[jcranmer]

If they haven't exited the BTC position, then selling the BTC to convert back into USD may not be possible without dramatically affecting the price. And if it's still in BTC and they don't bother converting back into USD until the last minute, then a run on USDT may make it impossible for them to convert enough BTC to USD fast enough to redeem USDT.

It's hard to analyze Tether/Bitfinex's risks here because, well, they have been fairly opaque about what their actual financial situation is, so people are relying on their gut instincts to guess what it is.

[hntrader]

USDT has a market cap of $35bn, let's say that 30 percent is unbacked and the corresponding USD was used to buy BTC. That's a position of at least $11bn. It's probably worth more than that now, since the price went up after they supposedly bought in, but they only need to liquidate $11bn to return the USD to their reserves to make it 1:1 again.

The market cap for BTC is $1000bn. Wouldn't they easily be able to unload the position over a 1-3 month period without too much price impact? They own 1 percent of the market cap, and in the stock market we often see larget stockholders than this unload their whole position without a catastrophic impact.