[lalaland1125]

This post should be mostly discounted because Ray doesn't really seem to be aware of the true risk of the Tether scam, the biggest component of and risk to Bitcoin's value.

For those not aware, Tether is a "stable coin" that issues tokens that supposedly represent dollars and can be used as a medium of exchange. However, it's widely suspected that Tether is unbacked and printing fake dollars and even Tether itself has admitted that at least 26% of their tokens have no backing [1]. Tether has never been audited so we have no clue how much of it is actually backed and how much of it is fake.

This is extremely problematic because Tether is currently printing around $500 million per day and is a source of a significant amount of buy pressure in the market. Tether is used on almost every exchange and is the vast majority of Bitcoin buy orders so Tether can be used to artificially pump the price of Bitcoin quite effectively.

Ray points out Tether as a risk to Bitcoin's value, but I don't think he does an adequate job explaining the risk. Tether isn't a small component of the Bitcoin ecosystem. It's at the heart of Bitcoin with it being the primary currency used to buy Bitcoin with at most exchanges. Most of the buy volume is with Tether and that $500 million per day is huge.

Regardless of what one thinks about the value of Bitcoin, it's irrational to invest while $500 million of fake dollars are being pumped in every day. Once that artificial $500 million buy pressure is removed, the market will face an existential risk. Who knows what the real price of Bitcoin would be without all that fake money?

https://davidgerard.co.uk/blockchain/2021/02/03/tether-print... is a good article for additional context on Tether.

1. https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...

[thesausageking]

Tether FUD always returns when there's an influx of a lot newcomers to Bitcoin. It's been debunked over and over. Here's one by Nic Carter that explains why these "takedowns" are completely wrong:

https://medium.com/@nic__carter/assessing-bitcoins-liquidity...

[Jasper_]

According to Tether's own transparency page [0], there's $30 billion of USD sitting in some random bank, somewhere. No, they haven't told anybody where it is, and they have never released an audit. Yes, they are still delaying the NY Attorney General's investigation [1]. We know that at least $850 million has been seized and lost for good [2]. No, they don't report that on the transparency page.

[0] https://wallet.tether.to/transparency [1] https://mobile.twitter.com/bitcoinlawyer/status/135164200602... [2] https://modernconsensus.com/cryptocurrencies/tether/feds-jus...

[bl557]

Tether is definitely very sketchy in their practices, but there is simply no good evidence that Tether issuance inflates the prices of BTC.

Here is a study arguing the opposite - https://voxeu.org/article/stable-coins-dont-inflate-crypto-m...

[Jasper_]

I present an alternate argument. First, Tether ToS says that their tokens are useless and nonredeemable, and their service is not available to US residents [0]. Second, the majority of BTC/XYZ trades on major exchanges are for Tether [1]. Third, as a stablecoin, the way it is supposed to work is that when USD is put into reserves, Tether creates USDT. When money is taken out of reserves, Tether will send the USDT to a bogus address to "burn" it. They have only burned a miniscule portion, much less than the $850m that we know has been seized [2]. My guess is that USDT is being pumped into high volume exchanges, and USD is coming out of low volume exchanges, and very little of USDT is backed by reserves.

[0] https://tether.to/legal/

> The right to have Tether Tokens redeemed or issued is a contractual right personal to you. Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.

> The following Persons are prohibited from depositing to, or withdrawing from, any Digital Tokens Wallet on the Site: > any Person that resides, is located, has a place of business, or conducts business in the State of New York; and > U.S. Persons.

[1] Volume charts and breakdowns are available in lots of places as the data is public, but the easiest chart is halfway down the right side of the page here. "Money flow from/to Bitcoin in the last 24 hours" https://coinlib.io/coin/BTC/Bitcoin

[2] there used to be a site called "omniexplorer" for navigating the Tether chain transactions, but it seems it went down. Now you have to piece it together using tools like blockchair, but it's far more difficult to read to find the coinbase transactions. https://blockchair.com/ethereum/erc-20/token/0xdac17f958d2ee...

[birdsbirdsbirds]

By which means are the people paid who organize Tether? If they hand out tether effectively for nothing, who is paying for the infrastructure? If there is no payment, why would one not expect that they intend to run away with those $30 billion one day?

Additionally, if that bank goes bankrupt, the money is not secured.

[onlyrealcuzzo]

Is it even legal for any bank to hold tether's money if it is in USDs?

[at-fates-hands]

Honest question,

If people are thinking of buying and selling BTC, should they start with another crypto currency until the Tether issue is resolved?

[rspeele]

If Bitcoin goes down the altcoins go down too.

[gaff33]

Tether fails bond pricing 101.

If you have an IOU from the US government for $100 it's worth about $99 on the open market.

If you have an IOU from a highly rated US company (e.g. Ford) for $100 you'd expect it to be worth about $94.

Yet we're somehow supposed to believe than an equivalent IOU from tether is worth more?!

Oh and the US Government and Ford will probably pay you some form of interest if you hold it long enough...

It simply doesn't add up!

[mastermojo]

This is the part that confuses me too.

If the market believes Tether is not backed by real currency, shouldn't it be trading at a discount to USD?

[55873445216111]

I think the premium is a "convenience fee" people are currently willing to pay.

[itsoktocry]

>Tether FUD

What's the opposite of FUD, when people with a massive financial stake in something do nothing but tell everyone everything is great all the time, and never acknowledge any issues?

[SideburnsOfDoom]

Pump and dump.

[bl557]

https://twitter.com/lopp/status/1344361051048042497

[itsoktocry]

Great to see all of the problems, past, present and future have been solved.

But thanks for the link to a person who clearly has no financial stake in the success of Bitcoin, right?

[bl557]

Yeah, Bitcoin is great, I agree :)

It seems pretty natural to me that someone who believes in Bitcoin would also purchase it.

[itsoktocry]

>Bitcoin is great, I agree :)

I think it's cool too, and have ~5% of my portfolio allocated to BTC, ETH and XRP.

But I don't go around pretending it solves all of the problems of the monetary system. It's better in some ways, and (much) worse in others. I also don't dedicate my life to pumping it on social media.

>It seems pretty natural to me that someone who believes in Bitcoin would also purchase it.

If only we'd have the same mentality with short sellers, but instead we label them FUD.

[MattGaiser]

CDOing? Madoffing?

[MrMan]

1/FUD

[lalaland1125]

That doesn't deal with the fake $500 million per day that is being pushed in by Tether. That money has to be artificially inflating the price of Bitcoin. Unless you actually think $500 million per day of real dollars are being acquired by Tether, a company that has never been audited and is under investigation, when there are many legitimate stable coin alternatives such as USDC? You would have to assume that there is both a $500 million per day whale buying Bitcoin and that whale is unable to use more legal means.

[bl557]

Study finding no correlation between stablecoin issuance and BTC price - https://voxeu.org/article/stable-coins-dont-inflate-crypto-m...

[T0Bi]

You have no sources for any of your claims.

[lalaland1125]

I provided links to my sources in the original post. I thought it was pointless to relink them every single time.

[hntrader]

Isn't this just saying that the BTC buying volume generated by Tether is less than what was claimed?

That's important to note, but where does he argue that the central and most important claim - i.e., that Tether isn't fully backed and is therefore liable to collapse like a house of cards - is false?

[orange_tee]

All of this shows how the supposed transparency of Bitcoin is useless. The blockchain does not really tell you anything. Price goes up 500%. Nobody knows why. People speculate it is because of Tether or some cabal of Chinese BTC mining tycoons or exchanges faking volume;, or WallSt playing their voodoo with billions worth of BTC.

What other asset has this situation where the reason for the movement of its price is so obfuscated?

[gruez]

>All of this shows how the supposed transparency of Bitcoin is useless.

This seems like begging the question to me. Was bitcoin ever supposed to be some sort of asset where the pricing is transparent?

[orange_tee]

I don't quite remember from the original white paper if it was pushed as a feature or just a property of the system. But later proponents certainty try to say it is some revolutionary feature.

Now don't get me wrong. Transparency in the financial system is good. But a public blockchain as is, does not provide any transparency at all.

Now that I am thinking about it, they probably mean something else entirely by transparency. They probably mean, they know the total amount of BTC out there.

[jstrong]

> Price goes up 500%. Nobody knows why.

welcome to currency trading

[CyberDildonics]

Everyone who invests in bitcoin is breaking the cardinal rule of investing: don't invest in something you don't understand.

If people realized that bitcoin's -average- transaction fee is around $25 USD because it is restricted (for no technical reason) to a few transactions per second (less throughput than 240p youtube videos) they would at least move on to other cryptocurrencies.

If people realized that a sudden drop in price will mean a sudden drop in mining power, which will mean a sudden drop in blocks being generated, which will mean a sudden drop in throughput, they might be even more eager to get out of it. Since transactions are already so extremely limited purely by choice of the people that took it over, sudden drops in price mean less utility while in practice sudden rises in price lead to lots of transactions for speculation, which also prices out any utility.

One transaction is now 4x the hard drive cost to store the entire chain (and users don't even need to store the chain at all).

[brendanmc6]

Totally false. Reduced mining power doesn't reduce the number of blocks being generated. Block mining PoW difficulty increases or decreases based on a running average of past block times[1]. This, given the block size limit, is the very mechanism that caps transaction throughput.

Lower prices have always led to less transaction volume which has always made it cheaper and easier to get your own transaction confirmed.

"don't invest in something you don't understand", can I ask that you don't spread FUD about something you don't understand?

[1] https://bitcoin.org/bitcoin.pdf

[CyberDildonics]

What I said is true, sudden drops in mining power mean the immediate effect is slower block creation:

> a sudden drop in price will mean a sudden drop in mining power, which will mean a sudden drop in blocks being generated, which will mean a sudden drop in throughput

Over time (and blocks) the proof of work difficulty adjusts, but that isn't what I was talking about, which is why I said "sudden" over and over.

It takes the generation of blocks to adjust the proof of work difficulty and if the price goes down, miners shut off and the blocks needed to adjust the proof of work will get generated more slowly. Less blocks on average means the adjustment skews into the future as the throughput goes down.

Two factors that go _against_ a death spiral is that transactions typically go down when the price goes down, and when the transaction throughput is low, people with actual balances on the chain can't get their btc off of it.

When the price goes up and mining power increases (sooner or later) this isn't a problem, because faster blocks aren't a problem - they just make calibrating back down to a 10 minute happen quicker.

> "don't invest in something you don't understand", can I ask that you don't spread FUD about something you don't understand?

Easy there, you can always ask questions instead of making bold assumptions like this.

[HourglassFR]

> If people realized that a sudden drop in price will mean a sudden drop in mining power, which will mean a sudden drop in blocks being generated, which will mean a sudden drop in throughput, they might be even more eager to get out of it.

I agree with your overall argument but as I understand it, this is false. If the mining power of the whole network drops, the proof of work will become simpler so as to have a roughly constant block throughput. Or am I missing something here ?

[saalweachter]

At one point this was approximately true; I'm honestly not sure if it still is.

The problem was how the difficulty was decided -- it looked at the last N blocks that were successfully mined to decide whether it needed to up or down the difficulty. If you suddenly lost 90% of your mining capacity, it would only adjust the difficulty after several more blocks were mined, each of which would take ~100 minutes instead of the usual ~10. The system would eventually right itself, but it wasn't fast.

I can't recall if this ever became a problem in practice, or whether there was a code change to make it resolve faster.

[Mc_Big_G]

The value of Bitcoin doesn't lie in how many transactions it can do per second, nor the cost per transaction.

[CyberDildonics]

I actually said utility, you said value.

It is also telling that you didn't say what the value actually is. If you do explain that, make sure to mention it relative to other cryptocurrencies that have all the same properties (except for name recognition) but don't have throughput problems because they did what everyone saw coming 8 years ago and allowed larger blocks, faster blocks, or both.

[Mc_Big_G]

Ok, I'll bite. Bitcoin has a large, distributed network of miners and exchanges who support it, has extremely low inflation approaching zero, has a supply cap of 21 million, is infinitely divisible, has been in the wild for 10 years with zero hacks, can transfer unlimited value (billions/trillions) anywhere in the world for relatively low costs in relatively low time compared to traditional system, and does not require any third-party middle man to approve the transaction, is accessible to anyone in the world regardless of regional laws, and cannot be printed or inflated artificially. I'm sure there's more.

In regards to value relative to other crypto, this is a valid point but ultimately doesn't matter at all. Why does Craigslist still make 100s of millions of dollars every year when it is clearly an inferior product?

[lalaland1125]

The actual cost per transaction in Bitcoin is ~$150 now once you include both the direct transaction fee and the miner reward (inflation cost). It's an incredibly inefficient technology.

[gruez]

>and the inflation costs

compared to the endless money printing done by the fed that still seems like a bargain.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

[throwaway1777]

Strawman argument since there are other ways to hedge inflation.

[gruez]

How is it a strawman argument? The point is that you're factoring in the inflation cost for BTC, but not the alternatives such as USD or even gold.

[thebean11]

Ray isn't the only one, the market is pricing in zero risk of tether collapsing. It trades at no discount to real dollars, anybody with a Coinbase account could convert pretty high volumes of tether to real dollars.

I really have no idea why, it seems sketchy.

[choxi]

It looks like Coinbase doesn't support Tether: https://www.coinbase.com/price/tether

[thebean11]

Should have specified, you'd need to convert tether to bitcoin on a different exchange, then sell the bitcoin on Coinbase (or any other real-dollar exchange).

The point is that 1 dollar buys the exact same amount of bitcoin as 1 tether.

[gruez]

but kraken does: https://trade.kraken.com/charts/KRAKEN:USDT-USD

[pjkundert]

You are correct; its USDC token is backed by audited USD$.

[itsoktocry]

Tether drives the price of Bitcoin (and other cryptocurrencies), which they do support.

[lalaland1125]

Tether is almost certainly holding on to a couple billion real dollars to maintain the peg. This is very similar to how the Bank of England maintained an artificial value for the pound that wasn't broken until George Soros came around.

[CyberDildonics]

I think it is much more likely that tether is backed by bitcoin and is a ponzi scheme.

Price rises seems to be driven heavily by more tether being created out of nothing, leading to another speculation and news frenzy, leading their btc being more valuable and safety from default despite creating more tether.

If bitcoin goes down rapidly or people start exchanging lots of tether for bitcoin (because you can't actually get USD from it) I think it will end up exposed, since as btc goes down their backing value goes down.

[thebean11]

> If bitcoin goes down rapidly or people start exchanging lots of tether for bitcoin (because you can't actually get USD from it) I think it will end up exposed

To be fair, this already happened. Bitcoin crashed from $22k to $4k, and this was at the height of tether worry.

[CyberDildonics]

That happened over the course of a year and I don't think there was a massive (enough) run on tether while it was low, since it didn't stay at that price for very long. There just isn't as much activity when bitcoin is low which I think also works in tether's favor. I think they do have significant btc backing them, just no USD.

I actually wrote a comment about their dynamic two years ago when this happened.

https://news.ycombinator.com/item?id=18222578

[thebean11]

It crashed from its peak to $6k in 2 months. The bear market lasted a long time, the initial crash was pretty fast when it first happened..

[kgkyltpgllg]

It stayed at $3k for 4 months in 2018.

[kgkyltpgllg]

> more tether being created out of nothing

How do you know that? Can you see Tether USD bank account, and can confirm that no USD is deposited there when Tether is created?

[andy81]

From the article that caused the panic-

https://crypto-anonymous-2021.medium.com/the-bit-short-insid...

The last nail in the coffin was when I found out about the lack of visible reserves. If Tether Ltd. really was taking in 1 USD for each Tether it issued, then it should have as many dollars in its bank account as there are issued Tethers. And it turns out we can check if that’s true! Tether Ltd.’s bank is Deltec bank in the Bahamas, and the Bahamas discloses how much foreign currency its domestic banks hold each month.

The answer was — at least up to the end of September 2020 — not nearly enough:

From January 2020 to September 2020, the amount of all foreign currencies held by all the domestic banks in the Bahamas increases by only $600 million — going from $4.7B to $5.3B. (The table is in Bahamian dollars, but the Bahamian dollar is pegged to the US dollar, so 1 BSD = 1 USD.)

But during the same period, total issued Tethers increased by almost $5.4 billion — going from $4.6B to $10B!

[MrMan]

This is a great clue. I don’t have an opinion but there is enough noise around all this stuff to keep me on the sidelines. I will go back to my ETH staking ruminations.

[ad31mar]

This reply should be mostly discounted because the author doesn't really seem to be able to do basic research. Tether imploding would actually be good for Bitcoin.

[arberx]

Why wasn't Tether printing during the 2018-2019 bear market?

[babyshake]

If there is one argument that convinces me that Tether is unlikely to present an existential risk to Bitcoin, it's that some of the largest companies are supporting Bitcoin, adding it to their balance sheet, etc. I've got to believe they are well aware of this risk and have looked into it, and have at least decided that it isn't a large enough issue to expose them significantly.

[budlightvirus]

Enron and Lehman Brothers were both sizable enterprises

[coinward]

Ah, so when a central bank fiats, its sound economics. When crypto folks fiat, its a scam. I see.

[biolurker1]

First of all you didn't read the whole text, second you think you can discount the opinion of the mot successful hedge fund manager ever and the due diligence of his team! because you know better. Amazing dunning krugger effect at play. Go back and read the report and don't rush to make hate comments. He describes in the text those that are blinded.

[eyeball]

30/870=3.4%

[fwiwm2c]

You know something special which others, who have much sophisticated investing mechanisms, don't know ehh? If you are so confident in asking someone like Ray Dalio to "discount" their post, then why don't you bet against Bitcoin and see where that lands you?

Stop presenting FUD if you don't yourself want to back it.

[kgkyltpgllg]

> Tether isn't a small component of the Bitcoin ecosystem. It's at the heart of Bitcoin with it being the primary currency used to buy Bitcoin with at most exchanges

So if you were a big company, let's say Tesla, which wanted to buy a lot of bitcoin, let's say 1.5 bil, would that mean that you first need to convert that 1.5 bil to Tether, since that's the most liquid denomination of BTC?

Could it be that some of those "fake" $500 mil daily Tethers were actually really backed by Tesla dollars?

[lalaland1125]

Legitimate actors like Tesla have no need for Tether. They could directly wire in their cash or use an actually legit stablecoin like USDC.

[kgkyltpgllg]

But according to you there is no real liquidity in BTC/USDC, it's all in BTC/USDT.

When you do that kind of buying, you need to go to the most liquid exchange (Binance), and that uses Tether.

[lalaland1125]

The volume at coinbase is more than enough to support a $1.5 billion buy.

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

[FireBeyond]

And yet we're lead to believe that Tether is at or very close to 1:1.

So Tether is depositing, USD, $6.5B A WEEK. Over the last year this would make them one of the richest entities in the world.

Oh wait, they haven't actually been audited, they won't tell anyone which institution/s actually hold this trove of funds, they've already lost more than a billion to people to who effectively said "yeah, we're not giving you back the money you gave us", and they're fighting and delaying multiple investigations and prosecutions of financial crimes.

Perhaps when Tether's USD holding exceed even Apple's (which, according to you, is less than a year away, at the absolute max), you'll realize that this is all a house of cards.

[kgkyltpgllg]

There is a big difference between two-way speculative volume and one way long term directional volume.

If AAPL trades $15 bil per day, that doesn't mean that you can easily buy $1 bil without huge market impact.

[itsoktocry]

>Ray doesn't really seem to be aware of the true risk of the Tether scam

Every day that goes by it's becoming more clear that Dalio's "genius" was nothing more than a product of being in the right-place-right-time of an extraordinary 20+ year bond run and Chinese money connections.

[MrMan]

60/40 portfolio with leverage

[andrepd]

Excuse me, how is this different from banks, which have money to cover ~1% of their deposit liabilities?

Scratch that, US and UK banks, for example, now have 0% reserve requirements.

[seanhunter]

UK and US banks absolutely do have reserve requirements and they are neither 1% nor 0%. I have no idea where you're getting that from. The reserve requirements vary by type of bank and type and risk weighting of asset.

Here is the documentation that explains the capital requirements for a regulated entity (not just banks, but including banks) in the UK

https://www.handbook.fca.org.uk/handbook/glossary/G1567.html

[andrepd]

Capital requirements, not reserve requirements.

[seanhunter]

Reserve requirements are capital requirements. "reserve" here is capital that you reserve to withstand losses in particular classes of assets.

There are also requirements for particular proportions of the capital base to be held in liquid assets (cash and near cash) in order to pay back deposits etc.

//edited to make the point about liquidity

[jcranmer]

Banks still have capitalization requirements that are required to supply money for withdrawals, and those have (for several decades, I believe) been far more stringent than the reserve requirements. Reserve requirements are the amount of cash they need to hold specifically in the central bank, whereas capital requirements are a more general notion of cash.

[reitzensteinm]

Banks still have assets to cover the liabilities, they're just not liquid.

Are you claiming Tether has other assets that are not being counted?

[andrepd]

No, they don't. In the event of a bank run, a bank cannot cover their liabilities. This is the same thing that you point in tether as a fatal flaw and a "scam".

[joubert]

Timing difference, i.e. majority of assets are not held in cash (it is put to work), so if many people try to withdraw lots of money at the same time, it can trigger a downward spiral (“bank run”).

I’d you’re curious to understand more: https://en.wikipedia.org/wiki/Bank_run

[andrepd]

I don't understand, what does that have to do with anything? The issue being discussed is Tether, and how it's totally a pyramid scam since it doesn't hold 100% in reserve.

[reitzensteinm]

I said neither thing about Tether, and there is a vast difference between illiquid and insolvent.