How did this thread get to be 46 comments long without a single mention of or link to @Bitfinexed?!
@Bitfinexed is the anonymous Twitter account that has been publicly sounding the alarm about Tether for almost a year now. They got the receipts, they bring the fire:
And as payment for his/her troubles as the Harry Markopolos of the crypto-world, he/she has been threatened with lawsuits.
If you, like me, perversely enjoy reading about or watching true financial crime stories ("The Smartest Guys in the Room", "When Genius Failed", Casey Serin's various blog exploits, "The Wizard of Lies", etc.), then @Bitfinexed's work is incredibly satisfying to read.
For example, in just the past few days, you can get the excitement of reading his/her public Twitter conversations with some of the big primary players in this Ponzi scheme, where those fraudsters brazenly deny any influence or financial benefits from this scheme, even in the face of immense evidence or screenshots.
I expect to see some of those tweets included in financial crime indictments in the near future.
I've been following this account closely, and while some things are a bit ludicrous (attributing the bullrun to USDT only without mentioning the hardfork, for one) the majority of their points are spot on. I know I have my exit strategy in place.
The obvious "something" in the second example being reflexive: "Tether untethers itself". Which is perfectly fine, if indirect, usage. We often use product names to refer to both the product and the producer. When we say things like, "I wish Windows implemented a Unix subsystem", we actually mean, "I wish the producers of Windows implemented a Unix subsystem."
George Soros broke the Bank of English's attempt to maintain a minimum exchange rate for the Pound against various other European currencies.
It was this experience that taught me that you can not cost free fix the exchange rate between currencies unless you are using "magic". And USDT has always seemed magical to me.
No, it's very easy to fix the exchange rate between currencies: make them actually be the same currency.
Tether is supposed to be be 100% backed by USD on a 1:1 basis. If that's true, while it may temporarily go higher and lower, and should always return to normal as actual USD moves in and out of the system.
The controversy about Tether is very simple: they haven't taken any steps to convince people that's actually true, and the default assumption you should make with such systems is they're scams that aren't actually backed by the currencies they claim to be backed by.
It doesn't help that Tether requested an audit but ended up severing ties with that audit firm [0]. It's likely Tether wanted a quick audit but the audit firm didn't want to sign their name to it so quickly without doing a deeper dive into the accounts.
They've also just printed $600m in tether a few hours ago. Hopefully that's backed by actual $600m in new customer deposits.
Edit: Market cap of Tether jumped $600m in the past 24h [1], but the Tether were granted over a period of 7 days. Looks like CMC doesn't update the market cap every day.
Seems to be just https://coinmarketcap.com/currencies/tether/ getting delayed data - it jumps from $1.6B to $2.2B at 01:14 UTC on Jan 28, but Tether was printing $100M chunks during the period it shows as flat.
"Like any not credible fixed exchange rate regime that is not backed by enough reserves, Tether/USDT collapses when they run out of true dollar reserves. And since Tether/USDT 1:1 peg to the US$ is the mother of all scams it will soon collapse taking Bitcoin down with it."
If traders lose confidence in Tether, won't they sell Tether to buy other cryptocurrencies, thereby driving the price of Tether down and the price of other cryptocurrencies up?
Initially yes, but I think we would also see a flight from cryptos in general shortly afterwards because of the risks posed to the whole space by a collapsing/fraudulent Tether.
Why would exchanges collapse if Tether goes to zero? They wouldn't collapse if Ripple or Iota went to zero.
To an exchange, Tether is just another cryptocurrency. Traders deposit Tether, other traders deposit Ripple or Iota, then the traders trade and the exchange takes a cut.
If any of these goes to zero traders might get wiped out, but how exactly does the exchange go bankrupt?
You say that, but Bretton Woods worked for 26 years - the pegs were based on trade balances, and were adjusted occasionally as needed - no magic involved.
Free floating currencies are more reactive, but fundamentally operate in the same fashion, albeit with far more volatility.
I'm a USDT skeptic but a 2 cent deviation isn't much considering it has often deviated by more than that in the other direction. If it hits 90cents on the dollar I think things are serious.
Also a skeptic: this author doesn't know what they're talking about. "Turning on the printing presses" to defend the USDT/USD price? What? No, the opposite: Tether would have to be buying USDT with USD then destroying it.
There remains the possibility that Tether doesn't need to have the money in reserve (or not 100%, anyway). It can just conduct open-market operations to maintain parity: printing & selling Tether when USDT/USD is above parity, and buying & destroying Tether when it is below. This could even make for a very nice business model, as explained in this blog post:
Of course, the conclusion that Tether will stay solvent from profit motive does not concord with history: FDIC came around for a reason, and that reason was 30% of all banks started in the US ended in insolvency. Plus, there are obvious parallels with Black Wednesday:
I think the idea is that when Tether turns up the printing press, they are using it to buy Bitcoin, which they can then use to buy USD, which can then be used to buy back some of the USDT on Kraken. The assumption is that there isn't enough USD cash in reserve to actually buy back the Tethers on Kraken (and anywhere else it may be flagging). Since they have no banks (as far as anyone can tell), and it's very difficult to imagine how hundreds of millions of USD is flowing into Tether from institutional investors, I can't figure out how they'd have $2+ billion USD just hanging around.
As with any great Ponzi scheme, you have to pay some of your early investors to keep the thing going. But, at some point, you risk eating into your profits, so you just stop and everything collapses while you disappear to the island you bought with your stolen money.
If they want to keep going, they have to buy some USDT on Kraken to prop up the price. But, if they're done with the con and want to cash out...now might be when they do it. A few hundred million worth of various crypto assets is not a bad take.
They should already own a ton of bitcoin and someone speculated in a previous thread that their reserves are actually in bitcoin, which would make a lot of sense. The problem here is that every time someone redeems their tether for real dollars, Tether (the company) have to sell part of their reserves and this brings bitcoin price down, in effect dwindling their reserve pool. If there are enough bitcoin buyers or there aren't many people redeeming their tethers for dollars, they should be fine. However, if people lose faith in tether (the coin) then mass redemption will crash bitcoin prices (judging by the daily volumes of tether trading) and there won't be enough reserves to cover everyone at par with the dollar. Hence the pyramid scheme allegations. This is all assuming they don't hold $2+ bn cash in reserves.
I can't recall the hn thread (there have been tons of crypto currency threads recently), but the comment was referencing this reddit discussion where a bitfinex representative made the same conjecture:
> Isn't it more plausible that this is not someone writing a check for tethers (money coming in from outside the crypto ecosystem) but more likely it is coming from converting other cryptos into USDT?...
I have no clue, you'd have to ask people who sell below par.
If they are selling because they can't access the normal withdrawal mechanism (e.g. US customers or people in a rush relative to processing delays) then it is the former. If they are speculatively shorting it is more likely the latter.
It could be both: people who can't do normal withdrawal and think there is at least 2% chance of fraud.
I don't know the details. Multiple places seem to imply there is at least some planned mechanism, that's all I was referring to. E.g. from the white paper: "Tethers may be
redeemable/exchangeable for the underlying fiat currency pursuant to Tether Limited’s terms of service".
I don't have a position here and no axe to grind, but parting from your auditors is in many cases a significant red flag.
Which makes the article and especially the title fake news.
Tether deviated by 10 cents last May, and then it quickly recovered. Tether may have its issues, but this move alone tells us absolutely nothing. Saying that Tether is dying because of this move alone is absolute nonsense.
Such deviations can happen when one or a few whales take out their tens of millions of dollars out of Tether, or put their cryptocurrencies into Tether (that's when it rises by
5-10 cents).
no. "fake news" does not mean just wrong news or bad analysis. that meaning is a co-option of the term which was meant to refer to whole-cloth fabricated stories or hoaxes often meant to bias.
The usdt/usd pair on most markets it trades on is heavily manipulated with wash trading. It doesn’t take a big buy order for bitfinex to bounce the price back to $1.
What you really need to watch is the widening spread in price between bitfinex and other exchanges which implies that people are buying crypto at inflated usdt prices because they don’t trust usdt any more.
I think if either that continues or the price of tether continues trading below 1.00, it’ll trigger a panic eventually.
It seems like there's about a $150-$200 difference between the USD/USDT exchanges at the moment. Note that CEX.io has one of the highest, and they are also currently unable to allow USD withdrawls "because of high demand backing up their financial partner."
But, spread across multiple exchanges. I'm tempted to short some things (including Tether on Kraken), but I'm also concerned any exchange that USDT touches will be insolvent after the crash. Kraken seems to have limited exposure, compared to some others, but when the shit really hits the fan, it's unlikely to matter, as it'll take significant chunks of the market with it, maybe including some exchanges that don't touch USDT but that are playing a little loose with their reserves. I would expect a retreat to quality as it starts to unfold, so Coinbase will maybe do OK (though some think GDAX is involved, or at least complicit, in wash trades), but I suspect a lot of folks will just want out of crypto completely. So, USD will increase in value relative to all of the other trading pairs...and some will be left holding the bag, if they're HODL-or-die.
I never quite understood how tether is supposed to be pegged to the USD. If there is no liquidity in an exchange wouldn't the price just fluctuate with supply/demand. If people are wanting to buy them more than people trying to sell them, wouldn't the price just appreciate?
Also - who is sitting and holding all these tethers? There are 2.2 billion of them out there...
If Tether really had $1 in the bank for every 1 USDT issued, they could set essentially infinite purchase orders at $0.99 - they'd make a penny on each purchase. They'd have a similar huge sell order at $1.01 for the same reason.
But Tether is traded on other exchanges outside of their control, this wouldn't work... plus. if they did this, then what people are suspecting is true. They just print tethers willy nilly without proper USD backing.
> if they did this, then what people are suspecting is true.
No, this is what they could do if they were legit.
Issuing and selling a new Tether when it's over $1.00 on an exchange keeps all their promises and lets them make the difference as profit. If they sell the Tether for $1.05, they put a dollar in reserves and the $0.05 is profit.
Same for buying a sub-$1.00 Tether from an exchange. They've taken a Tether out of circulation, which means they can treat the backing USD as theirs again, which means the gap between the $0.98 they paid and the $1.00 value is profit.
All of this requires them to actually have the capital to do so, though, and I'd consider the lack of Tether-issued buy/sell orders at these values to be a hint at the real scenario - they don't have the capital they claim.
Title is misleading; it makes it sound like Tether management is withdrawing some promise that USDTs can be redeemed at par. That would be much bigger news than the actual story, that they are trading for less than par.
Not that I’m recommending you touch tethers with a ten foot pole!
The very fact the price is under $1, and holding, means they're not defending the peg; There might be a promise that it's redeemable but if the price shows this for long enough, it means its broken.
I have no idea how this will work out, but IIRC USD stayed at like 0.93 USD for a few months some time ago, and then went back to parity and then occasionally above parity.
Yeah. Their TOS says that they're under no obligation of giving you dollars in exchange for tethers. In fact, no one has ever redeemed a single tether and there is no process in place to actually do it. Why people believe that 1 USDT = 1 USD is beyond me.
You cannot withdraw Tether. You can only trade it for something else on an exchange. Tether does not actually let you convert USDT -> USD. I wonder why.
But it can mean they abandoned whatever pretense they were maintinaing that USDTs could trade at par, even in a wink-wink nudge-nudge sense. That’s what “Tether breaking” implies. (As opposed to “Tether losing value.”)
It’s the difference between a money market mutual fund officially “breaking the buck” vs shareholders marking them as being worth less than a dollar.
The article says that Kraken is the only exchange offering a USD/USDT trade.
The article also shows wallets with the top USDT balances, and a Kraken wallet is 13th on the list, with about $16m of USDT, while the top 3 wallets have ~$1.1b between them on other exchanges.
Either Kraken is a small player, or nobody on Kraken holds USDT for long because that's where people go to immediately change it for USD.
Yes, this USDTUSD market on kraken is an anomaly: it has very small volume, and nobody is really interested in trading that.
Poloniex has many USDT markets, as they use it to compensate for the fact they do not provide markets against fiat. As such, those markets have way more volume.
The market visualization and analysis tools website tradingview.com offers a computed charts of USDTUSD from poloniex (symbol: POLONIEX:USDTUSD). It tells a whole different story than kraken charts: https://www.tradingview.com/chart/?symbol=POLONIEX:USDTUSD . Basically, usdt is stable there.
There's still a problem here: tradingview does not tell (afaik) how they are computing this price. I would assume they do a mean or average of various BTCUSD markets on several exchanges, then check it against BTCUSDT on poloniex, or something like that. But I don't know any official explainer about it.
What is interesting, is it appears that CMC updating the total supply occurred simultaneously with the drop in value. Is CMC data impacting the market independent of the actual supply?
A good book to read for anyone interested in economics is called "The End of Alchemy: Money, Banking, and the Future of the Global Economy", by Mervyn King, who was head of the Bank of England for about 10 years and during the financial crises of 2007-8. In the book, he discusses "the alchemy of money" which he roughly defines as how money isn't necessarily backed by any tangible assets. A lot of what happens in the banking system is pure alchemy. A fascinating read IMO.
I think you'd like this overview of England's South Sea Company and how John Blunt used all kinds of now illegal monetary fraud to become England's largest company, worth more than their GDP: https://www.youtube.com/watch?v=k1kndKWJKB8
> become England's largest company, worth more than their GDP:
In case people don't realize, GDP is the total amount a country produces per year, not the total value of the country. There's nothing impossible about a country's largest company being worth more than it's GDP.
There's still a long way to go to do that: With that market cap, Apple is worth nearly 1% of the world’s GDP according to the latest estimates from the World Bank that peg the world’s output at $74.2 trillion. That also means the company is valued at close to 4.4% of America’s $18 trillion GDP.
https://www.investopedia.com/news/apple-now-bigger-these-5-t...
What is most interesting about the South Sea Company, is that they didn't actually produce anything. They had rights to send one ship to Spanish ports for trade in the new world, but the ports would turn them away because the port authorities didn't want them/didn't believe them. Vs exporting oil which now heavily used.
@Bitfinexed is the anonymous Twitter account that has been publicly sounding the alarm about Tether for almost a year now. They got the receipts, they bring the fire:
https://twitter.com/bitfinexed
And longer articles at:
https://medium.com/@bitfinexed/
And as payment for his/her troubles as the Harry Markopolos of the crypto-world, he/she has been threatened with lawsuits.
If you, like me, perversely enjoy reading about or watching true financial crime stories ("The Smartest Guys in the Room", "When Genius Failed", Casey Serin's various blog exploits, "The Wizard of Lies", etc.), then @Bitfinexed's work is incredibly satisfying to read.
For example, in just the past few days, you can get the excitement of reading his/her public Twitter conversations with some of the big primary players in this Ponzi scheme, where those fraudsters brazenly deny any influence or financial benefits from this scheme, even in the face of immense evidence or screenshots.
I expect to see some of those tweets included in financial crime indictments in the near future.