> “The markets can stay irrational longer than you can stay solvent”
I'm pretty sure if they had damning evidence, a single hedge fund could single-handedly force the market to collapse in a couple weeks.
Keep in mind hedge funds can manage billions of dollars, cryptocurrency market caps are manipulated and the true order book depth is much smaller, and many cryptocurrency people are trading 100x leveraged perpetual futures on dodgy exchanges.
At some point it's disrespectful to even allow the market to exist.
> I'm pretty sure if they had damning evidence, a single hedge fund could single-handedly force the market to collapse in a couple weeks.
How would you do that? If you knew that Tether had, say, only $10 billion of assets backing it, you'd need to get 10 billion USDT and demand conversion to USD. If you bought those tether, well, it now has $20 billion of assets thanks to you and you lose. Borrowing seems risky, because the people you're borrowing from likely have a vested interest in Tether not collapsing and are going to work against you. So the only safe option is to convince people who hold 10 billion of USDT to cash out for USD pronto.
I will point out that the current drawdown of Tether is consistent with the scenario where liquid fiat assets are fast disappearing from the cryptocurrency ecosystems, and the cryptocurrency companies are fighting among themselves to claim as much of those assets as they can. (NB: There are likely other scenarios that are consistent with available evidence).
You could purchase millions in Bitcoin and other crypto, then sell it to a tether-based exchange for USDT. Then demand it as a withdrawal to USD. Rinse, repeat.
No idea how that would end up panning out but you don't necessarily have to accept new tether in exchange for your USD.
Ah, but tether foundation would have to buy it, but more likely a third party buys it with already existing tether.
They would have to liquidate a lot of Bitcoin into USD at once to satisfy a big request for withdrawal, which is a problem since tether's raison d'etre is to provide that liquidity because the dollars weren't there.
I can't see any reason for Tether to have to blow up or motivation for the people running it to let it do so.
Rather than holding US$ to back USDT they have been holding commercial paper ie. loans which pay interest. High quality corporate bonds pay something like 4% so say they invested their $72bn in that they'd be making $2.8bn a year for doing nothing.
They may have invested in iffier stuff but they are on such a nice earner they will be quite motivated not to break it. This is not like Madoff when he was paying 10% interest that was unsustainable. They are paying 0% interest which is not so hard to sustain.
If something gets them it'll probably be anti money laundering regulations, not running out of money.
Enron had fraudulent books for over a decade. When I heard that all of Tether's accountants were from the Cayman Islands it reminded me of how Enron managed to convince Arthur Andersen to help them cook the books.
There is nothing that makes Tether seem legitimate and this wasn't an attempt to make it seem so simply because "it hasn't yet collapsed so therefore it won't ever".
At the same time if HN had been around for Enron and year after year month after month there was a post about how Enron was going to collapse for being fraudulent eventually it 1) stops being interesting and devolves into "Enron haters" vs "Enron supporters" in the comments as everything useful has been said years ago 2) starts getting more "they've said that for the last 5 years they must just be wrong" reactions than actually having any positive or actionable impact on the situation.
The thing about bubbles is being small allows you to pull in fools at a rate sufficient to maintain your price. Once you're large, you can run out of fools since you're a large percent of a given market.
That said, my vague understanding of Tether is that since it's completely opaque and basically rigged, rather than collapsing entirely, the controllers of the "currency" can make it gradually harder for just select customers to remove their money and so support its apparent value without it seeming to collapse (I remember an article a while about a guy who couldn't redeem his tether for reasons unspecified by whatever the exchange, etc).
But if they prevent some people from redeeming, some of those people will go to exchanges and sell for other coins, putting further pressure on the price.
If Tether wants to maintain the peg they have to keep letting people redeem as long as there's more sellers than buyers.
It’s hard to predict when things are going to fall apart. Archegos capital worked for quite a while until one day it didn’t.