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Bitfinex and Tether required to end all trading activity with New Yorkers (ny.gov)
568 points by dgellow 7 days ago | hide | past | favorite | 499 comments





I've been following Tether for quite a long time. I have no absolute proof it is a scam but the writing is on the wall. Here are some facts.

- The current Market Cap of USDT is 34 Billion Dollars. It was 4B this time last year. Since the value is pegged this means there has been an influx of cash of 30 B into this shady company in the last year alone. Who invested this money? We have no idea since Tether doesn't disclose, but we're supposed to believe all this money entered USDT even with the red flags we see.

- There's a correlation between Tether printing new USDT and the Bitcoin Price.

- There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

- Daily volume of transaction is in the 100 B mark. Twice that of Bitcoin and 3 times Tether daily volume this time last year.

- BitFinex is included in the NY decision because it's proven now that Bitfinex and Tether are operated by the same people. Note that a few years ago this was not only undisclosed but actively denied by Tether.

- Tether initially told its investors it was 100% backed by dollar reserves and that it would be subjected to constant audits. The audits never happened, and they eventually conceded only ~70% was backed by "short term cash reserves".

My conclusion is that the folks at BitFinex came up with a new currency, printed billions of it and used it to wash trade against itself and other crypto, creating an artificial demand that drove the prices up. It's textbook Ponzi scheme and will inevitably come crashing down, killing Tether, BitFinex and a chunk of the Crypto Market.

Crypto folks will counter argue that people has been saying this for years but Tether is still chugging along and crypto is healthier than ever.

Personally I won't touch any crypto with a 10 foot pole until this thing blows over. If that means missing out on a lot of possible gains so be it.


Almost all fiat deposits into Bitfinex create USDT.

Thats an additional fact that the amount is in line with the amounts that would be deposited into any big exchange.

If Coinbase minted USDC whenever someone deposited, you would see the same kind of growth.

The basis of your entire post is assuming impropriety based on pretty normal behavior with the addition of the business quirk of when USDT is created.

The ability for impropriety is a good enough reason to avoid it, and their unilateral willingness to do so without any discussion can reinforce that. But people thought everything you thought since the beginning of Tether in like 2014 or so, but the reality is that it “only went fractional reserve” in 2018. Its kind of like they threw up their hands and said “well people think its a ponzi anyway might as well cover this business debt!” The irony being that the NY AG investigation actually proved that prior to 2018 it functioned exactly as promised, barring their 2017 distress by having nowhere to put their fiat deposits.

But if you assume that it hasnt come crashing down because Bitfinex does what they said, then it still does make sense: crypto prices pump after Tether mints because it is people depositing into the exchange and then buying crypto.

Any way glad USDC and DAI are growing a lot now, which have grown by the same orders of magnitude.


Is 'pretty normal business behavior' pretending two entities (bitfinex and Tether) are arms lengths entities with no relationship to each other to hide the conflict of interest, along with the provably lying about the actual backing of the coin, and using what were supposed to be customer trust funds to bail out what was supposed to be an explicitly stated unrelated business?

If so - be aware those are felonies in many industries and are probably criminal in most jurisdictions (fraud at a minimum). For very good reasons.


Surprisingly, yes. That is fairly normal in financial institutions. It seems nonsensical at a first glance, but:

https://www.investopedia.com/articles/analyst/090501.asp


What you are pointing to is expressly pointing out that 1) it is illegal, 2) it is illegal for a very good reason, 3) if anyone finds out the illegal things going on, it will likely result in catastrophic (or at least very, very expensive) consequences.

The pretending part that Tether and Bitfinex were doing was fundamentally different than the walling happening within financial institutions, where it has to be disjoint staff, disjoint control/leadership, and if someone sneaks through compliance and shares data (wink wink) it is highly likely someone will get fired if compliance finds out.

In the Tether/Bitfinex issue, they shared board members and ownership despite claiming they didn't in public, and were misrepresenting themselves in a very material way as independent.

If you were just adding some information, apologies. If you were advocating that clear evidence someone is brazenly committing a crime is not a justifiable and strong reason to distrust them, or even that it is inappropriate to hypothesize how they could be getting rich while continue to do similar things - then yikes?

If you were saying Situation Normal, All Fucked Up - then extra yikes?

Goldman Sachs (or some random VC firm) say might have some subtle versions of this going on, but if they were doing what Tether is and has been doing right now, they wouldn't be a solvent entity for very long. That Tether is hiding from jurisdictions (for now) in a way that Goldman can't doesn't inspire confidence in their trustworthiness or stability going forward, as they're clearly on the radar now and blood is in the water. Along with a lot of money and some high profile political promotions, potentially.


USDT, USDC and DAI each have their own set of counterparty risks. USDT is regulated somewhere sunny, USDC somewhere that could be hostile if given enough power, and DAI is backed by digital assets such as custodied Ethereum. The sooner there are more solid options in more jurisdictions, and more certainty around USD stablecoin regulation, the better. I will be very glad to see Tethers go away.

I can’t find where Tether is ACTUALLY regulated, but I can find a lot of misinformation about where it is regulated and how, even in their own legal pages. For instance, they claim they are regulated by FinCEN. However, they appear to only be registered with FinCEN for the purpose of reporting crimes and the like (money laundering), which does not (quite explicitly) give them the right to claim FinCEN in any way is regulated or overseeing them in the traditional sense.

If someone runs across Tether (somehow?) explicitly committing money laundering in a jurisdiction that FinCEN controls, yeah they could go after them - but since they don’t have an address near as I can tell, that’s not easy to do, and all they say on the matter is they are ‘incorporated in Hong Kong’ [https://tether.to/contact-us/]

Also, their ‘proof of funds’ is kinda ridiculous from any sort of auditing or compliance perspective and crazy out of date [https://tether.to/wp-content/uploads/2018/06/FSS1JUN18-Accou...]

If you have any more accurate information, please post!


Given the amount of money we’re taking about, the number of investors affected and the extent of the fraud around these entities, I’m surprised we have not yet seen a securities class action suit raised against them... I suppose it’s all good while the ROI goes up. After the seemingly inevitable crash, I suspect a SCA would be on the cards

I think there are 4+ active class action lawsuits, or were before they were combined - https://www.google.com/amp/s/www.coindesk.com/plaintiffs-com...

Goldman absolutely does play games like this on the market making side, but the difference is that the chairmanships of Goldman and the Federal Reserve tend to be a revolving door. They’re a special kind of royalty.

Your linked article keeps calling "The Chinese Wall" an "offensive and racist term." I don't understand that. I always assumed that the term refered to the Great Wall of China, i.e. a large, famous and fortified wall designed to keep groups on opposite sides separated, hence its metaphorical use in business. Is there some other connotation with regards to that term that I'm unaware of?

I am able to perceive things that don’t all reach negative conclusions. That doesn’t mean I like the product or the organization or have any specific opinion on it. That’s how due diligence works.

Yes, this is precisely how investment banks work.

If fiat deposits into Bitfinex create USDT, shouldn't fiat withdrawals from Bitfinex burn USDT?

I'm having trouble to find comprehensive data on USDT burns but https://coinmarketcap.com/headlines/news/tether-just-burned-... seems to suggest that one billion is extraordinary (and those weren't removed from circulation but swapped to another chain), and Tether finds it Twitter-worthy when they burn 100 million: https://twitter.com/Tether_to/status/1225088948243968005

For sure I don't expect Bitfinex fiat withdrawals to match fiat deposits, but 100 million USD withdrawn vs 30 billion deposited seems unordinary?


I agree and have always found this interesting. But it is similar behavior in more transparent stablecoins. Only Gemini’s GUSD has seemed to completely burned to nothing at one point. But USDC and DAI have growth so similar to Tether during bear markets that I cant put the lack of burns squarely on Bitfinex.

Either there is a broader accounting issue with minting and burning methodologies or people/entities really do hold.

During bear markets large market participants are still buying, and a tiny portion of people are providing the price discovery, and this is mirrored in the increasing amounts of crypto that have not moved from addresses in a long time.

Many people hold the stablecoin itself, instead of going back to fiat. So there is growth of all market participants, even during bear markets when other cryptos are falling out of favor.

Thinking out loud, I've paid a lot of graphic designers and marketers in India this year in Tether. They arent familiar with crypto but just notice that their Unocoin app takes it. We’re not doing paypal, and all fiat transfers are domestic with none of fees, time, or scrutiny that an international fiat transfer would have.

The nature of all stablecoins is that if the supply does not match the demand then there are arbitrage opportunities to mint more, which can be initiated by the user. If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.

So if all the stablecoins have similar growth patterns, the things going for Tether are simply first mover advantage and greater clout in Asia.


> If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.

Sure, but what if Tether is at $0.98 - how do you get dollars back?


If you have a bitfinex account you can redeem the tethers for dollars at a 1:1 rate still and this would burn the tether reducing the supply.

Not all countries like US can get an account there or use fiat so I wouldnt know if the redemption mechanism is currently working or not


Yes it’s a scam and 30 billion dollars deposited in a year is a laughable claim, particularly from a company with a history of lies and fraud. Nobody in the crypto space calls them on it because the fact they get away with it calls into question the entire ecosystem.

> Almost all fiat deposits into Bitfinex create USDT.

As a matter of fact that is NOT true. (speaking as a crypto hedge fund manager, active since 2013, and trading > $1B/month on all major exchanges). It used to be like that in the past (when USD and USDT where one just represented as "USD" on Bitfinex), but this changed a year or two ago. Now, USD wires are being credited as USD and USDT deposits are being credited as USDT. And there is a USDT/USD market on Bitfinex to exchange between the two.


Nice this is how Coinbase functions with USDC too

Likely they all piggyback off of each other’s implementations in the face of evolving regulatory guidance


Why does USDC and USDT need to exist for this? What’s the benefit of not just having USD in your Coinbase/bitfinex acc if they’re meant to be pegged anyway?

You send USDC/USDT to another exchange, use it to pay for stuff, store it in a hardware wallet, etc. USD can only be transferred back to your bank account.

Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.

> Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.

If they did, it looks like it's closed now. At least in the US, converting between two cryptocurrencies is a taxable event:

> There are plenty of questions about whether or not investors can claim a direct crypto conversion (e.g. bitcoin to ethereum) as "like-kind", avoiding taxes on those transactions. The tax laws changed beginning in 2018, and like-kind exchanges are only applicable to real estate transactions.

https://www.coinbase.com/learn/tips-and-tutorials/crypto-and...


I wonder what % of that is getting declared...

In germany, they don't allow that loop hole.

If you made profit and traded against another coin, you pay tax, simple.

If you hold for a year though. You dont pay taxes.

My portfolio is up quit a bit now and its almost a year. Hope it stays almost like that just few more weeks :)

But who knows?


Because many exchanges are in no way capable of holding a banking relationship with a legitimate bank that transacts in USD.

edit: Perhaps that was overly snarky - the issue is that the US requires legitmate banks to take certain efforts to identify their customers (KYC), and prevent money laundering (AML). Meatspace banks aren't perfect in this regard either, but many crypto exchanges are either unable or unwilling to do this, or are already proven to be engaged in fraud or other financial crimes.


No way interested and running an equivalent business with much less overhead and faster growing customer interest with higher returns, has nothing to do with crime or incompetence or imperfection

Sending USDT is cheaper, faster and easier than sending actual USD.

I don't fully agree with that. - Cheaper: Well most decent banks I have been working with don't charge on USD wires, or they charge something like $20 flat, which happens to be on par or cheaper than the ethereum blockchain fees nowadays - Faster: In my experience (in sending hundreds of wires every month), the actual "sending time" of USD wires via Fed wire or SWIFT is literally minutes, so that's on par with blockchains. Most of the time the funds are just stuck somewhere in the compliance department. The same would hold if you withdraw/deposit USDT/USDC to an exchange. Funds can still get stuck waiting for compliance approval. - Easier: That's debatable. I guess some banking UIs are better than others. And blockchain is not particularly known to be UI/UX friendly either. One definite advantage I could think of is that when you hold USDT/USDC in your wallet, then you have full control over them, but I bet 99% of the USDT/USDC is held on exchange, and exchanges are more and more starting to act like banks (with all the slowness that that entails).

Sure, if you are in the developed world and have access to traditional or online banks, and a relatively stable local currency.

Then there's, like, the other 4+ billion people in the world.


a significant amount of cross-border trade (yes, actual goods transported in meatspace) is conducted in USDT for many years now.

I still am waiting for a source on this, unless the implication is that those meat-space trades are all illegal / ML and therefore not tracked....

What kind of source would you be looking for

Its like cellular service in an underground subway station: people tell you it arrived and use it and nobody thinks about it afterwards. There wont be a source about that whether you believed it or not.

USDT is as frictionless so it just has use.


I mean, all functioning governments track the net value of imports / exports (that's the main job of customs departments).

Most functioning governments also keep a balance of payments (https://www.imf.org/external/np/sta/bop/bop.htm).

If the flow of imports / exports doesn't line up with the net flows of payments, someone would raise a flag.

So yeah, unless it's ML / illegal trades, we could at least figure out a way to track it.


Casinos and CFD buck shops love it. Typically only pay 0.003% vs 0.02-0.08% charged by VISA/MC card processors.

If everything is fine and dandy with them why are they stopping trading in NY? Why is the AG claiming they lied about reserves, the one thing they really-really shouldn't have been? (Insert "you had one job" meme.)

I didn’t write that everything is fine and dandy with them.

The world toolset doesn't function under a “your either with us or against us” mentality, it functions as a gradient.

That gradient is that the NY AG case showed Tether was functioning properly until 2017/2018. If you were around crypto at that point in time, you would know that people would not have believed they had full reserves ever.

Just reread what I wrote. You are deciding to see advocacy for Tether which is not what I wrote at all.


They haven't "functioned properly" because they promised audits, transparency/openness and independence, and none of that happened even back then. They then found out that they can keep up the empty promises and started dipping into the sauce, and now finally one investigation caught up with them.

Your selective omissions imply advocacy - at least this is how it seems to me, and I'm not saying that's bad/good.


Not everything needs a dissertation long disclaimer just so you can decide if you want to listen to me

The accuracy of any statement can be weighed and discussed on its own merits


You make multiple false, assertions in one comment, backtrack those assertions in other comments, and then pretend your position has remained unchanged the whole time.

It comes across as dishonest and makes me, an outsider, wonder how much tether you own.


Thats because they aren't assertions, its called a conversation

It's called lying, first to others and then to yourself.

I am not sure how you interpret the AG report to think it shows they were functioning properly. They haven't shown proof of backing at any point. They have shown they had the money in the account at one point which is nowhere close to showing you have backing. Statement of balance is completely meaningless, especially when it comes from ac transfer done from your sister company like a day before.

All the AG report shows is just more evidence it's one huge scam.


How come you just come here telling that deposits in bitfinex creates USDT

But Paolo himself post that all the usdt minted is 'tron replenish' everytime whale alert tweets about 800,000,000 USDT frwshly minted

So, basically, in your intentions to defend USDT you are even contradicting what its own CEO says...

It's also funny how tesla 1.5b investment and microstrategy few millions buy are to be 'celebrated' as big and huge, yet you are trying to convince us there is people depositing 800m daily into bitfinex?


US equities are choosing to make a big deal out of something benign at fairly small amounts. The corporate debt market is massive with almost all blue chips routinely issuing short term debt that dwarfs anything Microstrategy did, for completely ambiguous purposes and the market does not care as long as its paid back. 100 billion $ worth of US commercial paper was issued just in the last month with no fanfare whatsoever and no disclosure on what the proceeds are for. Microstrategy’s dabbling in the corporate debt markets is only news because the CEO wants it to be.

The volumes from a large crowd that can also include institutional can very easily be large.

A recent example is the Saudi Aramco IPO, particiption in that IPO used Saudi retail investors and Saudi payment rails and resulted in $25bn in purchases. That one country’s internal financial system was able to handle it and there was just that much participation.

Tether doesn't have the transparency we will want. Choose a different product for that reason alone, and there are options now.

But assuming the worst, out of the universe of assumptions, is just as useless as assuming the best. The western world says “all this is improbable so lets assume it is impossible”, the eastern world doesn't seem to care and there are examples where much larger sums of money could show that Tether’s growth is not improbable or impossible.

The point is that $30bn of deposits (whether some of that is counted incorrectly on multiple blockchains) is not noteworthy enough on its own to reinforce your conclusion. Many random brokers have that. If they had a stablecoin that was minted upon deposit, you would see the same thing. And here, institutions also use Bitfinex and $30bn is actually then a reflection of how small the crypto markets are.


I agree with you that GP's post hardly makes any sense but

> ... yet you are trying to convince us there is people depositing 800m daily into bitfinex?

800m daily would have meant 300 bn USDTs created in a year. They create 30 bn in a year, no 300 bn. It's huge but you are one order of magnitude off no?


Their post doesn't describe normal behavior. It describes what would be illegal behavior elsewhere. It may be somewhat legal depending on the underlying reasons due to the quirks of not being regulated but renegading on promises to investors is not normal behavior when it comes to things like audits.

> Almost all fiat deposits into Bitfinex create USDT.

Which is insane. Those are customer funds, that Bitfinex owes to their customers, if they choose to withdraw from their ecosystem.

They aren't a personal piggybank for them to dip into as they please.

This is not at all like fractional reserve banking, where a financial liability (customer deposts) are used to print dollars (in the form of loans), because customer deposits can be called back anytime, while loans cannot.

With Tether, if Bitfinex takes a dollar a customer deposits, and then prints and sells a USDT, and the customer withdraws their deposit, they have to destroy a USDT, in order to maintain the 1:1 peg. There is zero evidence that they are doing this at anywhere near the rate they claim.

Ironically, what they are doing is very similar to a double-spend.


This case stops short of proving exactly what percent they are currently backed at - there is almost certain some level of "legit" deposits (Tether has value in evading capital controls). The weight of evidence is strongly in favor of past financial crime, and the imposed transparency requirements suggest NYAG suspects these issues are ongoing. I dont suspect they will ever provide satisfactory evidence of legitimacy, and the DOJ is almost certainly investigating them by now.

so bitfinex customers deposited 30B US$ since last year? hard to believe.

I think Tether is mostly a fraud, but the market for escaping capital controls (aka money laundering) is almost certainly $30B/year or more.

If this was for money laundering, why such a high balance?

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.

I'm not saying I disagree with your overall thesis. But this specific point makes it sound like USDT is some sort of roach motel ("you can get in, but you can't get out"). That's not true, it's fairly easy to get back to USD at low cost. The fact that USDT is trading at near parity with USDC on Curve indicates that most of the market doesn't perceive a risk.


> There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.

Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.

> that most of the market doesn't perceive a risk.

That is absolutely no indicator for safety.


> That is absolutely no indicator for safety.

Currently, several billion in value is locked into Defi-based liquidity pools with USDT. If USDT collapses tomorrow, the stakers will lose nearly all of their principal. (Fast traders will quickly swap worthless USDT for all the USDC in the pool, before hardly anyone has time to remove liquidity.)

The largest of these pool, currently pays about 2.6%.[1] Even if all of that return reflects USDT credit risk, that market implies a 1/50 chance of USDT collapsing within the next year. I'm not saying the market is necessary correct. But what I am saying is that very deep, liquid markets are not pricing any significant USDT risk.

If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.

[1]https://www.curve.fi/3pool [2]https://compound.finance/markets


> If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.

This trade involves risk, and not just the direct USDT risk. If it didn't, there's no particular reason multi-billion dollar hedge funds wouldn't buy this down to the yield of an equivalent US treasury or similar.


> If it didn't, there's no particular reason multi-billion dollar

This is true in theory but in practice it seems much more commonly false. Even in vastly more mature and liquid markets, straightforward arbitrages can persist for years and in some cases decades, even after an inefficiency becomes public knowledge


> Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.

https://global.bittrex.com/Market/Index?MarketName=USD-USDT


Do they process withdrawals in a reasonable time?

Dunno about Bittrex but Kraken also has a USD/USDT pair. Withdrawals via wire transfer take around 2 days.

I have not had problems with them, but I'm also not doing any large transactions.

Also note Kraken, withdrawals are as fast as a wire transfer (so a few days): https://www.kraken.com/en-us/prices/usdt-tether-usd-price-ch...

What I'm not sure is how that market connects to Tether's bank accounts increasing or decreasing in holdings. This is all third-party exchanges, presumably with other customers as the counterparty.


That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one, and seems like it would have to involve multiple parties during the exercise.

Many exchanges have pretended for a long time that USDT is 'the same' as dollars, and there are going to be a lot of folks pissed that it isn't actually the same thing.


>That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one

This. If Tether truly were just a token backed 1:1 with USD on deposit at a commercial bank, you would not need to make multiple hops across multiple entities to actually convert it to dollars.


Also imagine how "well oiled" this financial transaction's machinery will work during a market contraction.

There was a similar situation the last time the NYC AG tried to shut down Tether and withdrawals from Bitfinex were blocked (June 2019). What happened was that Tether started trading at about $0.93 and USDC/DAI started trading around $1.04, as the supply of other stablecoins wasn't quite adequate to accommodate all the people fleeing Tether. Bitcoin actually ended up being the reserve currency instead: the price of Bitcoin spiked from $5200 -> $8700 over the course of a couple weeks as Tether holders dumped it to buy Bitcoin and move it to other exchanges.

Personally I'm surprised the risk premium wasn't more, but Tether is still around today despite both Bitfinex and Binance blocking withdrawals and the NYC AG initiating fraud charges against them, so ultimately the folks who decided it was nothing were right. Then, at least.


>There is an easy way.

How many fees have you paid through the 3 or 4 steps to get to this "easy" solution? Is that solution available to everyone worldwide? (I'm not familiar with Curve or Coinbase and whether they're US only or something of that nature)


I’m wondering how high volume would need to be for the first step (from USDT to USDC) before something breaks?

Why don’t more people use USDC anyway?


Well, because Tether is happy to look the other way for money launderers, cartels and other bad actors. USDC can't.

>Why don’t more people use USDC anyway?

USDT got there first.


> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

It's perfectly possible to exchange USDT for USD and withdraw USD to your bank account; it does not involve complicated steps nor outrageous fees. Kraken, for example, has a very liquid USDT/USD market, is a well respected exchange, and processes USD withdrawals that arrive within minutes to US bank accounts. I'am speaking as an industry insider and hedge fund manager that trades ~$1B/month on the crypto markets.


How do you get withdrawals arriving within minutes? Mine take about 2 days, I'm on the highest verification level that they list publicly ("Pro").

It may help that we bank at all of the same banks as Kraken, so most transfers are internal transfers. But even to outside banks, normally US wires should be pretty fast (usually within the day). It may also be the case that we literally wire millions every day on a regular basis, so our wires probably don't get held up at any compliance checks.

> It may help that we bank at all of the same banks as Kraken

Sounds like a good idea. Do you happen to know if a list of such banks is public?


As a start, you can check out Signature Bank and Silvergate Bank. They are known for being crypto-friendly banks, and they bank literally every exchange that trades crypto versus USD.

Thank you, I will!

In Europe, one bank is Fidor.

That's a trade, not a withdrawl. You cannot withdraw 1USD for 1USDT.

What will happen to NY AG which investigated Tether for 2 years, went through 2.5 mil pages of documentation, yet missed such an obvious scam that a lot of people, including on this forum, can clearly see?

If Tether implodes, is this proof that NY AG is incompetent or even worse, somehow implicated in this giant scam by covering it up?

In the NY AG settlement PDF it clearly states that they will not indict Tether in the future for the investigated crimes, including not being backed up by assets, which happened before the date of the payment of the fine:

> 56. Within five (5) days of the receipt of the penalty ... and agrees not to bring any claims or causes of action against Bitfinex or Tether ... for matters relating to the conduct set forth in the Findings and the Petition ... arising out of Bitfinex or Tether’s representations concerning the backing of tethers during the time period January 1, 2014 to the effective date of this Settlement Agreement; transfers of a portion of the cash reserves backing tethers to Bitfinex pursuant to the line of credit


Doesn't mean the DOJ or any other State AG can't bring action. NY also doesnt remove themselves from prosecuting over any future action, like being unable to provide the agreed upon transparency reports.

I wouldn't be surprised if they are into the scam and got bought.

The real world isn't a nice place and police show...


>There's no way to transfer USDT into USD

Use Kraken. You can change USDT to USD and withdraw money. I've done both.


This is the confusing part to me. Everything I read online talks about Tether being fraudulent. Shouldn't the price of Tether reflect a discount based on that? If it doesn't, does that mean the market is okay with a Tether being 1 USD even if it is not backed by anything?

At some point yesterday, BTC/USD pair was trading up to 400$ lower than the BTC/USDT, that should be enough to tell you that a lot of people don't really want the USDT anymore and were willing to pay a 400$ premium to get real USD, it will start getting ugly at some point

Not necessarily because Tether the company will use the USD or similar that they have to buy tethers on the market if the price falls below $0.995 or so. The worry is if there are say 30bn tethers out there and they only have $20bn cash and enough people redeem the the price will stay about $1 until the $20bn runs out and then suddenly drop to not much.

It's actually possible that rather than just holding US$ against USDT they have put some into bitcoin instead which would mean they may have plenty of funds unless bitcoin crashes in an unfortunate way.


So the consensus here seems to be that Tether the company is doing some sort of fractional reserve banking? I'm assuming no one on hacker news is holding Tether ...

To the point of actions speaking louder than words, why are there people who trust Tether enough to hold it? If there is no trust there wouldn't everyone redeem and create a bank run?


I've held tethers before now. The 'fractional reserve' thing is unknown. If I were a crook and running the thing I probably would have printed lots of tethers to buy bitcoin in the slump then sell them at a profit to fix the reserves and buy and island. But who knows unless they do an audit which they seem very reluctant to do. The above scenario would be illegal but would not lead to the collapse of tether unless the law got them which is tricky as they are based in various offshore locations.

I've been through this whole tether is a scam which will collapse thing before around late 2017 or Jan 18 and inspite of the crypto downturn they didn't.

A HN story from Nov 2017 https://news.ycombinator.com/item?id=15745441 for example.


I've also been following Tether a while. I even shorted a bit back in 2018 but I'm starting to think maybe they are basically legit apart from maybe not dotting all the Is on the money launder regs. Here's Gregory Pepin "Deputy Chief Executive Officer at Deltec Bank & Trust", Tether's bankers, saying they have the money: https://youtu.be/rQ3nQ8-KY28?t=281

The author of this report from 2018 agrees with your assessment https://www.tetherreport.com/

Not considering your other points - I never had issues converting between USDT and USD. I just did it yesterday in fact.

Did you exchange USDT for USD through the exchange or did you trade USDT for USD, there is a difference.

In the first instance the exchange is on the hook for the USDT and they have to go to Tether to get USD to cover it.

In the second instance the other user you traded with is on the hook for the USDT and they will probably just trade it for USD in the future or another crypto.


Even the 70% backing number is too high. According to the findings of the NYAG:

"Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal."

https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...


> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

So what actually happens when people sell Bitcoin? They get USDT on an exchange and then can never get cash out? Is there some convoluted series of trades you can make from USDT -> ??? -> USD or something instead? And people selling Bitcoin have made enough profit to just ignore the overhead of those trades I guess?


OP got that wrong. It's very simple to exchange USDT for USD, you can do it on Kraken and Binance and withdraw to your bank account. No problem at all

Isn't that trading, you're selling USDT to someone who wants to give you USD for it? That's different from telling the operators of Tether itself "Here's some USDT, give me the USD that backs it".

Backed by cash in a bank account doesn't mean that much. As you probably know any bank will take deposits and use them for loans.

Strangely USDT sells at a premium to USDC (audited) for years now.

My guess is it will slowly be replaced by an audited stable token if the market wants that.


In addition to all of this they claim to bank in the Bahamas. Bahamas discloses total banked assets and the amount of Tether issued far outpaces the rate at which the whole nation of the Bahamas' assets have been increasing.

> Personally I won't touch any crypto with a 10 foot pole

if you dont mind explaining to a relative newbie - how does any of this affect Bitcoin? it clearly has had some effect, but I just dont understand the causal chain.


"There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try."

How about Bitfinex? I had some problems with withdrawals there in the past - but now it seems to work.


If the total amount of USDT exceeds their USD cash reserves, who became the beneficiary of the extra USDT?

Bitcoin holders.

Which BTC holders and how? What's the path from onboarding on an exchange website, to eventually getting unbacked USDT? If I put USD onto an exchange, why would the exchange give me more USDT than what I deposited (and if this never happened, then how did the first unbacked USDT come into existence)?

I hold BTC but didn't use USDT in the process, just deposited normal fiat and bought BTC using that.


1. Bitfinex processes a USD deposit and dispenses USDT

2. USDT holder purchases BTC with it

3. Bitfinex purchases crypto (mostly BTC) with the USD, instead of holding it as promised

Thus the original USD of the person buying BTC at the exchange has effectively double the buying pressure on the BTC market because Bitfinex is actively investing all their USD holdings that "back" Tether into the market as well.


Good explanation. Why do they do step (3)? Aren't they just opening themselves up to massive legal liability?

Some believe this is an intentional Ponzi scheme to print some money for the owners of Tether and Bitfinex, others believe they had good intentions at first, but through bad investment or otherwise got underwater, and started "investing" their USDT-backing dollars to claw back up.

Bitfinex originally denied relation to Tether but it's been proven that was a lie.

The worry is, at some point there could be a "run" on Tether, when the curtains are pulled back, where all the USDT-BTC traders who happen to have USDT holdings and they suddenly become worthless because nobody wants to trade USDT-BTC anymore at 1-1.

As long as "public confidence" in USDT continues, the charade will too


Another dumb question: If they've been buying assets like BTC using the USD that they were supposedly keeping as reserves, shouldn't they have made massive amounts of profits since 2018, and be in a position to now return the USD reserves so that it's 1:1, while keeping billions in profits for themselves?

If they haven't exited the BTC position, then selling the BTC to convert back into USD may not be possible without dramatically affecting the price. And if it's still in BTC and they don't bother converting back into USD until the last minute, then a run on USDT may make it impossible for them to convert enough BTC to USD fast enough to redeem USDT.

It's hard to analyze Tether/Bitfinex's risks here because, well, they have been fairly opaque about what their actual financial situation is, so people are relying on their gut instincts to guess what it is.


USDT has a market cap of $35bn, let's say that 30 percent is unbacked and the corresponding USD was used to buy BTC. That's a position of at least $11bn. It's probably worth more than that now, since the price went up after they supposedly bought in, but they only need to liquidate $11bn to return the USD to their reserves to make it 1:1 again.

The market cap for BTC is $1000bn. Wouldn't they easily be able to unload the position over a 1-3 month period without too much price impact? They own 1 percent of the market cap, and in the stock market we often see larget stockholders than this unload their whole position without a catastrophic impact.


You couldn't liquidate that much BTC without tanking the markets... it's a game of chicken if it's true that the USD backing tether is gone.

I'm waiting patiently for the whole Tether printing scheme to fall and crush to finally purchase Bitcoin / Ether. However I'm not viewing them as inflation hedges so long as Bitfinex / etc. are allowed to continue with their obvious money printing scheme.

When most crypto trading volume is traded at trustworthy exchanges which actually hold dollars as much as they say they do, I'll trust $/BTC to be a fair market.

It's dumb escaping from Powell's printing machine straight into Bitfinex tether printing machine. BTC isn't the hedge people think it is so long as it's traded against fictional dollars. Tether's volume exceeds Bitcoin, so that's the scale of fictional dollars supporting Bitcoin right now.


Cryptocurrency isn’t the only way to escape USD inflation. Investors have been investing to avoid inflation long before Bitcoin was invented.

Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. Inflation is an increase in asset prices, resulted in reduced buying power. You only need to invest in assets (stocks for example) and minimize holdings in cash if your goal is simply to avoid losing buying power of your cash. Cryptocurrency currently functions as a speculative instrument, not a stable store of value.

Cryptocurrency in general is only deflationary if we pretend only a single cryptocurrency exists and ignore all of the increasingly brazen financial instruments offered by exchanges. As it stands, the ever expanding list of crypto currencies, NFTs, crypto lending products, and new crypto currencies represents a general inflation in the cryptocurrency space.


On top of that, any asset for which demand comes mostly from being an "inflation hedge" is a bad inflation hedge since prices will rise when people want more inflation hedging and drop when they want less hedging, meaning the majority of people inflation hedging will buy high and sell low.

Gold has had that dynamic for a long time, which is one reason it is not considered a good investment most of the time. Buy assets that are productive and you will be much less subject to that. Real inflation hedges look like stockpiles of goods, inventory or production capacity thereof.


Could that make such inflation hedges a good pre-inflation hedge? For example buying gold with the expectation that people will soon want more hedging than they do now, though this relies on getting in earlier than others.

This is how derivatives trading (and speculation, and investing itself ultimately) works. It's all about mentalizing how others will trade.

The big question is to pick the optimal asset for hedging.


Yes, but at that point, you should just borrow money, and do something useful with it, because being in debt is a simple, straightforward inflation hedge.

So, just price speculation then?

This proven logic is drowned by people's instinct to follow the herd... and buy Bitcoin.

Stocks prices get negatively impacted by rising interest rates. With interest rates at ~0%, there's little money to be made in bonds, savings accounts, or anything that pays interest income, so people put money into stocks w/ the hope the stocks will go up. When interest rates go up to fight inflation, there's more incentive to put money into bond markets, which means there's not as much money going into stocks, which means stock prices don't go up as much. Housing prices also tend to go down as interests go up, as rising borrowing costs mean fewer funds are available for buying a home.

What’s your recommendation for least-worse inflation hedge?

Paper towels never lose value and pretty pegged to inflation.

But seriously, look at the past 20 years and your takeaway should be that USD is indestructible and that the Fed can do no wrong. They ran the printing press day and night for years and struggled to hit 2% inflation. "Full Faith and Credit of the US Government" is evidently the best inflation hedge in the world.



> In the long run, we're all dead

If you want to know where to stash your money in 2021, you look at history for lessons. USD will be completely worthless one day just like the sun will eventually burn off the surface of the Earth. I'm thinking back to financial crisis days when there were endless cries of runaway inflation being around the corner and that the Fed couldn't handle a crisis of this magnitude. And I think that looking back they handled it extremely well. They took a nuclear bomb to the chin and stayed standing.


I'd love to see someone try to sell yellowed 20-year old paper towels (with branding from 3 generations ago) after thinking they were hedging inflation.

This is not financial advice. This is just a reflection of knowledge that has kept all my long term investments stable or growing through every dip and shift in the last 25 years.

- Stable index funds are the best long term hedge. (Date targeted mutual funds have largely been doing very well in the last 15+ years too.) - Then consider LONG TERM materials investments. - Then consider Treasury Inflation Protected Securities. - Then consider property, as in real estate.

Actually personally I'd drop the materials at this point. It's easier to screw up materials investments and they're often in stable funds anyway.

This is all long term, you'll note. I would argue there are no true short term hedges. There are bets against the market and that's often what you see in "hedge funds" that go relatively short term. But if you're in that space, well, you probably shouldn't even be having this discussion on Hacker News. I'm sure I'll take flack for that reinterpretation but it's important to be honest about these things, and many make money in this space by eschewing that honesty.

But, your basic goal of keeping your money valuable long term is not a hard problem, it's literally a solved problem and it's what the S&P 500 & similar indexes and/or TIPS exist for. If you think you need to hedge against the fall of the US or at least the USD? I think you should be hedging outside the financial system entirely, go full prepper, because, that's where that fatalistic logic will take you ultimately anyway.

Actually, with less snark, it is always reasonable to keep moderate term survival in mind. An actual major financial meltdown would likely be survivable with minor prepper-like approach to long term food and water stores, especially if you own property. So maybe move property up on your list if you are in a position to own it outright, and bury some water and long term preserves there as a bonus?


I'm mostly kidding... Buy forever stamps from USPS. As they raise the price of postage, your stamps will go up in value, and then you can sell them for a profit! This is probably a terrible idea, but it makes me giggle.

Now I'm imaging some sort of push on r/wallstreetbets to YOLO on stamps, posting insane strategies on how to predict when the price of postage will go up, by how much, and how liquid the market is for millions of stamps.


Back in the roaring '20s Charles Ponzi came up with a way to theoretically make a profit trading postage stamps, and raised a lot of money from investors, although in fact he never actually bought the stamps, and instead invented the Ponzi scheme.

My wife is a lawyer and she buys a lot of stamps. Recently she stumbled onto some strange stamp firesale on Ebay and bought forever stamps at below face value. I could only guess that this was an unwinding of the trade you propose.

Stamps (forever or not) are often used for Ebay manufactured spend because they're easy to sell (clear value, lightweight and easy to ship).

It goes like Ebay says spend $X or sell $X on ebay and they'll give you a rebate. (Or sometimes the rebate comes from a credit card or Bing). If the $X covers ebay fees and shipping, then buy stamps to reach the $X and then sell them when you get them. If the rebate it sufficient, you can sell the stamps for less than cost, because you're already ahead.


That, or forgeries being laundered... [1] https://www.linns.com/news/us-stamps-postal-history/quality-...

For a cash-like instrument, stamps seem to have very little in the way of anti-counterfeiting security.


There's a quaint and quirky thing in the UK called a premium bond, which you can buy and which the government guarantees to buy back from you at its initial fixed value (1 bond costs 1 British pound). Every month, a lottery system pays out prizes to holders of bond numbers, as chosen by "ERNIE" - "Electronic Random Number Indicator Equipment".

https://en.wikipedia.org/wiki/Premium_Bond


The equivalent New Zealand scheme (Bonus Bonds) is being wound up due to low interest rates: https://en.wikipedia.org/wiki/Bonus_Bonds

From elsewhere: “With low interest rates continuing to reduce the Bonus Bonds prize pool, the Bonus Bonds scheme was closed to new investment on 25 August 2020 and an announcement was made that ANZIS intended to begin winding up the scheme no later than the end of October 2020.”


Would be interesting to see something like that in place of state lotteries her in the US. Neither is a good investment, but the longer term nature of the prize-bond system makes it less likely to attract desperate short term gamblers.

Buy all the non perishables, non obsoletables you're going to need for the next decade. Buy them in discounted bulk for and extra return. Bonus: capital gains tax free!

Solar panels, water filtration, and indoor farming!

Investing for the zombie apocalypse!

Not very practical if the amount to be preserved is multiple 7 figures, I should have clarified my question better.

US$5M is a bit under 100 kg of gold or 6 tonnes of silver. Might not be a bad idea to spend a few percent of that on hiring security guards and stocking up on perishables to feed them an their families.

This quickly went downhill lol. Thank you for your suggestion, I’ll stick my $5M in VTWAX and hope for the best.

Probably a good idea to maintain a more diverse asset balance than 100% in stocks, in the interest of hedging wealth preservation against both likely and unlikely shocks. The base rate of state collapse, for example, is about 1% per year, and examination of past episodes shows that it's often pretty unexpected. See notes/pandemic-collapse.html in Derctuo for some of the reasoning here. Moreover it's hardly unusual for share markets to dip 10% or 20% and take several years or a decade to recover.

That is probably your best bet for large amounts. You can also diversify into TIPS (note the negative nominal returns though) and improve your housing situation with renos, upgrades etc.

Potentially high opportunity cost here

So invest in toilet paper?

Yup materialize your savings for a 2% a year compounding tax free return.

Urban dwellers might be more limited but for people who have unused or underused space, this is a way to get a return on that space.

Salt, granulated sugar, powdered sugar, brown sugar, socks, underwear, under-shirts, vinegar, soap bars, toothbrushes, razor blades, feminine products, toilet paper, paper towels, napkins, trash bags, freezer bags, sandwich bags, foil paper, parchment paper, plastic wrap, wax paper, candles, matches, diapers, pet supplies (litter, etc.), gardening supplies, building supplies, repair supplies, medical supplies, fire wood, wood pellets, long lasting appliances and furniture, kitchenware, dinnerware, sheets and pillowcases, blankets,comforter,bedspreads, Maintenance, renovations, Efficiency upgrades.

Some liquid soaps and chemicals have a limited shelf life of just a couple of years so it might be better to avoid unless you know the shelf life. Also be careful buying more than you need which can lead to waste. Be careful being wasteful just because you have lots of stuff at home. Buying alcohol ahead of time in bulk works if you have the discipline not to drink more. Also to get a good return you need to use the full life of your stuff before replacing from your stash, not replace early because it's right there.

There is also a macroeconomic benefit to this approach. It can get the economy out of keynesian recessions when people save by buying.


Tuna cans. The $/volume ratio of toilet paper is horrible, and in case of a real big emergency the other end is more important.

Spam has more calories and lasts just as long. If you want carbs as well, add canned fruits and vegetables.

Any kind of dry bulk food will also work as long as you take proper measures to keep mold and insects out. Bonus points if you can also keep oxygen out. (Grains often contain a surprisingly large amount of lipids that can go rancid.) In the kind of emergency where you'd be seriously worried about the "other end", you could very well exchange a bag of rice or sugar for a handgun or a bottle of motor oil.


Buy the swiss franc. Or TIPS. or a commodities etf. or emerging markets etf as EM does well when dollar is weak. (their loans are dollar denominated)

The Swiss would appreciate if you did NOT buy Swiss francs as an inflation hedge. This kind of speculation hurts our export industry.

sorry :/ we just trust your government more than ours

Land is the typical recommendation. A noisy crowd thinks gold is a good hedge. Personally, I think that high quality companies with pricing power should retain their value; Coca-Cola and Apple can probably increase their prices to compensate for inflation, leading to increased earnings, leading to increased stock price (the increase compensating for inflation).

Land and stock have the issue of being inversely related to interest rates and interest rates do rise with inflation.

It depends on how much downside risk you are okay with taking. If you want something relatively cash like, ibonds are an interesting option - their rate of return is updated to the latest inflation measurement every 6 months.

If you are okay taking on some risk, a mix of stocks and bonds seems sensible to me.


I totally buy ibonds, but their 10-15k limit a year is unfortunately a joke. I wish I could buy way more.


The returns you can make in securities over ten to twenty years is much more impressive than bonds.

Key word being "can". On average securities have a much better return than bonds, but they also have a much higher risk of a large drop in value.

On an individual basis perhaps but not if you're in an S&P 500 ETF.

Go lookup a graph of the sp500 from 2000 to 2010. There are no guarantees that it will always trend up.

Go look at that same graph from 2007 to 2021. If you bought in at the top of the 2008 bubble, you'd have tripled your money by now.

Unless you're planning on retiring in the next 10 years, buy stocks.


The S&P is unusually pricey at the moment though.

It's only unusually pricey if you expect to always live in a world of 3-4% interest rates. We're no longer living in that world, though.

The thing is, you could say the same thing at nearly any point between 1999 and 2021, and be right, and it would still have been a good idea to invest into the S&P.


As a long term investor though thinking 'this too shall pass' is quite a good strategy which means at some point the high prices will fade and you will be left with your dividends and earnings which at current prices are not giving you much of a yield.

Also I've been following Jeremy Grantham who is now preaching that the end is nigh. He has a good track record https://youtu.be/RYfmRTyl56w

He recommends emerging markets and value stocks by the way where valuations are more reasonable.


Even if we assume only Bitcoin, it's not currently expected to stop printing money until (assuming Ray Kurzweil wasn't right all along) long after we're all dead.

The Bitcoin inflation story is more political than simply economic. Right now, it's not really possible for it to be narrowly about whether printing money is OK. But one could easily mount an argument about whether humans should be able to twiddle with the money printing policy.


It is supremely ironic that we’re supposed to believe that the best way to escape money printing is to buy a cryptocurrency that was invented out of thin air, which is continuously mined (during most of our lifetimes) out of thin air by doing useless calculations.

Or even worse, a basket of multiple crypto currencies, where the number of available crypto currencies and crypto assets grows larger every day.


It’s not really surprising when anyone pushing crypto to you also happen to hold a lot of crypto. It’s self-serving advice 100% of the time. It’s pretty much a staple also to call every other crypto you don’t hold a fraud trying to steal the spotlight.

While it may well be self-serving, this is also a near tautological statement, as you'd expect someone who pushes crypto to also hold a lot of crypto if they genuinely believe in it - whether for sound reasons or not. As such the fact they're holding crypto tells us nothing about whether they're pushing it because they're holding it or pushing it because they believe in it.

BTC has been the #1 asset over the last 10 years. In many individual years it has out performed every other asset. It has this year by a large amount.

At some point the dissenters will have to admit they were wrong. The reality is, BTC is here to stay and is a valuable hedge that is independent of any corporation, government, or central bank.


This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.

Maybe that means something, maybe it doesn't. If I had some way of knowing, I'd have a lot more money than I am now. It's worth remembering, though, that prices are just that: prices. Nothing more, nothing less.


Yeah me too - I remember when AMZN was $2. I remember when AAPL was 28 cents (before splits, etc). I remember when the Internet had a host of pundits proclaiming it was a dying fad in 2001.

And most anyone who bought a house at the peak of the bubble is doing quite well if they still have it today.


Are you familiar with the concept of survivorship bias?

It's an important concept to remember when talking about the long term outcomes from adverse market events. "If they still have it today," for example, is a useful qualifier, because it subtly renders the statement almost tautological. "Sure, it was a bloodbath, but all the people who survived seem to be doing OK."


Yeah, don't go on margin is the lesson there. People that lost their hat on the housing crises borrowed too much (went too far on margin, which is what a home loan is). Anyone who just kept investing during any market crash in history is sitting well.

So yeah, it's up to you.


The counterpoint is Japan: its economy peaked around 1990, and still hasn't recovered to that level, 30 years later.

Those stocks were issued by businesses that were providing goods and services for people and being paid in return.

> This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.

Well those two performed pretty damn spectacularly in the past 20 years.


What does it mean to be wrong? Should I have mined 1000 coins in my CPU a decade ago? Duh. Does that mean that BTC is a useful financial hedge against inflation? Why would it? BTC went up by a factor of a gazillion during a decade when USD inflation was not out of the ordinary. Clearly something other than "inflation hedge" is driving the price.

What it means is pundits have spared no opportunity to ridicule anyone who has invested their money in BTC, pontificated that BTC has no value, that it is a fad, that it is a bubble, etc. For 10 years. At some point don't they have to capitulate from that provenly wrong position and at least admit there's something there?

What is driving the price is price discovery. More people are becoming comfortable with it as an asset as the FUD described above has continued to be debunked. As more people become comfortable that drives demand which increases the value.

As a hedge against inflation it works for a number of reasons. People generally price it in dollars, like stocks or real estate. As the dollar inflates one would assume the value of BTC would increase as investors have more dollars to invest into it, driving demand.

But the "something other" is more and more people agreeing it has value and therefore creating more demand for it and therefore creating higher prices. This is how any asset works.


I think people don't really agree it has that much value. People want to get rich quickly. They always have done that and continue to do so. Casinos and lotteries are older than bitcoin.

The idea that BTC goes above 50k USD because millions of people believe its intrinsic value is worth that much is a story that BTC investors tell themselves before going to sleep. Reality is much greedier than that, and they know it, but the narrative won't change while the fairy tale continues to be profitable.


I saw a great comment earlier, "Buying bitcoin to hedge against inflation is like buying lotto tickets to hedge against Apple stock declines."

That makes no sense.

Lotto tickets have an expiration date. No value fluctuation over time. At expiry, they're worth X or zero.

How is that like Bitcoin?


You're maybe stretching the analogy way beyond what was intended.

The intended analogy, I'm guessing, is that both lottery tickets and BTC seem to be uncorrelated with USD. A good hedge is something that is inversely correlated with the thing you're trying to hedge against.


You can inflate the money supply and still be "deflationary" if the convenience yield of holding the money (tokens, UTXOs, or whatnot) exceeds or neutralize that inflation rate. You make an excellent point, Bitcoin doesn't have to overtake gold or become a global-reserve to change the world. It just has to be a plausible alternative that enables people to opt-in or out of the system. It has largely already achieved that and I'm hopeful for a future of monetary pluralism.

It has? Bitcoin isn’t an alternative to the existing system for people. It might be a digital alternative to gold for people hedging inflation or in failed states, but its transaction fee is just way too high to be a practical alternative to anything but, like, wire transfers (Visa and ACH are WAY cheaper except for huge transfers... and Bitcoin isn’t particularly fast, either). And this high cost is driven by the fundamental non-scalability of the blockchain which requires other layers for the little people (and this is partly why you have people doing business through large companies like coinbase or whatever instead of the vision of decentralized cyberpunk utopia where everyone is at the same level and can directly make transactions using just math... which is the part of the original Bitcoin white paper that was fascinating to me). It’s primarily NOT an alternative to the existing system except that, as a speculative investment, it’s crowding out other more productive physical investments.

I suppose it is helping people think outside the box, but I fear that Bitcoin is sucking a lot of air out of the room. We should be pushing for instant and extremely low-fee ACHs, alternatives to banks like credit unions where customers—as owners—hold more power, etc. Hopefully things move in that direction.

That startup people see cryptocurrency as a way to lock up rents by becoming new gatekeepers for the blockchain (like banks are for the traditional system) or whatever is really a betrayal of the hacker ethos IMHO.


If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it's not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is far from being "a failed state," but if you want to send US$500 abroad via non-Bitcoin means it's basically impossible, and the only broadly available savings vehicle is real estate ("ahorrar en ladrillos"), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought "as an investment". Historically Argentines have saved by buying dollars but that's limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):

https://www.ambito.com/finanzas/dolares/cronologia-del-cepo-...

You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it's AR$147. So whatever savings you had in pesos in 02019 have lost 57% of their value to peso devaluation.

In 02001 a lot of Argentines had saved dollars in their dollar-denominated bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years.

You suggest, "alternatives to banks like credit unions where customers—as owners—hold more power," but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That's more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.

But we're not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you'll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a year ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland's 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)

Most of the world is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:

https://www.gfmag.com/global-data/economic-data/worlds-most-...

And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise! It's well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.

https://archive.fo/ZRXzS

Bitcoin handles a few billion dollars per year in such remittances. This might seem like a trivial amount of money to someone in a rich country, but in poor countries, it's enough to keep several million people alive.

Even in the US, it's common for the police to confiscate large amounts of paper currency just because they can ("civil forfeiture"); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don't seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.)

So, Bitcoin doesn't have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like "instant and extremely low-fee ACHs" and "decentralized utopia", this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon — the loyal subjects of Kaiser Wilhelm in 01913 certainly didn't expect that in 15 years they'd be in the middle of a hyperinflation episode that remains legendary a century later.


This is the most cogent answer I've seen regarding BTC utility for those living under less stable regimes. Usually it's a hand-wavy "something something Venezuela something," which, as bad as Venezuela is, makes it seem like crypto is only really relevant in exceptional cases of instability.

Thanks for the effort.


Venezuelan and bitcoin whitepaper lover here

I've posted several times that the adoption of bitcoin in venezuela is pure bull**

Is only used for corruption/drugs money laundering, more details onhttps://news.ycombinator.com/item?id=25599693

So please, the fact that some venezuelan hners say they use bitcoin doesn't make bitcoin a real valid alternative and widely used

Venezuelans right now only care to protect against the 5000% yearly inflation and they do it with the dollar, they don't care _for now_ about dollar losing value when Bolivar loses 5000%


I'm not Venezuelan or in Venezuela, but I definitely know Venezuelans here in Argentina who send Bitcoin back to Venezuela. But it's clearly not widely used—the best estimates are that there are only a few billion dollars per year in total Bitcoin remittances, of which under US$400 million (per year) are to Venezuela, and there are 5 million Venezuelan expats. And Venezuela has almost 30 million people. So clearly only about 2%–10% of Venezuela's population uses Bitcoin at most, and many of them only use it to provide "send money to your family" services to and from other Venezuelan expats—who may not know or care that Bitcoin is involved.

That certainly doesn't add up to "widely used" but it's not "absolutely 0" as you said in your other comment either.

When I said, "Bitcoin is very popular in Venezuela" I meant relative to its popularity in other countries, not relative to the Venezuelan population as a whole. I mean, if I said Emacs was very popular in Venezuela, that wouldn't mean that every other moto-taxi driver could give you Elisp tips. It would just mean that more people used Emacs than VS Code.

Where does this hypothetical 2% of Bitcoin adopters live? Maybe not in Caracas where it's easy to find someone to exchange dollars with. Maybe they live close to the Colombian border, where they trade with drug traffickers? (Though why would Colombian drug traffickers be Bitcoin buyers rather than sellers? Maybe I need to think this through better.) Maybe they live in rural areas? Probably one of the P2P market sites has a map.

If you had to flee Venezuela, maybe through unsafe areas where bandits were operating, would you rather be carrying your savings in Bitcoin or in dollars?


I'm glad you found it useful!

If we're talking about political regimes, though, I don't think we're even talking about "less stable" regimes—whatever you might think about Cuba ethically, old Raúl and his brother have been in power there for over 60 years and show no signs of losing control, and I don't see any signs of incipient revolution in Indonesia, PRC, Mexico, or Vietnam either. Here in Argentina we've remained democratic since 01983, electing presidents from three different political parties (UCR, PJ, and PRO), and there's no serious insurgency. It's the economy and government policy that are ruinously unstable, to a point that seems satirical to anyone accustomed to the US, but is lamentably common worldwide.

Thank you for the ego strokes!


Yeah I grant Bitcoin has value as a hedge against system failure. And maybe you’re right about the corner case it addresses being larger than I think. But so much of the hype of Bitcoin is in developed countries with very low inflation. And this should be tempered.

But I'm not talking about system failure, primarily; I'm talking about day-to-day life for somewhere between one third and two thirds of people, most of whom aren't using Bitcoin yet.

Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24? The Bitcoin blockchain itself is limited to 7 transactions per second. With 7 billion people using it, that mean each person doesn’t get one transaction per day, they get one transaction per billion seconds (over 31 years).

It’s useful for rare cross-border transactions for a small portion of the world’s population, I agree. But it cannot, in its current form, be used by one-third to two-thirds of people day to day. Even if you increased the block size 1000 fold (which is not necessarily very practical), you’re still only talking about one transaction a week.

So first layer blockchain Bitcoin simply isn’t going to be useful to most people for day to day operations. They’ll have to go through intermediaries or use higher layers (perhaps with more localized trust, etc). Which may be fine, but we should temper our expectations here of first layer Bitcoin.


Not that many years ago, we used to pay for things with physical cash (gasp!). Once ever week or two, I would go to an ATM, withdraw $N00 in USD, and put it in my wallet. Sometimes I'd have to spend $2 in fees for this service.

There's no reason BTC can't work the same way. With high transaction fees, maybe you'd withdraw once a month? The cost is annoying but it's still safer than having your savings in a shady banking system.


> Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24?

Yes, but the transaction fee is typically about US$15 these days, down to US$5 or so if it's the kind of thing you can wait 24 hours for. This is about the same cost as Western Union. Today there's a lot of trade volume as people panic, but the latest block https://blockchain.coinmarketcap.com/block/bitcoin/671850 contains fees ranging from .023 mBTC, with a bunch of transactions paying .042 mBTC up to 58.7 mBTC. The block reward including fees was 7763 mBTC, of which 6250 mBTC is the mining bounty and the other 1513 mBTC is transaction fees for the 2900 transactions in that block, a mean of 0.52 mBTC. The median transaction in that block paid .341 mBTC:

https://btc.com/00000000000000000000476ab57eea9be8ada36e2680...

The recommended fees from earn.com (previously blockchain.info) are currently 102 satoshis per byte for immediate inclusion and 88 satoshis per byte for inclusion within the hour, but this .341 mBTC median from the last block is generally 140 satoshis per byte.

https://bitcoinfees.earn.com/api/v1/fees/recommended

In dollars at US$50/mBTC, this means that the latest block included transactions that paid as little as US$1.15 and as much as US$2935 (!!!), and a whole bunch of transactions that paid US$2.10, but the mean is US$26 and the median is US$17. That means about 1400 of those 2900 transactions paid less than US$17.

But yeah, this is not what you want to use to pay for a can of Red Bull or even a restaurant dinner. It's more like Western Union or US$100 bills or gold. For example the current underground market spread for dollars is AR$142 buy, AR$147 sell, which is a price you will not get for small bills like US$20:

https://preciodolarblue.com.ar/

In effect every time you buy US$100 for savings from one of the "blue market" currency dealers (travel agencies and the like) you are paying half that spread, AR$250 or US$1.70, to the money changer. 1.7%. The break-even point where this is more expensive than the Bitcoin transaction fee is US$16000 for a US$26 fee, US$10000 for a US$17 fee, US$1200 for a US$2.10 fee, or US$700 for a US$1.70 fee. And, as you point out, lots of Bitcoin transactions happen inside of a single vendor platform like Coinbase and so don't pay the fee at all.

Usually cashing out your savings so you can buy a car or pay the rent or buy food or whatever is an every-month or every-few-months kind of thing. But you're still buying food on a day-to-day basis.

Even if you're using Bitcoin in an ATM-like fashion, paying a fee of US$15 or so every time you withdraw US$200, it's in the "everyday financial bad decisions" category, not the "totally impractical" category. (I hear ATM fees are a lot lower than that in the US now. Sadly, not in Argentina.)

Early on I avoided Bitcoin because I worried it might destroy civilization—after all, I rely on public streets, the public education of the people around me, and the public hospitals, not to mention the police, all funded by tax dollars. And there's been a cogent argument since Tim May presented his manifesto at Hackers (01991? Certainly before early 01993, when I read it) that cryptocurrencies would inevitably kneecap taxation and thus cause the collapse of governments.

But the US election in 02016 made it clear that civilization is doing a perfectly fine job of destroying itself before losing any significant taxability to Bitcoin or other cryptocurrencies, and the best we can hope for is to salvage its crown jewels from the rubble.


The same four countries get brought up by BTC proponents all the time. Yes, evading authoritarian regimes can be useful. But like 1/3 of the planet lives in just India/China. Going from "a use case is sending cash from the US to your family in Iran" to "2/3 of the world population wants this" is a big leap.

Which ones—Cuba, Venezuela, Iran, and Argentina? I don't think Bitcoin adoption is terribly high here in Argentina, but hopefully you can forgive me bringing it up—I live here, so it's the place I know best, and the uses of Bitcoin are pretty easy to understand here even if most people aren't using it yet. And even those four countries are hardly inconsequential in terms of the global commonweal: 170 million people live in them, one in every 46 people alive. That's, like, more people than play Fortnite or Minecraft. More people than have bought a Justin Bieber album. Almost as many people as follow Ariana Grande on Instagram. Four times as many people as live in California. We're not talking about some tiny Elbonia here. Anything that affects 170 million people is a big deal for human welfare.

But the utility, or potential utility, of Bitcoin is a lot broader than that.

Argentina is not terribly high on the scale of "people being unbanked" or "kleptocracy". If we take infant mortality as a rough measure of kleptocracy, we're #84 out of 201 countries and territories in https://en.wikipedia.org/wiki/List_of_countries_by_infant_an..., so we're actually better than average. We're neck and neck with PRC and way ahead of India. If we trust the table in the GFMag link I posted, which they attribute to "a just-released study by the British research platform Merchant Machine", whoever that is, there are nine countries with an even larger percentage of unbanked than Argentina, namely, Morocco, Vietnam, Egypt, the Philippines, Mexico, Nigeria, Perú, Colombia, and Indonesia. Each of Nigeria and Indonesia are individually nearly the size of the US; Indonesia is the fourth biggest country in the world. As for India and China, they claim that 20% of PRC's population is unbanked (another unbanked population nearly as large as the US) as well as 20% of India's (yet another).

And Bitcoin doesn't become useless just because you have a bank account. If you're paying a 3% tax on every bank transaction (as we do here), experiencing substantial inflation rates, working under the table, or facing the prospect of an Argentina-style bank confiscation, you have a use case for Bitcoin. Don't tell me it can't happen in the US; it did happen in the US in 01933 with Executive Order 6102, with gold playing the role of Argentine dollars.

To expand on the inflation question, on https://en.wikipedia.org/wiki/List_of_countries_by_inflation... there are 24 countries with a consumer price inflation index over 10% per year, of course including Venezuela, Argentina, and Iran (but not Cuba), but also including Sudan (regular and South), Zimbabwe, Congo, Angola, Libya, Syria, Suriname, Haiti, Sierra Leone, Burundi, Nigeria, Mozambique, Turkey, Pakistan, Zambia, Azerbaijan, Uzbekistan, Ghana, Liberia, and Malawi. You may not care about Burundi but this list also includes the 7th-biggest country in the world by population and the NATO member with the largest military. These countries don't necessarily have "authoritarian regimes" but it's still useless to try to save up money in the local currency for anything more than the very short term; after 5 years you've donated 40% of it to your central bank by way of inflation. Or maybe 85% if you're in Angola.

India doesn't have a high inflation rate by the numbers but it did "demonetize" the savings of the poor in 2016—those piles of rupee bills under your mattress didn't lose just 10% or 20% of their value but 100% of it—and this in a country where hundreds of millions of people have no bank accounts! Most of them have cellphones, though.

Both India and China also have a tendency to limit their subjects' access to foreign exchange in general, and cut it off entirely at precisely the moments when their subjects most need to emigrate to seek work. This is not at all unusual among poor countries; a Bloomberg overview of some of the measures current in 02019 is at https://economictimes.indiatimes.com/markets/stocks/news/fro... though mostly from the perspective of foreign investors.

Now, even if the 84 million Turks (one third without bank accounts) aren't currently using Bitcoin to escape the ruinous inflation rate (15% per year)—the way they used to use dollars before the government cracked down on it—it's clearly a problem many of them need to solve, whether or not their nominally democratic government is an "authoritarian regime". But diffusion of innovations doesn't happen in a vacuum, and it may take a while for Bitcoin or something similar to get widely adopted in Turkey.

So that's the kind of thing that makes me think my Argentine experience generalizes to about ⅔ of the world population, and my US experience doesn't.


Isn't there really any service that lets you buy and use USD, EUR, GBP... online? And if not, would you still continue to buy crypto if one of these currencies was available?

Of course there is! The banks provide this service. It's called "Home Banking" (yes, in English). As I said above, and as in most countries, it's heavily regulated by the government as described above—prohibited to the part of the population whose need for a form of savings is most desperate, and limited to US$200 a month—and everyone over 20 remembers when the government confiscated ⅔ of everybody's Argentine-bank USD savings. Something like half of Argentines have a bank account and about half of those (about a quarter of the total) are eligible to purchase dollars with it.

Bitcoin is so far not heavily regulated, but presumably will be. But it doesn't provide the scrumptious, juicy central point of control that the Banco Central de la República Argentina does; regardless of what the law says, there's no practical way to confiscate every Argentine's Bitcoin savings between sunset and sunrise.


Not to mention that the reason you can't send money to Iran is not because of any problem in Iran - it's because the United States doesn't want you to do it.

If you live in the US, and you are using bitcoin to circumvent the embargo, you're just adding to the list of crimes you're committing.


Family remittances to Iran are specifically exempted from the USA embargo, but good luck finding a way to do that through a bank: https://www.wiggin.com/wp-content/uploads/2019/09/26580_advi...

You should publish this someplace. This perspective is never mentioned in the mainstream outlets, even if it's pro or neutral on BTC.

Everyone is free to redistribute my comments in this thread, in whole or in part, modified or unmodified, with or without credit; I waive all rights associated with them to the maximum extent possible under applicable law. Where applicable, I abandon their copyright to the public domain. I wrote and published these comments in Argentina in 2021.

http://creativecommons.org/publicdomain/zero/1.0/


This a very good use case for a cryptocurrency, but in the long run a crypto like NANO might be a better solution with due to quicker transaction times, lack of fees, and much lower environmental impact.

> I'm hopeful for a future of monetary pluralism.

My big concern about monetary pluralism is what happens to US citizens, when their day-to-day currency stops being used as the reserve currency for the world? I have trouble imagining any way in which that turns out good for me, as someone living and working in the US. Anything you can do to assuage my fears, since you seem to be educated on the matter?


As much as we hear about things like M1 money supply, the vast majority of wealth doesn’t exist in the form of cash. Investors hold companies, stocks, real estate, and so on. Fluctuations in money supply (or demand for currency) have exaggerated significance in online crypto discussions because crypto proponents find that angle more favorable to their “buy crypto” argument, not because it’s the full picture.

The global reserve currency issue is worth watching, but remember that it isn’t a binary on/off switch where everyone changes overnight. Likewise, it’s not really true that USD is the global reserve currency so much as one of the most trusted. Again, crypto proponents like to suggest the collapse of the US currency is imminent, but the global market believes otherwise. Likewise, crypto proponents want you to believe that Bitcoin is the logical alternative, but again that’s missing the point that part of the reserve currency math depends on things like stability, resistance to manipulation, and backing of a powerful government.


For one the USD is only the largest reserve currency used internationally: GBP, EUR and JPY are also used as reserve currencies. For another the US has been trying to reduce the role of the dollar as a reserve currency because it actually has significant downsides and fewer benefits than is popularly portrayed - this even has it's own term, "exorbitant privilege". Here's Ben Bernanke talking about it:

https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d...

TL;DR: the USD's reserve currency status is very much exaggerated.


Thank you, that was interesting reading. Not sure why you were downvoted.

No problem, this is another article on the subject I'd bookmarked:

https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t...


>18.5M of bitcoin has already been mined of the maximum 21M. So the amount of remaining future inflation from increased supply negligible. That the remaining 2M will be mined asymptotically over many years is not important except for purposes of incentivizing miners to run transactions.

It's not that negligible. At current reward of 6.25BTC, that means that the rate at which new BTC are being minted, as a percentage of total BTC supply, is about 3 times the (admittedly unusually low) current US inflation rate.

You're right, though, it will become negligible at some point in the not-too-distant future. I think, though, that that may not be all that relevant. The arguments about BTC and money printing seem to be more moral than pragmatic, so I'm not sure you can really draw a line and say, "Below this mark, printing money is A-OK. Above this mark, printing money is the end of the world," because trying to move to that style of argument would be moving the goalpost right out of the stadium. It was never about the actual pragmatics of inflationary currency policy.

By analogy, I'm not sure a lot of dyed-in-the-wool gold bugs would respond to the hypothetical opening of a massive new gold mine by saying, "An increase in the production rate? That, I just cannot do," and walking away from gold. If, on the other hand, the mine were opening in their own country, and being operated by the government, which planned to carefully release gold onto the market at a slow rate, then you might see a lot of protesting. That would actually be better for price stability, but price stability was never actually the point.


That's mostly fair, but worth noting that insofar as Bitcoin is mined on a schedule the inflation can be priced into the current price, so it's less deceptive than when the government suddenly prints a ton of bills and whoever was unlucky enough to be cash flush at the time takes a big haircut in purchasing power.

While your point is correct, I live in NY and true, it's heartening to see that someone is looking out for obvs fraud. But it's really annoying that I can't (straightforwardly) open an account at most crypto exchanges, and I'm banned from investing according to my choosing and to my knowledge.

If I decide to hedge inflation with some obscure or even mainstream "coin" that should be my choice why should gov be able to deny that right?


So much for freedom right?

Yes! Value producing assets produce value regardless of the nominal price of that value. It’s insane that people don’t understand this.

This is why I think the proper crypto currencies are backed by another functional use instead of "just coins." (e.g. Ethereum vs. Bitcoin)—one is a useful Turing-complete machine; the other only exists to send coins.

Bitcoin will probably always outshine the other "just coins" because it was the first. Why get another coin if this one works fine for monetary transactions?

Similarly with the functional ones: Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.

The rest of them really ought to provide another service underneath to become valuable.


> Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.

We didn't need the first one.


Stocks might fall in inflationary circumstances, depending on many things such as how much of the companies revenue can inflate - and most times, the answer is worse than inflation. Bonds might not give you a yield exceeding the inflation, especially in inflation created for the sole purpose of buoying bonds.

Speculative inflation hedges might also act erratically, like bitcoin and gold, getting ahead of themselves and the inflation sometimes.


>Inflation is an increase in asset prices

Inflation is an an interaction between the supply of any non-dollar "thing" and dollars. Sometimes that means certain assets like equities become more expensive in $, sometimes that means commodities like oil, sometimes it means labor.

But to be clear, rising Consumer Goods Inflation (what people most commonly talk about when they mean inflation) can lead to significantly lower asset prices, depending on valuation methodologies.


It’s absolutely not true that investing in any assets besides cash will shield you from inflation. Inflation impacts companies very differently, and you want a preservation of real earnings power taking into account the need to replace plant and equipment over time. The best inflation protection would come from a company with a pure revenue royalty with fixed expenses. The worst would be a company with bad pricing power and lots of commodity inputs.

Is there an easy way to determine which companies are which? Do I need to be well-studied in business, or is there a chart or key statistic I can look at to tell one from the other?

This article gives a lot of good criteria for finding companies that should thrive in an inflationary environment: https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Revie...

What’s your recommendation for least-worse inflation hedge?

I used to say "a house will always have the price of a house" (it has issues of course cough 2008 cough) to illustrate what you're saying here as I never managed to explain it properly like you did.

But it also has property taxes and maintenance costs, which will likely be higher than inflation. So it's not a great passive investment unless you expect the value minus costs to gain faster than inflation. Otherwise you gotta live in it or rent it to make back your money, and that's no longer passive.

Cryptocurrency "in general" obviously isn't deflationary, given that one can create a new cryptocurrency with a simple code fork. But Bitcoin is, no?

As commenters hinted at in a previous thread, the price is a measure of the combination of demand and supply. The mechanics of Bitcoin only address the supply side. OP hinted at the demand side: if a new cryptocurrency were to become more popular, then Bitcoin could lose value.

Which Bitcoin?

> Investing in virtually any asset other than cash will, almost by definition, shield you from inflation.

... which is why virtually every nation on Earth adopted some kind of inflationary fiat currency. It pushes money to be invested, not held. Wealth is a verb, not a noun.


The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.

Not holding wealth in cash has been investing 101 material long before cryptocurrency. It is fascinating how crypto proponents took over that narrative to imply that crypto was the only investment that could escape inflation.

They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. It hasn’t spiked upward 100% of the time because USD became 50% less valuable overnight


> They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand.

Uh, I'm very much of the opinion that your average BTC fan isn't exactly educated about macroeconomics, but this sentence makes absolutely no sense.

Inflation isn't a thing that happens to a currency, it's a thing that happens to an economy. It's a systemic increase in prices across a basket of assets that demonstrates the devaluation of a currency, as a single unit of that currency effectively buys less.

Bitcoin, if it had been a usable currency over the last decade, is very clearly deflationary, as its rise in value as a currency relative to USD has dramatically outpaced the rise in the price of goods and services as denominated in USD, meaning that had prices been denominated in BTC, they would have dropped.


Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Given that even when you buy stuff with BTC, you're buying a product or service denominated in USD, their analysis is generally more correct than arguing that Bitcoin should be analyzed as a currency.

> Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency.

Actually PragmaticPulp was doing both.

In the comment I quoted, they stated:

> They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all.

This is specifically referring to currency inflation.

They then went on to say:

> Bitcoin, for example, is an inflating asset due to hype-driven demand.

As you say, this is asset inflation.

These should not be compared like this, which is why I noted that "this sentence makes absolutely no sense." I stand by that statement.


> The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.

Wealth is never held in currency, ever. It's a physically impossible thing.

When a person holds savings, it doesn't prevent humans from working, or raw resources from being used, or land from being purchased -- it just means that person is not redeeming a claim on those resources at the time. Their failure to redeem at a point in time does not preclude others from doing so: otherwise said, for every debit there's a credit.

But historically, you don't have to take my word for it. The United States had deflation and 0% interest rates on government bonds for 100+ years during the period between the National Banks and the Fed. You held money in cash at 0%, because when you purchased goods later, your dollars were worth more.


Not only that, but inflation is a feature not a bug. Maybe a bug turned into a feature, but still a feature. Something governments and national banks use to stimulate investment and thus economic growth. Because, as you say, hoarding and holding cash (or cash equivalent) does no good for the world. Even though our instinct is to do just that: secure what we have, secure our future and avoid risks.

The strange thing about this is that it's not some secret knowledge, but something that is being discussed in (front of) e.g. the media constantly.


I have the same doubts you do about Tether's legitimacy, but there's a few conclusions I believe you're jumping to which I think don't quite hold:

- Tether's volumes being greater than other crypto-currencies don't have much impact on the legitimacy of other crypto-currencies. The volume is so high because USDT is the other side of most crypto-currency trading pair. Given the liquidity of the market, you can trade almost anything (BTC, ETH, all alts, etc) against USDT without being exposed to any underlying USDT risk.

- The market value of crypto-currencies minus any deposit-backed USD coins far exceeds those coins. Tether "printing" coins out of nothing cannot alone explain the market capitalization of cryptocurrencies.

- Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.


> - Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

Currently Tether is printing $3.5B worth of Tether per week.

They, and supporters are claiming with a straight face that those printings are supported by USD deposits. But who knows what bank this supposed $180B/year is going into?

Recognizing that revenue is not a straight comparative metric (but that much revenue is banked and/or/then invested), that would put Tether's deposit rate at the top 20 in the world (https://en.wikipedia.org/wiki/List_of_largest_companies_by_r...). We're going to need to accept that there's some pretty large optimism needed to believe this.


Tether is using Deltec Bank and Trust in the Bahamas. Deltec's CEO actually did an interview where he responded to the Tether fraud claims: https://unchainedpodcast.com/is-tether-a-fraud-its-bank-says...

When Tether started, most financial institutions weren't open to working with cryptocurrency companies, but the fact that it's still the top stablecoin by value is troubling since there are plenty of better options now.


You mean this interview?

https://www.reddit.com/r/Buttcoin/comments/l5m2my/gregory_pe...

See my previous comments, the Deltec Deputy CEO claims that he was simultaneously Professor of Finance in a Lebanon University, administering Swiss investment funds, oh and working for a company in Jacksonville FL. He gave his interview from his gaming setup, and talked all about seeing all the Tethers personally from their operations (Why? You're just their bank).

You're going to forgive me on being a little skeptical here.

Especially when his LinkedIn has him graduating HEC Lausanne in 2001 with a Masters in Science...

when he was fifteen...

Funnily enough, Deltec bank removed him from their website when this interview was published, then re-added them when people asked questions, and then arranged a very quick website complete "redesign" (I use that word lightly - this looks like a WordPress template that they've struggled to fill with any content whatsoever - most of the pages are effectively empty, many of the buttons to "learn more" are not linked to anywhere).

This is such a scam.


And the Bahamas does annual reports on the total amount of reserves its banks hold, and the government numbers aren't close to what Tether claims to deposit in Deltec, even if Deltec were the only bank in the Bahamas.

I'm sure it'll get me flagged as a naysayer, but this raises more questions than it answers (https://www.coindesk.com/tether-bank-deltec-stablecoin-reser...):

> "Every tether is backed by a reserve and their reserve is more than what is in circulation," said Gregory Pepin, Deltec Bank's deputy CEO.

What business does the bank have in auditing Tethers? Why would they care? They're just holding funds.

> “We can see it firsthand, so I can confirm that.”

That to me more reads like Deltec is heavily involved in the actual day-to-day operations at Bitfinex/Tether. Which wouldn't be surprising - after all, remember when Bitfinex and Tether were claimed to be entirely separate and independent entities.

It's a little bit of a stretch to say that Bitfinex has been able to get Deltec on board with keeping this all going by providing a "partnership" above and beyond the usual "banking relationship", but that's very much the vibe I get from all this, and as I said, to me, it just increases the sketchiness of everything.

Oh, and WTF, I watched the video of the interview with the "Deputy CEO" of Deltec Bank, self-described as a "50-year-old bank [whose] customers range from asset managers to high-net-worth individuals"

It's a damn "kid" who looks to be 30 at most, sitting in his gamer seat with red slashes in the black, wearing a Razer gaming headset.

He has almost no photos on the internet, his LinkedIn profile is full of multiple spelling errors ("Independance Weath Management"), who claims to be a Professor of Finance at a University in Lebanon (a year after graduating from a Lausanne University) while working for numerous Swiss funds, oh and in Jacksonville, Florida, simultaneously.

How the hell are people taking this seriously?!?

EDIT: He's 33.

So he apparently graduated with a Masters in Science from HEC Lausanne when he was FIFTEEN. I'm sorry, I'm crying now with laughter.

Sources:

- https://wallmine.com/nasdaq/tenx/officer/2087842/gregory-pep...

- https://www.linkedin.com/public-profile/in/gregory-pepin-0a8...


People have already researched that the total volume in-out of Deltec and it could not be more than a fraction of Tether's printing meaning:

1) They aren't holding the money as USD 2) They aren't holding the money in the Bahamas—then where? 3) They are printing money without a corresponding asset aka Ponzi Scheme.


> If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

The difference is that central banks aren't lying about whether they're printing money or not.


Instead, they control the methodologies that define the value of what they've printed as well as the flows.

Differences...Distinctions...are there?


> Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

Man, I find it endlessly amusing that cryptocurrency utopians touted the benefits of BTC based on how it will democratize finance and finally remove the yoke of corrupt governments manipulating currencies and markets to their benefit.

And then when a private company like Tether comes along and starts engaging in shenanigans in this cryptoanarchist libertarian fantasy land, all of a sudden the whataboutisms pop out and the excuse is "well... whatever dude, like, the government does this, too!"


Both your paragraphs are correct, yet each refers to different groups of people.

> If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.

IOW, "Meet the new boss, same as the old boss"?

No, there should be no moral relativism to get Tether out of the hook. It doesn't matter if they manipulated the market by one or one hundred billion dollars, they are a bad actor in the space that we must get rid of.


I've always championed DAI for a stablecoin. I don't know why it's not more popular. https://makerdao.com/en/

Instead of it being (supposedly) backed by a dollar reserve, it's collateralized by ETH and several ERC20 tokens in a smart contract. The smart contract does things to make DAI tend toward $1. It's been out for years and I think it has worked pretty well: https://coinmarketcap.com/currencies/multi-collateral-dai/

It works through collateralized loans.


DAI is very cool.

If you want to really blow your mind, check out RAI: https://stats.reflexer.finance/


Very interesting. I wonder how stable it will be vs USD over the long run.

I am interested in someone making a CPI coin, that tracks some value of a basket of goods instead of another currency. I think that would be sort of the ultimate inflation hedge because ideally the value would not change at all over the long run.


The real question would be "how". A [crypto]asset backed by another currency is easy in principle: simply hold the currency to back it (and make sure you have some sort of transaction fee to cover your storage costs, and don't lie about it...). Same with a [crypto]asset backed by oil or metals. But CPI goods include many goods which are either perishable or lose value over time, and the composition of actual CPI baskets changes over time so you can't do that.

In the absence of that backing you can create a purely synthetic asset that can only track CPI if you've got the ability to withdraw significant quantities from circulation every time the value starts to drop. (That's sort of what central banks do with targeting a fixed non-zero rate of CPI inflation. But they have an economy built on debt so the money supply can contract organically by debts being repaid faster than new debts are issued. This is less troubling for the future of a coin than alternative strategies like having to use VC/company funds to buy back coins, or making a percentage of coins disappear)


Well, DAI exists and is pegged to USD without USD backing. Why couldn't one create a similar system with a CPI value target instead of a 1 USD target?

You could it's a really interesting idea. Synthetix and kwanta have done it with TSLA share price. It requires a liquidity pool to balance the asset. The liquidity pools are usually seeded with rewards from the companies that start them. They eventually find stability via automated market makers.

Short description: RAI dampens volatility (goes up slower, goes down slower) of its collateral (Eth). All thanks to some straightforward control theory tricks!

Can you summarize the dynamics/phenomena that those smartcontracts in DAI exploit to maintain stable value? What stops it from gaining -- or, more importantly, losing -- value?

I couldn't tell from the link.


There are a few different mechanisms. I might be missing some, but here are the ones I know about.

* The interest owed on loaned DAI (called a stability fee) changes depending on the market price. So if DAI goes too high, the stability fee increases which makes getting a DAI loan less attractive. If the market price goes too low, the stability fee drops. If it drops to 0, this would mean interest free collateralized loans.

* There is a savings account smart contract that generates a variable savings rate on DAI. The savings rate changes depending on the market price.

* There is the Target Rate Feedback Mechanism which frankly I don't understand. It has something to do with changing the amount your collateral is worth depending on DAI's market price.

* When the value of the collateralized asset drops to some defined percentage of the DAI withdrawn (currently 150% I think?), the smart contract can liquidate and auction off that asset for the value of the withdrawn DAI. This increases the value of DAI and also ensures that all DAI is overcollateralized.

* MKR token holders function as the governance for DAI and vote on stuff, like the collateralization rate mentioned above. They get rewards for holding MKR and in normal circumstances the amount of MKR is static. But in the event of a black swan, if the collateralized assets drop to below 1:1 faster than the normal system can handle, MKR is automatically generated and sold to raise the additional collateral needed. This devalues MKR in order to keep DAI stable.


Thanks, I appreciate the overview!

Super interesting project and tech, but it’s competing with USDC (and similar USD-backed tokens). Adoption will just take longer for DAO-backed stablecoins.

You'd need to do better than that. How exactly does printing USDT lead to BTC price inflation? I haven't heard anything convincing yet. Most of the vol doesn't come from the BTC USDT pair. Exchanges don't seem to be doing anything shady like manipulating the price upwards by themselves.

The story is that Tether has been printing tethers and buying Bitcoins. However, they haven't released any concrete holdings or submitted to an audit AFAIK, so there's a lot of speculation on how big of a problem this actually is.

I don't think there are any claims that Tether the organization itself is doing anything like that. They just print USDT and send it to people who are interested in buying USDT like exchanges.

The two problems as I see them are:

- Is USDT actually backed 1:1 by USD / cash equivalents as Tether claims? w/o independent audits we have no idea. So technically, if you hold USDT on an exchange and use it to trade alts and evade the taxman, then if this whole thing falls apart your USDT might be worthless.

- The owners of Bitfinex and the people who run tether are the same set of people. So theoretically it's possible that

   + Bitfinex generates artificial demand for USDT somehow 
   + Finds a way to swap actual USD for USDT (customer 
     deposits? 19bn worth of customer deposits? Unlikely) 
   + In turn goes around and buys BTC with that USD for some 
     reason 
   + Does it w/ enough vol that all the arbitrage bots won't 
     be able to arbitrage it away.
These are a lot of ifs and I'm just not seeing the incentives here as best case Finex gets stuck with a bunch of BTC they inflated themselves which isn't in their interest.

I'm not a finance guru, so I'd love it if someone more informed than me can comment on how someone can pull this off.


The settlement agreement shows that at multiple points Tether was not backed: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

I think the best case is tether printed usdt, used it to buy btc, inflated the btc price and is now fully backed by their btc holdings. This works as long as people want btc

They were able to do it because people accepted usdt as dollars.


> - Is USDT actually backed 1:1 by USD / cash equivalents as Tether claims? w/o independent audits we have no idea.

I'm going to say no. Because Tether refuses audit, refuses to name banks, and would be, based on their printing rates, depositing $3.5B USD a week into their bank (a rate which would put them on par with AT&T, Samsung, or Alphabet). I'm not sure how a few people working out of Hong Kong, etc., do that while sliding under the radar and avoiding scrutiny (from their bank or authorities).


Yes I agree, but still trying to figure out what impact that has on the broader eco system if USDT ends up being worthless starting now. How exactly will it impact the BTC price?

70% of btc volume is tether. Apparently the dollar exit points in regulated markets are rather narrow.

So it could be rather catastrophic if either the market loses confidence in Tether or subsequent Us enforcement action shuts them down or makes Tether untouchable to various exchanges.


That's interesting, I didn't know that, thx! Will look it up a bit more.

It's well known that USDT is not 1:1 backed and this is true since the AG started their investigation.

Market doesn't care. Right now USDT trading is popular since people are used to it. There are so many stable coin alternatives (backed with various collateral, some like USDC backed by USD 1:1), so you can always remove the risk.

Good luck to those shorting crypto due to "Tether scam". If you're a newcomer, this kind of news makes rounds every X months and market sometimes reacts widely, just to return back and inexperienced crypto investors/users get spooked. I'm not saying that Tether is all good and for sure they run a hazy operation there, but there is a wider crypto adoption taking place now. Companies are diversifying their treasuries, starting to load on BTC as a hedge against inflation.

PS: Expect news of China banning bitcoin, India banning bitcoin, Russia takedown on crypto, Yelen commenting that BTC is a scam. All of this will be amplified to move price down and shakeout small time holders while large investors keep buying more and more.


As recently as a couple of weeks ago, I've heard people claim that Tether is still "1:1 backed with USD". Oh, and:

> Keep in mind that in relationship to tether, $1.5 billion is tiny. It's only 3 days of tether printing.

apparently depositing $3.5B a WEEK into some bank (unnamed of course, because Tether won't disclose).

While there is a large deal of potential, and some real value in crypto, there's definitely a non-negligible portion of True Believers, the crypto equivalent of Qanon.


> As recently as a couple of weeks ago

For more recent claims, just read the comments on this post in this site.


And what about all the cash-for-difference swaps and futures? BitMEX's XBTUSD swap is basically a synthetic dollar that can only be redeemed for Bitcoin within the walled garden of BitMEX. Tether is like a dollar swap contract that can be moved on-chain and, in theory, can be redeemed for the nominal currency. Of course Tether represents itself as a fully reserved stablecoin, which is likely a total fiction, but in the grand scheme of things I don't think it actually matters much.

Bitcoin is going up because young people want to buy Bitcoin. Most young people are trading (i.e. WSB) and not investing in cryptocurrency. That has a lot to do with price fluctuations. Also taxes, vacations, etc are all funded by cashing out.

Both are still printing machines. Dollars are backed by faith in the USA. Is there any difference ?

Powell - "We print money digitally. As a central bank, we have the ability to create money."

https://www.youtube.com/watch?v=ff6SDsaS7rI


I mean, if you accept that Bitfinex is printing tether, then the difference would seem to be the fact that Bitfinex is lying about it while the US Government isn't lying about it?

The ability of the US Government to create more dollars is a well understood aspect of the financial system. The US Government acknowledges is has the power to print money, and regularly tells us how much it is printing.

Bitfinex claims they do not print USDT and that it is backed by USD.

For a system that's based largely on trust (for both the USD and USDT), lying is a significant problem.


| Dollars are backed by faith in the USA. Is there any difference ?

Jesus lord, yes, absolutely. The weight of the US Empire and all its combined military and economic might versus what... some shell corporations and the whisper of a promise?


You have no idea that a lot of people, including high profile analysts forgets this very crucial fact, and refuse to invalidate their analogy. You thought flat Earthers are ignorant enough, surprise surprise.

Many people think that money is money. They think money is what makes a nation strong, not products and services. I don't know how even highly educated people missed this part.

Money is a side effect of power, not the other way around.


Sorry, is the question really "what is the difference between the US Government printing dollars and Tether printing dollars?"

One has a standing army and a history of successfully deploying it against countries that attempt to disrupt the geopolitical status quo by moving away from the dollar.

The other does not.


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