Over the last year Tether has looked more and more like fraud. I was reading this article covering some of the recent developments since Tether's failed attempt to suppress discovery by New York's Attorney General
Yes, The Bit Short isn't completely right, but it's right enough that even if you go back and make the corrections to the data, the point remains equally valid.
Here's one follow-up piece worth reading that does some statistical analysis: [1].
Nic goes on for days about fake volume. Let's use Bitcoin Trade Volume, which I'm led to believe is a very generous pro-crypto take on the actual volume in the space. It shows 59% USD and 41% USDT. That's not the 75% USDT The Bit Short suggested, but who cares? It's huge.
If you sub in those numbers when you're reading The Bit Short, it's just as compelling. Something Nic doesn't care to talk about, slamming the WSJ instead of who he should be pointed at, Paolo Arduino.
>I am the cofounder of Coin Metrics, a data business that licenses crypto market data to financial institutions, asset managers, and banks
Oh, so his credentials are "my company depends on crypto and if it fails we fail". And he's saying "oh these exchanges arent legit by our metrics we wont count them". That's the exactly the problem and he's saying "put on a blindfold and its gone".
On top of the suspect data source, I notice I few more issues with that teather hit piece.
1. They are only looking on the buy sides. They don't even show the sell side with all the people selling their bitcoin back for teather.
On most exchanges, the amount of teather buys is roughly equal to the amount of teather sells. People just sit there all day selling back and forwards between teather and bitcoin, trying to take advantages in short-term fluctuations in the price.
But by only presenting one side of the trades, that hit piece implies (but never actually claims) that teather is being created out of thin air to buy bitcoin.
2. They misrepresent teather's reserve by implying (and once again not claiming) that it is all cash held in a single bank account in a single Bahamian bank account. (and then pointing out that the value of teather massively exceeds all Bahamian bank holding)
In reality, teather claims their reserves are cash and cash equivalents. They only need to hold a small fraction as actual cash for quick withdrawals. And there is a good chance that teather hold cash in multiple bank accounts in multiple countries. It's a huge risk to have it all in a single bank.
--------
Personally, I'm not a fan of teather, or cryptocurrencies in general. Teather even admit they don't hold full cash/cash-equivalent reserves, saying in April 2019 they only had 74% cash+equivalent reserves.
But I hate misleading journalism way more than I dislike teather. That article is hugely misleading and feels like it's designed to drive the price of bitcoin down so the anonymous author can profit from a short position.
For years I've told loved ones, friends, and anyone with a passing interest in the nascent space to avoid Tether like the plague. In my opinion, it's only a matter of time until it blows up.
Tether definitely sucks, but it was an absolutely reasonable response to banks randomly freezing out USD bank accounts of various exchanges, for various reasons.
If you're an exchange that's going to be touching actual USD bank accounts, it turns out you need a fleet of lawyers and significant political and business connections to maintain the relationships required to keep the money flowing. USDT allows smaller, more agile exchanges to play with USD, and delegates the icky legacy finance stuff to the larger players who are set up to deal with it.
Of course no one should ever try to store long term value in USDT, but that's not what it's for. It's a tool for shifting the risk of touching USD to people that are actually prepared to handle it, which is fine.
Me too. I'm looking into shorting it on Kraken but I am not quite sure how it would work because it would be delisted before it went to 0 possibly and I am not quite sure how that would work.
How do you prepare / avoid / protect from that ? I mean most people don't have USDT it's simply what exchanges us as a pair. Or are you afraid that any exchange using Tether as the main stablecoin will go under with tether and users won't be able to withdraw assets ?
1. Why would any of them care about Tether to begin with? It's not a speculative instrument, like Bitcoin. It's not useful for money transmission, unless they have some incredibly interesting requirements. It's an in some ways better, in some ways worse version of stuffing a pile of money into a mattress.
2. The problem is that even if you stay away from it, because you can't speculate with it, and you aren't moving money around, it is entirely unclear whether or not tether blowing up will take bitcoin down with it. If you want to be prudent about Tether blowing up, you should be advising them to stay away from bitcoin, until it does.
The whole thing feels like scammy / tulip mania, but I think it is worth pointing out that Bitfinex repaid $550 million Feb 5. Though nothing comes up right away, I think the next trial date w/New York is Sept 2021.
Tether isn't a fraud perse... In the worst case it's a severely overleveraged bank that operates outside of traditional regulatory regimes akin to many eurodollar banks. My bet is they hold something around 5% in reserves.
Reserve requirements in the US have dropped from 10% to 0% thanks to the fed, so our fractional reserve system has turned into an inverted ponzi scheme of sorts.
The biggest risk for tether is a liquidity event. If everyone cashes in for dollars at once, tether is probably dead. But honestly, I might consider buying the dip.
The problem is that Teather advertises themselves as 'non-fractional'. They are meant to hold 100% reserves.
As for their actual holdings: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"*
That's better than your pessimistic 5% estimate, assuming their statements can be trusted.
It's kind of mind boggling that anyone who spends any amount of time looking at Tether comes away with the same exact conclusion: this seems like scam...
and yet there's a billions of tethers flowing around.
Luckily for me, I have no money, so I don't need to worry about losing it.
Market cap of Tether is $33B (that much is "flowing around"). At the same time market cap of Dogecoin is $6.5B, only 5 times less. Everybody knows dogecoin worth nothing, and even it's creators are telling everybody that it's a joke. Whatever.
It's worth what the market thinks it's worth, like every crypto out there. And the lack of seriousness is working. There's still a lot of people who bought a ton of doge and are seeing their investment's value increase tenfold, with the potential of a lot more though, which will make them greedy and try and pump the value up via memes.
It stopped being a joke coin when you could start trading it for fiat.
> I have no money, so I don't need to worry about losing it
To date I’ve been relatively confident that when this melts down, the silver lining will be no bailouts for the afflicted. As the phenomenon spreads, however, this becomes less and less likely.
I don't know who would bail them out, considering that bitcoin is an unregulated international currency. It isn't tied to any government or national entity. It doesn't belong to any jurisdiction. I don't think bitcoin "investors" have any lobbying power either.
> As the phenomenon spreads, however, this becomes less and less likely.
To big to fail often is related to who is involved. Are influential big companies, politically connected and banking companies involved? Then it is more likely there is a bailout of some time.
> and yet there's a billions of tethers flowing around.
It may simply be to make hay while the sun shines? As I understand it Tether creates liquidity, facilitates inter-exchange transfers without incurring huge on-chain Tx fees, which greases the day trading gears all while providing a thin psychological security blanket to people who may believe that the downside risk doesn't exceed the opportunity for enormous gains. Everyone thinks they'll be the first into the lifeboats when the ship starts to sink.
The extreme reliance on a centralized token like Tether, like the existence of centralized exchanges in general, is a tacit admission that blockchains are completely unsuited to the pace of financial activity and need these informal crutches to work effectively at all.
Real ideologues who care about decentralization are thin on the ground, and rationalize these shortcomings away as readily as the most degen speculator when 10x profits are on the table.
Tether is highly sus and needs to be immediately investigated. Around $30B of Tether exists. Its unknown how much is actually backed by real USD. This could single handedly crash the crypto markets.
https://en.wikipedia.org/wiki/Tether_(cryptocurrency)
It may be the case that USDT is a fraud, but that it's not a fraud big enough to crash anything else but USDT itself (heck, the "exit" may see USDT bag holder buy frantically Bitcoin at any price they could, creating a pump on Bitcoin's price).
For comparison there are 7.5 bn USDC circulating and these are emitted by Centre/Coinbase and these are known to be real (Coinbase being an HN unicorn to soon do its IPO).
Tesla also just bought 1.5 bn of Bitcoin.
Then are regular people buying directly with non USD currencies like EUR / JPY etc. (for which I take it there are no USDC emitted).
So it's a known fact that money is flowing, by the billions, into Bitcoin.
The question is: is iFinex/Bitfinex/tether printing USDT out of thin air by so many billions that they are actually manipulating the entire market?
Tether backing is not just dollar. They recursively use bitcoin as part of their reserve.
Bitcoin price rises, and they print more usdt to buy more btc.
It's hard to say how much btc would drop or pump.
Tether bootstrapped crypto demand, even if it was done so fraudulently
> For comparison there are 7.5 bn USDC circulating and these are emitted by Centre/Coinbase and these are known to be real (Coinbase being an HN unicorn to soon do its IPO).
Fun fact: USDC is not backed by real USD. Circle is using these dollars for its trading purposes and that's actually in the ToS.
First sentence: "The lawless rollercoaster of bitcoin enriches few investors, while many often lose everything."
How can they start with this sentence even though it has been only up, up and up. All you had to do was wait and not freak out upon some nosedives. Who lost money? People that bought end 2017 thinking the sky was the limit and sold in February? Sure, but that can happen anywhere.
You know where you loose money? In the normal economy, because the government likes inflation. And we should all like it because money creation is debt based. But imo that is what is causing us normals to loose constantly (enriching the rich, who have dibs on the fresh printed money to make it happen).
I agree that the success of individual investors shouldn't matter in this context. But I also think that nobody should ignore potential fraud or systematic problems just because BTC "makes money". For example, scams like pyramid schemes work very well until they don't.
But you dont care abt losing money when your inflating currency backs a loan for your house. What we are supposed to want is a roof, a value producing asset, not cash.
So if you keep all in cash you re doing something wrong. The goal of fiat currency is to adapt to changing condition naturally.
But BTC isn't possibly going to work: it s cant adapt rationally, it cant pretend to pay you the same when the country goes bad by tweaking your fiat value so you calm down and the country continues.
Whoever said inflation was wrong was like a teenager moaning at his 200$ in a free bank account. The economy has to inflate and deflate transparently for you to some extend or you ll be stuck never lending anything and stashing stashing stashing.
Even if I don't like Bitcoin as a cryptocurrency (I think it did a great job but now really should be put to rest) I completely agree with that. That paragraph is plain silly, trying to avoid a stronger word.
Not yet, because the cake is still growing. Wait until the cake has reached its peak size and starts shrinking (not for a short intermediate timeframe like 2017-2020, but for a timeframe long enough to consider it "the end game" for humans with finite lifespans) and see whether your assumption is still true then.
The problem will be that realizing that we're finally in the "cake-shrinking" phase will only be possible after watching it shrink for decades.
> Who lost money? People that bought end 2017 thinking the sky was the limit and sold in February? Sure, but that can happen anywhere.
That's like... euh,... everybody.
> You know where you loose money? In the normal economy, because the government likes inflation.
That's like... euh,... everybody.
People who are hating on Tether/Finex/Crypto are just in denial that they are getting screwed by their governments. At least in crypto, you have full claim to your tokens.
Some people are rich enough never to need to consider withdrawing their savings (and cautious/lucky enough to avoid scam exchanges and keep their private keys safe). Others are not.
Oh, and "the rich" don't have "dibs on the freshly printed money" in the normal economy (arguably they do in a crypto economy because mining rigs aren't cheap...). The newly printed money is credit for people and companies not rich [or liquid] enough to have the cash to pay, and specifically it reduces the cost of borrowing because borrowers don't need to rely on rich people agreeing a fee to lend their money until it can be repaid.
Banks are private institutions (even though need tax money to be saved when they screw up, they are socialists when it is in their advantage). The newly printed money is indeed "credit", over which interest is always paid... to the rich private institutions with dibs on printed money.
I just want to say, thay given how tense this conversation can be, the quality of the conversation in this thread (as of right now) is amongst the highest I've ever seen.
It’s worth noting that there exists some confidence in the tremendous operational liquidity that Bitfinex & Tether have from Bitfinex’s repayment of a $550 MM loan to Tether just this month.
AFAIK the 550M loan was because bitfinex lost that money somehow (not sure whether it was because of a hack or their accounts got frozen). Them repaying it back would mean they were able to cover up that hole with their profits, which means tether is more capitalized than before.
Just wow. All these times hearing that it's probably the Chinese pumping and manipulating BTC prices and it turns out there are so many italians involved in key positions in Tether. As an Italian I guess I'm feeling pretty proud! :-D
I believe it's an open secret that tether is not backed by $ 1 to 1. If I remember correctly, they admitted that somewhere around 80% was backed by cash and the rest in collateral. Not sure how much you can trust what they say anyways.
In the meantime, avoid tether at all cost, alternatives like USDC and DAI are much better and trustworthy.
If there is a "bank run" (price collapse) on BTC, the value of that crypto collateral will collapse and it will be very hard to "liquidize" it (because everybody else is selling too).
80% backed by high quality liquid assets is pretty good. But insolvent banks avoid bank runs partly because lots of the money is sticky. Many people and organisations won't participate in a run no matter what, either because they think it's antisocial, or they believe the system will look after them, or they just aren't informed enough. A bank whose depositors are all cynical speculators has a much harder job to stay afloat.
Readit News
https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
Yes, The Bit Short isn't completely right, but it's right enough that even if you go back and make the corrections to the data, the point remains equally valid.
Here's one follow-up piece worth reading that does some statistical analysis: [1].
Nic goes on for days about fake volume. Let's use Bitcoin Trade Volume, which I'm led to believe is a very generous pro-crypto take on the actual volume in the space. It shows 59% USD and 41% USDT. That's not the 75% USDT The Bit Short suggested, but who cares? It's huge.
If you sub in those numbers when you're reading The Bit Short, it's just as compelling. Something Nic doesn't care to talk about, slamming the WSJ instead of who he should be pointed at, Paolo Arduino.
[1] https://adrianbarwicki.medium.com/impact-of-tether-trading-o...
[2] https://www.bitcointradevolume.com/
Oh, so his credentials are "my company depends on crypto and if it fails we fail". And he's saying "oh these exchanges arent legit by our metrics we wont count them". That's the exactly the problem and he's saying "put on a blindfold and its gone".
1. They are only looking on the buy sides. They don't even show the sell side with all the people selling their bitcoin back for teather.
On most exchanges, the amount of teather buys is roughly equal to the amount of teather sells. People just sit there all day selling back and forwards between teather and bitcoin, trying to take advantages in short-term fluctuations in the price.
But by only presenting one side of the trades, that hit piece implies (but never actually claims) that teather is being created out of thin air to buy bitcoin.
2. They misrepresent teather's reserve by implying (and once again not claiming) that it is all cash held in a single bank account in a single Bahamian bank account. (and then pointing out that the value of teather massively exceeds all Bahamian bank holding)
In reality, teather claims their reserves are cash and cash equivalents. They only need to hold a small fraction as actual cash for quick withdrawals. And there is a good chance that teather hold cash in multiple bank accounts in multiple countries. It's a huge risk to have it all in a single bank.
--------
Personally, I'm not a fan of teather, or cryptocurrencies in general. Teather even admit they don't hold full cash/cash-equivalent reserves, saying in April 2019 they only had 74% cash+equivalent reserves.
But I hate misleading journalism way more than I dislike teather. That article is hugely misleading and feels like it's designed to drive the price of bitcoin down so the anonymous author can profit from a short position.
If you're an exchange that's going to be touching actual USD bank accounts, it turns out you need a fleet of lawyers and significant political and business connections to maintain the relationships required to keep the money flowing. USDT allows smaller, more agile exchanges to play with USD, and delegates the icky legacy finance stuff to the larger players who are set up to deal with it.
Of course no one should ever try to store long term value in USDT, but that's not what it's for. It's a tool for shifting the risk of touching USD to people that are actually prepared to handle it, which is fine.
2. The problem is that even if you stay away from it, because you can't speculate with it, and you aren't moving money around, it is entirely unclear whether or not tether blowing up will take bitcoin down with it. If you want to be prudent about Tether blowing up, you should be advising them to stay away from bitcoin, until it does.
Reserve requirements in the US have dropped from 10% to 0% thanks to the fed, so our fractional reserve system has turned into an inverted ponzi scheme of sorts.
The biggest risk for tether is a liquidity event. If everyone cashes in for dollars at once, tether is probably dead. But honestly, I might consider buying the dip.
As for their actual holdings: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"*
That's better than your pessimistic 5% estimate, assuming their statements can be trusted.
and yet there's a billions of tethers flowing around.
Luckily for me, I have no money, so I don't need to worry about losing it.
It stopped being a joke coin when you could start trading it for fiat.
Tether has basically become the crypto fed. Without tether, this whole thing falls apart.
To date I’ve been relatively confident that when this melts down, the silver lining will be no bailouts for the afflicted. As the phenomenon spreads, however, this becomes less and less likely.
To big to fail often is related to who is involved. Are influential big companies, politically connected and banking companies involved? Then it is more likely there is a bailout of some time.
It may simply be to make hay while the sun shines? As I understand it Tether creates liquidity, facilitates inter-exchange transfers without incurring huge on-chain Tx fees, which greases the day trading gears all while providing a thin psychological security blanket to people who may believe that the downside risk doesn't exceed the opportunity for enormous gains. Everyone thinks they'll be the first into the lifeboats when the ship starts to sink.
The extreme reliance on a centralized token like Tether, like the existence of centralized exchanges in general, is a tacit admission that blockchains are completely unsuited to the pace of financial activity and need these informal crutches to work effectively at all.
Real ideologues who care about decentralization are thin on the ground, and rationalize these shortcomings away as readily as the most degen speculator when 10x profits are on the table.
Deleted Comment
For comparison there are 7.5 bn USDC circulating and these are emitted by Centre/Coinbase and these are known to be real (Coinbase being an HN unicorn to soon do its IPO).
Tesla also just bought 1.5 bn of Bitcoin.
Then are regular people buying directly with non USD currencies like EUR / JPY etc. (for which I take it there are no USDC emitted).
So it's a known fact that money is flowing, by the billions, into Bitcoin.
The question is: is iFinex/Bitfinex/tether printing USDT out of thin air by so many billions that they are actually manipulating the entire market?
Tether backing is not just dollar. They recursively use bitcoin as part of their reserve. Bitcoin price rises, and they print more usdt to buy more btc.
It's hard to say how much btc would drop or pump.
Tether bootstrapped crypto demand, even if it was done so fraudulently
Fun fact: USDC is not backed by real USD. Circle is using these dollars for its trading purposes and that's actually in the ToS.
Pretty much no stable coin is: https://omarabid.com/usd-stable-coins
https://coinlib.io/coin/BTC/Bitcoin
Dead Comment
How can they start with this sentence even though it has been only up, up and up. All you had to do was wait and not freak out upon some nosedives. Who lost money? People that bought end 2017 thinking the sky was the limit and sold in February? Sure, but that can happen anywhere.
You know where you loose money? In the normal economy, because the government likes inflation. And we should all like it because money creation is debt based. But imo that is what is causing us normals to loose constantly (enriching the rich, who have dibs on the fresh printed money to make it happen).
Do we all buy some bitcoin, wait for it to grow 5x in value, and then we all sell for 5x profit? Where is that profit coming from?
Or do we all buy some bitcoin and never sell it?
So if you keep all in cash you re doing something wrong. The goal of fiat currency is to adapt to changing condition naturally.
But BTC isn't possibly going to work: it s cant adapt rationally, it cant pretend to pay you the same when the country goes bad by tweaking your fiat value so you calm down and the country continues.
Whoever said inflation was wrong was like a teenager moaning at his 200$ in a free bank account. The economy has to inflate and deflate transparently for you to some extend or you ll be stuck never lending anything and stashing stashing stashing.
The problem will be that realizing that we're finally in the "cake-shrinking" phase will only be possible after watching it shrink for decades.
That's like... euh,... everybody.
> You know where you loose money? In the normal economy, because the government likes inflation.
That's like... euh,... everybody.
People who are hating on Tether/Finex/Crypto are just in denial that they are getting screwed by their governments. At least in crypto, you have full claim to your tokens.
Oh, and "the rich" don't have "dibs on the freshly printed money" in the normal economy (arguably they do in a crypto economy because mining rigs aren't cheap...). The newly printed money is credit for people and companies not rich [or liquid] enough to have the cash to pay, and specifically it reduces the cost of borrowing because borrowers don't need to rely on rich people agreeing a fee to lend their money until it can be repaid.
Excellent thread.
https://www.coindesk.com/bitfinex-says-its-repaid-tether-for...
Deleted Comment
In the meantime, avoid tether at all cost, alternatives like USDC and DAI are much better and trustworthy.