But assuming Tether was legitimate, wouldn't they also need to create new Tether units during extreme market crashes because that's when the highest demand for Tether would be, so they'd run out of the existing Tether?
They wouldn't need to create new Tether during bull runs, because nobody cares about putting their money into Tether then.
No, it's unlikely if Tether was legitimate USDT printing would correlate so closely with bitcoin (crypto) market downturns.
The reason being, assuming tether is legitimate, for every printing they are sourcing additional USD to back the newly minted USDT. The idea they could so consistently find large investors willing to make NEW 100M+ investments while the crypto markets were in free fall is unlikely to say the least.
And it's not as if that's the only complaints about Tether. The fact Bitfinex and Tether has the same management; USDT pretty much acts as a proxy for Bitfinex to maneuver around banking laws; and that USDT supply pretty much grows monotonically are just a few of the other issues that suggest Tether is not legit.
This is inaccurate. Tether demand INCREASES when the cryptomarkets crash because traders want to escape to non-volatile assets. If everyone converts their crypto to USDT at the same time (which is what happens during big crashes) they MUST print more Tether or the price will increase.
> If everyone converts their crypto to USDT at the same time (which is what happens during big crashes) they MUST print more Tether or the price will increase.
This doesn't make sense.
You don't "convert" other cryptocurrencies to USDT, you sell your cryptocurrencies to people who have USDT. If there's a big sell pressure on the cryptocurrency, people want to move back to dollars, and there are not enough USD(T) then the price of the cryptocurrency should come down.
By adding more USDT to the picture you're magicking up money out of thin air to prop up a price. You're basically saying that when people want to sell cryptocurrency, dollars should be brought into existence to facilitate this at their preferred price.
It makes perfect sense. If many people are trying to BUY USDT (increasing demand for USDT) the price of USDT will increase. Tether tries to prevent this by printing more USDT (increasing supply). They are not "magicking" Dollars, they are magicking a commodity (USDT) pegged to Dollar.
I'm not saying that I'm a big Tether fan or anything. However to say that it "doesn't make sense" when they print more Tether during market crashes is false.
Yes of course demand increases for UDST on downturns which increases the market value of USDT and that's fine.
In fact printing tether to ensure it's market value is $1 is a fine solution. Except for the fact that the bank accounts that BACK the tether with USD are now in deficit compared ot the UDST supply. So while the crypto market value of USDT is $1 it's no longer backed 1-1.
So now, if they're legit, tether must figure out a way to get the missing dollars back into the bank account. The most efficient way to do this is to find an outside investor and trade him all the newly printed USDT for USD. In practice this would be rather difficult to do consistently in sliding markets, difficult enough that the correlation would be low as I pointed out.
You could also exchange USDT for various COINS then sell the coins for USD which then go into those reserve bank accounts. If you have a willing exchange partner with lots of cash and a need for bitcoins then this could work pretty well. Considering Bitfnex is run by the same dudes as tether, if they are legit then this is probably what they are doing. But all that's just IF they are legit and there's plenty of things wrong with USDT outside of whether it's backed 1-1 with USD.
TLDR: Trading volume and market value of USDT does not relieve tether of actually having USD on hand for each Tether that exists.
By your logic if that were the case, Tether would need to be destroyed everytime the crypto-markets rise...
Plus, Tether's offical website and documentation state that's not how Tether is intended, they claim it is always 1:1 backed by a real USD reserve in a bank account (which they tell people they will audit, but the auditor backed out after giving a statement that said Bitfinex would not provide the proper documentation and access, later erasing any mention of having been associated with Bitfinex.)
> But assuming Tether was legitimate, wouldn't they also need to create new Tether units during extreme market crashes because that's when the highest demand for Tether would be, so they'd run out of the existing Tether?
BTC crashes inherently would create BTC -> USDT interest, sure, but not inherently create USD availability for backing new USDT.
Creation of legitimate USDT would mainly seem to happen when there is high USD -> BTC interest, because that is, in many cases, realized by USD -> USDT conversion (with, in principle, the USDT created at that time and the USD in reserve backing the new USDT) followed by USDT -> BTC exchange.
You might see new legitimate, large-scale USDT creation in a crash if, say, bargain-hunting new USD money is flowing into BTC, but the people exiting BTC and driving the price down are holding USDT without converting to USD.
> They wouldn't need to create new Tether during bull runs, because nobody cares about putting their money into Tether then.
Yes, they would, unless “bull runs” in the USDT-denominated BTC market are just money already held in USDT rushing back into BTC, rather than new USD flowing into the USDT/BTC market.
Day traders use Tether a lot, even during bull runs. Because the market never closes, many full-time traders put their crypto all into tether when they're done trading for the day.
a lot of exchanges don't support USD conversion due to increased hassle of dealing with the dollar/us gov regulations. its easier to be a crypto only exchange than a crypto/fiat exchange
Why is exchanging 1 BTC into 10,000 USD on an exchange more expensive then exchanging 1 BTC into 10,000 USDT - as long as you don't withdraw it?
Is it because you don't trust the exchange to honor your USD withdrawal the next morning?
What makes you trust that Bitfinex is more likely to honor USDT to USD exchanges the next morning?
It's almost certain that USDT isn't actually backed 1:1 by USD. If it were, it would be trivially auditable. You're just moving yourself from one category of potential risk (Your exchange steals your USD), into a category of almost certain risk (The shoe drops and we discover that USDT was a scam all along.)
In addition, it's more "liquid" too. It's easier to turn tether into pretty much any altcoin on most exchanges vs turning USD back into altcoins.
There's still a belief in some circles too that a crypto/crypto transaction isn't a taxable event, which isn't true anymore. Regardless, some either believe this or know it's not true but find it easier to tax-evade this way.