both parties win, and tether is just weird monopoly money that they know is useless but they have to continue pretending it's worth 1 USD or else they can't keep rinsing and repeating this cycle.


> But to buy bitcoin for tether, you first need someone to sell bitcoin for tether. And this guy then has tether. What is he going to do with the tether?

He may not have an off-ramp (which means he can only sell the Tether to someone else, either directly or using cryptos as a bridge). He might be a crypto trader or even trader of other kind of merchandise and need the liquidity provided by Tether (which is for all purposes, "real" as long as the entire thing doesn't collapse)

Majority of the USDT volume come from SE Asia where countries often have strict capital control, and in these situations USDT or cryptos do provided utility by allowing people to circumvent the capital control. That's also why there's a crackdown of crypto OTC desks in China reported a few weeks ago.


What, no? Tether is used as collateral for crypto futures positions. No day trader is buying spot, they are buying swaps (perp futures) or regular futures. And it's better to hold the collateral in tether or some other stable coin than in btc so you don't have to hedge as much exposure by writing futures.


I see. And these traders are responsible for the increased demand of tether?


pretty much. the firm I work at has many millions of tether for this reason (to support the market making bots)


So there is no tether printing scam in the first place? (If there was a scam, I'd love to understand how it works)


I think the accurate answer at this point is we don't know for sure. It depends on how plausible you think it is that Tether has received ~$14b inflow in the past 6 months.


This doesn't create any net demand for Bitcoin, though, right? It's in one end and out the other.

Or is the theory that Tether is actually backed by Bitcoin, in a sort of circular way that is sustainable as long as the Bitcoin price goes up but would unravel disastrously if the price were to come down?


Print tether for bitcoin, so the btc-usdT price goes up. Arbitrage bots buy btc in dollars so that btc-usd reaches parity with btc-usdt. The media and people notice that btc has gone up, euphoria is borne, they jump in, further driving the price up, narratives like paypal are used to explain the pump.

The people that printed tether now sell their btc for a profit and can now cover their tether obligations to keep the illusion going that tether is 1:1 backed with usd. They can now repeat the tether printing cycle.


> The people that printed tether now sell their btc for a profit and can now cover their tether obligations to keep the illusion going that tether is 1:1 backed with usd. They can now repeat the tether printing cycle.

And who is getting scamed here? Who is sitting on the tether at the end of the day?


Retail people seeking to get into bitcoin in the middle of this bubble are getting scammed because tether is being used to artificially inflate its value. If tether goes away that would hurt whomever believes it's worth a dollar. The exchanges who are in on the scam can trade tether back to USD if they need to when the tether company sells their bitcoin for a profit. But the exchanges also make a killing from increased business during this mania, so they may choose not to sell their useless tether since they are collecting real money from retail traders and might help with plausible deniability.


Sorry, I'm slow and I really don't understand this.

> Retail people seeking to get into bitcoin in the middle of this bubble are getting scammed because tether is being used to artificially inflate its value.

But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?

I now have 18k USDT, but I can't spend them on blackjack and hookers. In fact, I can buy nothing with the 18k USDT except crypto!

So I have two options:

* I keep the 18k USDT. But why should I do that?

* I buy back my BTC. But then somebody else has the problem of spending the 18k USDT! Where do they eventually end up? I dont get that part.


>But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?

It doesn't really work like that. It's more like: you see BTC being traded at 15k, and you refused to buy because that's ridiculously high. Two days later, the price pumps to 18k (which is, at least partially, caused by Tether printing). Now FOMO kicks in and you saw a tweet by some rando that says that Bitcoin will breach the ATH and get to 25k for sure due to his TA. You decided to buy in at 18k.

Notice that in this entire thought process, there's no difference between USDT price and USD price. They are considered one and the same, at least in the vast majority of traders, holders, miners and crypto media.

Now, you may have access to USD exchanges like Coinbase, but many people don't. For those, their only FOMO option is USDT exchanges like Bitfinex, which means they need to buy USDT first, which means the Tether ecosystme just got some new cash inflow and someone else got to cash out their USDT.


So for this to work out I am tether the company, you are an exchange that is in on the scam. So the initial denial of declining 15k USD doesn't even happen. What happens is I print a billion tether and use that to buy a bunch of btc from you. You willingly take tether despite knowing that tether is useless, because you know that this transaction will pump the value of btc and you benefit from that. We both benefit from btc going up. So it's in our best interest to keep the charade going.

The price of btc denominated in tether (BTC-USDT) goes up after our transaction. Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity. Now bitcoin's price in dollars has gone up and people notice this, and news articles are printed and people get FOMO.

But at the root of this pump is a fraudulent transaction. I printed tether that I know is not worth one dollar each, and you played along with me and we exchanged tether for btc, and we caused btc to go up in price so that we both benefit. Whomever buys btc (i.e. retail investors) after I've pumped the price is in great danger of being scammed because there was no real money behind the initial tether transaction. You, the exchange, might be holding a lot of useless tether, but it doesn't matter because you've already profited from the price increase in btc via higher trade volume and usage of your platform plus all the publicity you get from a media that is always happy to report insane btc valuations.

So you don't do anything with the tether, you don't care about it as the exchange. It's unclear if the tether in these exchanges, which is a lot, will be redeemed for dollars at some point in the future by coming back to me, the Tether company, where I would use some of my profits from selling btc high to trade some of your tether for USD and help maintain the appearance that tether is fully backed by USD.


> Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity.

This is the bit that doesn't make sense.

Arbitrage bots trying to push BTC-USD up to match BTC-USDT will end up holding a lot of USDT. So what do they do with it? You can't just magically make USD markets go up; that needs actual USD to enter the system (as part of the arbitrage process, if nothing else).


Someone in this whole scheme is leveraged to the tits on tether, and newly minted tether is needed as an asset to back the old tether. And as long as nobody actually tests the convertibility of the currency too strongly, this can hold up.


But if arbitrage bots were pushing the BTCUSD price up to match BTCUSDT, they'd have giant piles of USDT. And they'd have to convert it back in large quantities, or else they'd go broke.

The world where no one tests the peg too hard is incompatible with the world where Tether caused huge BTC runups all on its own.


It's musical chairs. When the music stops, somebody's holding USDT: either because they were using it as in intermediary to trade into other coins, or because they believed that Tether is really backed 1:1 (lmao).

> Where do they eventually end up? I dont get that part.

Without a chair.


More likely (most definitely), they are using tether as collateral for their futures positions. It's not capital efficient to trade spot in most cases.


It also repeats the standard "mining death spiral" fallacy. In practice, of course, difficulty adjusts downwards if price drop makes some miners stop, making it easier for the remainder.


> And no tethers, to anyone’s knowledge, have ever been redeemed—except for when Tether burned 500 million tethers in October 2018, following the seizure of $850 million from its payment processor Crypto Capital.

They can be redeemed on https://tether.to but the minimum is 100K$ if I recall correctly.


Last I checked there's no actual evidence anybody has ever managed to redeem USDT for cash.


I'm getting real sick of repeatedly hearing people call increases in the Bitcoin price "bubbles".


Well when it stops catastrophically collapsing after each major price rise, like...you know...a bubble, then we'll stop calling it that.


You mean like any other market? Or just this one?


So is it a currency or a market?

Because if it's a currency, it way too useless and volatile compared to EUR/USD/AUD/CAD/GBP etc.

If it's a market (a la share market, commodities etc), then the volatility is fine, but what advantage does being a crypto-currency bring here? Because I'd rather invest in a normal company on the stock market instead of a crypto-currency, because at least with the former I am far, far less concerned about yet another exchange disappearing off the face of the earth or doing something illegal...


>Because I'd rather invest in a normal company on the stock market instead of a crypto-currency, because at least with the former I am far, far less concerned about yet another exchange disappearing off the face of the earth or doing something illegal...

Fine, do that.


People call other markets a bubble too.


Fair enough, see FridgeSeal's comment above though. Why are they OK with investing in an equity bubble but not a cryptocurrency bubble? They're both inflated assets.

I would say, in general, the phrase "bubble" is used much more frequently when talking about cryptocurrency than equities even though equities are more overpriced than they've ever been.


I do invest in both.


Same, I'm just saying, it's starting to annoy me that the term "bubble" is being applied more frequently to Bitcoin than elsewhere.


A point that opponents of Tether repeatedly ignore is how easy a source of profit it is as business idea. The reason I do not believe all the Tether conspiracy theorys is that there there is too much easy money to be made without breaking the law and all that entails.

For example buy back tether yourself whenever the market is spooked that you may not be legit due to internet fud or have your collateral invested in US bonds.


This is only an easy source of profit if you know nothing about US anti-money laundering laws.


IMHO, one of the issues with BitCoin is the prophecy that bitcoin will explode. It makes people engage in FOMO even worse than other investments because many people 'know' BitCoin will go to the moon and they are anticipating the hockey stick. It also makes people less skeptical of bubbles because it's expected. (disclaimer I own some bitcoin)



That's heavily covered in this article.


All tethers go to exchanges and they put on leverage. 18bln leveraged 10x. All players, like coinbase, Gemini a ok with this scam because it generate big price moves and a lot of money in fees for exchanges with real usd.


Ah yes, Tether is bad because it’s printed money used to push up asset prices. Good thing none of the world’s currencies are printed money.


The point it it's not supposed to be. You know, because people wanted to opt out of that sort of system, where governments can manipulate money supply, into a peer-to-peer system that was free of manipulation and that sort of money printing?

Instead they've opted into a system where a small group operate the printer for their own ends, with no oversight.


Tether is meant to be pegged to the dollar. It is supposed to be printed in high quantities if high quantities of tethers are necessary to maintain the peg. Otherwise the peg would break and one tether would be worth more than one dollar.

Am I just being thick? It seems like the article has cause and effect the wrong way around. Demand for bitcoin would be expected to drive creation of tethers not the other way around.


If you assume Tether is on the up and up: yes, this is absolutely correct. This also means there are $17B USD in a bank account somewhere, and you can go hand $1M in Tether in and get $1M USD back. Problem is, nobody has ever managed to do that.

If, however, you assume Tether is engaged in a conspiracy with crypto exchanges: Tether prints USDT and buys BTC from a friendly exchange, demand for BTC will go up when people see the difference between USDT-BTC and USD-BTC and try to arbitrage. Tether then sells BTC for USD.

Which is more likely? You can be the judge, but the fact that "exiting USDT for dollars" typically means "selling it for USDC" makes me pretty pessimistic about the first.


I just looked at coinbase's about page they have 35MM users now. Bitcoin is going through s-curve adoption like the internet. Fools on here look for conspiracy theories because they ignore demand increasing, for whatever reason.


I have a Coinbase account that I haven’t logged in to since 2017. Apart from speculation, there’s simply nothing to do with this stuff. Ethereum has promised “Web 3.0” applications since forever but they don’t even have the bandwidth for a novelty cat picture exchange service.

This was not the case for any early internet service. They were all immediately useful and became part of my life. The only reason I stopped using something (eg Usenet) was that a better replacement became available.


Yeah, you're missing the difference between pegging and backing. Tether is supposed to be backed 1-for-1 by USD in a bank account and thus new Tethers should only be created when money is deposited into that account.


If you want to give me USD in exchange for a currency I can print I'll gladly take that deal. I can stick your USD in a savings account and get interest for free.

Not sure what the advantage is to you though.


Might makes right with global financial markets: the US dollar is the world's reserve currency because the US will grind your country into paste if it needs to protect the supremacy of the USD.

Tether doesn't get to print currency. If Tether doesn't like it, too bad. Tether can get an aircraft carrier or a nuclear arsenal then we can talk.


I am really sorry, but this article reeks of incompetence so much, that it is useless. Starting from the very second sentence.

I am to busy to go into detail, but if you'd care to know more, I can explain, prepare an analysis or consult you at 1200EUR/h


It's not really important to withdraw USDT directly into my bank account. I can simply move USDT to Binance, convert it to USDC, and then withdraw USDC using my Coinbase account.

USDC and USDT trade at basically 1:1, as you can see here: https://www.binance.com/en/trade/USDC_USDT

FUD around Tether (like this article) is noise.


What? The fact that the fraud is successful for some non-zero amount of time is not evidence that it's not a fraud. It just evidence that it's a successful one, which is precisely what's being alleged. Enron, WorldCom, et al worked until they didn't.


Add Wirecard to the pile too!


Tether Limited has never substantiated their claim of full-backing through a promised audit of their currency reserves.

"Trust me I'm fully backed, give me your money for tether" reeks powerfully of a scam to me.

I think the criticisms towards tether are fully substantiated given their lack of transparency.


If Tether is a scam, you're going to be hard pressed to find someone willing to sell 1:1. Like all things crypto, don't be the last one out the door.


You used to be able to withdraw goxusd 1:1 as well.




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