“Doesn’t that Journal story sound a bit like that? I mean here is a story you could tell:
1. You have 1,000 Bitcoin worth about $17 million.
2. You want to buy more Bitcoin, but you do not have any dollars.
3. You go to Tether and say “hey give me 17 million USDT, in exchange I’ll put up 2,000 Bitcoins as collateral.”
4. Tether is like “sure that’s the business we’re in” and hands you 17 million USDT.
5. You use that 17 million USDT — notionally worth $17 million — to buy 1,000 more Bitcoin.
6. Now you have 2,000 Bitcoin.
7. You post the 2,000 Bitcoin as collateral to Tether for the loan, which is now overcollateralized with liquid collateral ($34 million worth of Bitcoin).
8. More USDT have been created to buy Bitcoin, but no new dollars have come into the system.
Maybe this is fine, no problem, just margin lending. [4] But if your concern is “Tethers are printed out of thin air in order to allow people to buy crypto without putting any actual dollars in,” then this might make you nervous.”
“Doesn’t that Journal story sound a bit like that? I mean here is a story you could tell:
1. You have 1,000 Bitcoin worth about $17 million.
2. You want to buy more Bitcoin, but you do not have any dollars.
3. You go to Tether and say “hey give me 17 million USDT, in exchange I’ll put up 2,000 Bitcoins as collateral.”
4. Tether is like “sure that’s the business we’re in” and hands you 17 million USDT.
5. You use that 17 million USDT — notionally worth $17 million — to buy 1,000 more Bitcoin.
6. Now you have 2,000 Bitcoin.
7. You post the 2,000 Bitcoin as collateral to Tether for the loan, which is now overcollateralized with liquid collateral ($34 million worth of Bitcoin).
8. More USDT have been created to buy Bitcoin, but no new dollars have come into the system.
Maybe this is fine, no problem, just margin lending. [4] But if your concern is “Tethers are printed out of thin air in order to allow people to buy crypto without putting any actual dollars in,” then this might make you nervous.”