[tuesdayrain]

>I’ve been shorting a few bitcoin-related public companies on the theory that in a run on Tether they will have to liquidate large bitcoin holdings

I doubt a run on tether would even cause a 50% drop in BTC price. Hope your account doesn't blow up when Bitcoin inevitably reaches 1 million per coin ;)

[panarky]

Either markets work or they don't.

Sure, in the short term, unregulated markets can be manipulated.

But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them.

You can sell Tether on Coinbase for U.S. Dollar deposits to your bank account.

The fact that Tether maintains its 1:1 peg to the dollar is a signal that maybe all the smart guys who have been confidently predicting its imminent and inevitable failure for the last seven years might be missing something.

[pcwalton]

> But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them.

> The fact that Tether maintains its 1:1 peg to the dollar is a signal that maybe all the smart guys who have been confidently predicting its imminent and inevitable failure for the last seven years might be missing something.

Bernie Madoff claimed that his scam started in 1991, though in reality it was probably much earlier. It didn't collapse until 2008.

Even in the cryptocurrency space, Mt. Gox took five years to collapse.

[panarky]

There wasn't this loud of a chorus continuously yelling that Madoff and Gox were scams, in every possible media outlet from blogs to Bloomberg, for seven years.

There wasn't a well publicized US federal indictment and investigation of Madoff and Gox, settled with a fine and no injunction.

I'm not saying Tether is clean or 100% funded, I don't know. But unlike Madoff and Gox, accusations have been very loud and very public for a very long time, and the market still accepts USDT at parity with USD.

If Tether's treasury is empty, and if people can freely trade USDT for USD, it wouldn't hold 1:1.

[TheAlchemist]

There were a lot of people saying Madoff was a fraud for years.

Check this guy: https://en.m.wikipedia.org/wiki/Harry_Markopolos

[panarky]

Few have heard of this guy, while everybody has heard about how Tether is a scam.

[alisiddiq]

You are deluded if you think tether has 70bn liquid assets in case there is a run.

The question of a collapse is when not if.

[paulgb]

> But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them.

How would the smart money profit from obliterating them? If you’re referring to a Soros/GBP style trade, how would one borrow enough USDT to pull it off?

[panarky]

Somebody holds large chunks of the $70.5 billion in USDT.

Presumably, people who hold hundreds of millions of the stuff are well aware of every accusation made against Tether.

If they wanted to, they could trade their USDT for actual US fiat on a 1:1 basis if they thought USD was worth more than USDT.

The really smart money with large crypto stashes could borrow USDT with crypto as collateral, and trade the USDT for greenbacks.

[seanhunter]

> The really smart money with large crypto stashes could borrow USDT with crypto as collateral, and trade the USDT for greenbacks.

Have you looked into the mechanics of this trade? The crypto loans I'm aware of are all significantly overcollateralized. You would have to pledge say 1m BTC to get 0.8m BTC worth of USDT which you could then sell for dollars. If you succeeded USDT tanks, everyone who holds USDT would be rushing for the exit, wiping out the crypto you pledged as collateral also. So you succeed in losing 20% of your money on the initial USDT trade and almost all of the value of the crypto assets you pledged for the loan as well.

These markets are nowhere near as flexible and liquid as regular fx - I would be amazed if you ended up making money overall on this kind of strategy and the execution risk is significant.

[panarky]

> So you succeed in losing 20% of your money on the initial USDT trade

Presumably the value of Tether would drop much farther than the value of other crypto.

If USDT drops 90% and BTC drops 50% in USD terms, the BTC would gain value in USDT terms and your loan would be even more overcollateralized.

Then you could pay back your loan with USDT at ten cents on the dollar and make an absolute killing.

[ahnick]

In this scenario, if USDT drops low enough, might you not have trouble actually procuring enough USDT to payback and unlock your BTC? It would seem like a sudden collapse of USDT might cause a complete stop in all trading of USDT pairs, no? I suppose you could counteract that a bit by continuing to hold a certain amount of USDT, but would the loan instrument still accept USDT as repayment if USDT becomes worthless?

[tata71]

> These markets are nowhere near as flexible and liquid as regular fx

Love to hear this.

[seanhunter]

Some facts to back this up.

1)In normal FX markets the amount transacted goes to trillions of USD per day, and liquidity at the touch is very high. So if you need to unwind a position there will be people who will take the other side and the market won't move much even if you're trying to unload a lot of a single cross.

2)In equity markets (which I'm a little more familiar with from a microstructure point of view) a single large market participant like a big broker/dealer will do more than a billion client orders on a busy day (when you add up the orders they do internally and all the child orders from executing trades in pieces). If you wanted to do a billion transactions on the ethereum blockchain at the current throughput it would take you almost 2 years, and no-one else would be able to do anything. So making a lot of trades fast isn't really possible.

Obviously chains like solana would help this a lot, but the point remains that in the current defi ecosystem markets aren't very resilient because they can't react as fast and they don't have the kind of depth of liquidity that conventional markets have.

[paulgb]

A lot of folks in the “tether will fail spectacularly” camp also believe that its failure poses a systemic risk to other crypto, both because tether holds positions that they would have to quickly liquidate in a run, and because USDT makes up a large component of the daily trading volume for many coins.

So I suspect there’s not much overlap between people who believe they could break tether and people sitting on a large crypto stash to use as collateral.

[arcticbull]

There’s nobody to trade $70B USDT with except Tether Inc and they’re not paying out haha. Those folks are trapped.

[paulgb]

If you could borrow enough USDT though, you could still break the peg without transacting with Tether directly:

- borrow a ton of USDT

- trade it for USD on exchanges, eating away at organic demand as well as the reserves used to keep the peg

- eventually (presumably) the peg will break and the price will collapse, and you can buy back the USDT for cheap to repay the loan

The trouble is getting that USDT-denominated loan, though.

[arcticbull]

Agreed, the difficult part is getting a USDT-denominated loan without crypto collateral and counter-party risk.

[tome]

> Somebody holds large chunks of the $70.5 billion in USDT.

Personally I'm really really confused about who holds all that Tether. Just who is it? I can't come up with any good idea. Is it the exchanges? But if so then why would they?

[humaniania]

Wouldn't that trade be a taxable event in many countries?

[pjc50]

50% price fluctuations are normal in bitcoin. 31273 on 26 Aug, 65701 on 20 Oct.

[tata71]

What if Tether had rugpulled on 27 Aug?