[britneybitch]

Even if your premise is right, your timing has to be right too. The SP500 has doubled since 2014 which lines up with the traditional 7% per year. Meanwhile they're paying 12% per year to short, so their approach is a compounded 22% worse[1] than VTSAX-and-chill (before even considering capital risk). This is still gambling, just not in the usual direction.

[1]: 1.07/(1-0.12) = 1.22

[aardvarkr]

I agree with your premise but the s&p isn’t going up by 7% right now and the author is just taking a calculated risk. That’s his business. If he thinks Tether is going to collapse then he’ll make a massive return on his investment.

He’s essentially gambling $46/yr to get a $450 payout if Tether collapses.

[OscarCunningham]

> s&p isn’t going up by 7% right now

It always sounds weird to me when someone uses the present continuous tense to refer to the rate of change of stock prices. Like, how are you taking the one-sided derivative of a fractal?

[aardvarkr]

I bet you’re fun at parties. The right way to phrase it would be to throw in a “YoY” but clearly you care too much to ever let someone on the internet dare to make such a pedantic mistake. Try contributing to the conversation instead of detracting from it.

[tedunangst]

Pick a shorter timeframe like one month, calculate annualized rate.

[mgaunard]

That's a bad idea, since equities have a lot of calendar events and a given month is never representative of a year's performance.

[OscarCunningham]

Then you'd say 'the S&P hasn't been going up at 7% recently'.

[tedunangst]

The pedantry hasn't been making you a more effective communicator recently.

[TheRealPomax]

Welcome to finance: if you're not being pedantic, you're probably trying to sell a lie. Verb tense absolutely matters.

[bagacrap]

pick 3 months and try it.

[jmathai]

Humans are terrible at gauging risk. I think the parent comment was highlighting the risk component of this.

VTSAX-and-chill is gambling also. But the risks are so wildly different that Tether is closer to buying lottery tickets than index funds.

Everyone does what they want with their money but there seems to have been an explosion of “massive returns” content that I think is generally harmful.

(I’m neither saying that this post is or isn’t harmful.)

[wjnc]

I’ll just go out and enjoy “neither A or B” instead of “not A or B” or “A nor B”. I had to parse “neither is or isn’t harmful”.

[dghlsakjg]

I don't have a deeply researched position behind this, but my feeling has always been that (long term, I say again, LONG TERM) VTSAX and chill is the same bet as holding cash.

If your VTSAX ends up being worth nothing long-term, there is almost certainly no chance that your currency survived the same event.

[jmathai]

Curious about this. The geometric mean of return for the S&P500 is about 7% over several decades. The longer the time horizon the more likely you’ll hit 7%.

Why do you think it’s similar to holding cash?

[dghlsakjg]

Not that its the same return as holding cash (clearly that isn't true), just that if VTSAX doesn't pay off as a bet long term, it will be because the dollar has ceased to be valuable.

Basically, a bet on VTSAX is underpinned by faith in the dollar. If either one crashes the other is worthless.

[edmundsauto]

The most important line in finance is "Past performance is no guarantee of future results". This is generally treated as a warning label: Don't assume an investment will continue to do well in the future simply because it's done well in the past.

However, what it really means is that nobody can predict future performance, even with historical data. I think it's negativity bias that this phrase is used to apply to downside; it should also be used when considering upside. (The reason, I think, is many people prefer to miss out on upside rather than experience downside, ie we are risk-averse.)

Over some future time frame, the S&P will go up again. It doesn't feel like that will be soon, but as I always admit to myself: I am really bad at predicting the future.

[arisAlexis]

If Tether collapses Aave will collapse too, the plan is hilariously defective

[seviu]

Aave as a token might collapse but Aave is a protocol, and it will continue working as designed. When Ethereum collapsed to sub 900$ we could all see how robust these decentralized protocols are. The price of the token has nothing to do with how Aave works.

[arisAlexis]

I am talking about the protocol. They are untested protocols with potential design flaws or potential hacks. We have seen these happening for tens of billions of losses for years now. Waiting for something to collapse in something that can collapse is total irrationality.

[scotty79]

> massive return

Just around 100%. That's not massive for crypto gambling.

You could just buy BTC and have 600% in less than 3 years if only BTC won't break out of its 12 year trend.

And that's a very conservative gamble.

[eli]

Not if you believe BTC is wildly overvalued. I personally don’t think it sets a new record high, ever, and is mostly down from here

[swyx]

look i'm as skeptical as the next HN'er but the evidence of past history is against you and "ever" is a very long time...

BTC doesn't have to win mass adoption for it to set new highs, it just has to be the "store of value" (i know, i know) for enough people and for the next QE cycle to start in 3 years to get going again

[shadowgovt]

BTC hasn't been around long enough for it to have a past history to be evidence against the belief it will downtrend. Not relative to other currencies or commodities.

That's like putting a match to gunpowder and claiming based on the trend of the first few microseconds, the flame will engulf the world.

[scotty79]

Bitcoin doesn't raise exponentially. It slows down over time. Each swing cycle is shallower than previous one.

It's more like putting a match to a gunpowder and theorizing that at some point some equilibrium will be reached at greater volume than currently observed.

[eli]

Instead of price history look at utility history: It’s never been anything other than a speculative asset or a temporary medium of exchange for criminals. There’s no future here.

Future returns on BTC cannot be compared to the S&P!

[wmf]

Gold is also speculative and it's much larger than BTC. I hate crypto but $100K BTC is completely possible.

[broast]

Is there currently new and previously not knowable information regarding its utility compared to when the price was going up?

[scotty79]

So you don't believe that scarcity can capture and hold any value? Only utility can do that?

[marvin]

Your tulip futures from 1637 would still be out of the money, even though global tulip consumption is much, much higher and the Netherlands is the world's leading supplier.

[andirk]

Finally! It took this many comments for someone to show, via the age-old tulip example, they know nothing about crypto except that there is hype around it. And thank you for adding the date to show you read the top of a Wikipedia article.

[NicoJuicy]

Evidence of history?

It took COVID to get Bitcoin back up. That's it

Not history, just a rare event.

No one cares about Bitcoin anymore.

[BlueTemplar]

You seem to have forgotten the other... IIRC 3 (?) times it has gotten back up ?

(But feel free to short bitcoin of course - not the kind of risk I would take.)

[mancerayder]

Almost every speculative asset was up then, capital was desperate to go anywhere as borrowing was cheap and savings rates were high.

[Tepix]

If you assume that Tether is going down, BTC will crash, too.

[bagacrap]

Since October 12 it has been going up at an annualized ~30% rate.

Where it goes next is anybody's guess.

[csomar]

I don’t get how everyone misses this part. Assuming counter-party risk is 0. This is still not a risk free trade by any mean, even if Tether collapses at certain point in the future.

At such high interest rates, you need to close the deal soon otherwise you are bleeding your capital really fast. The interest compounding also means you are losing your money in a compounding fashion.

If the author started shorting Tether 5-6 years they’d never turn cashflow positive and they’d be nearing bankruptcy where they lose all their monies.

[williamsmj]

They are investing $250. The author realizes that this is not a great trade. It’s a proof of concept.

[SilasX]

Did we ... need proof of this concept? Here's a thread just on this forum, from over a year ago, explaining exactly how to short Tether via the trade the author is "proving":

https://news.ycombinator.com/item?id=28796356

[iamben]

My take was this is less about proving a concept and more a nerdy/amusing/I don't mind losing money way of saying "I strongly believe Tether is a house if cards that will blow over at some point".

Hence the last line - "for the eventual pleasure of saying “I told you so”."

[danuker]

> the traditional 7% per year

Which is actually 10% if you include dividends. But it's about 6.56% if you adjust for inflation.

https://totalrealreturns.com/

[nlittlepoole]

I partake in this trade. There are other DeFi markets than Aave with better rates (6% to 9% range) for borrowing Tether. I also don't only use one market or one chain to hedge a bit smart contract risk. I also didn't sell Tether and just hold cash. Maxing out my I Bonds allocation and then buying treasuries has offset the interest on Tether such that I've been slightly net positive for the last 18 months on my position. This is all gambling money, no money I actually need day to day is tied up in this and my retirement/savings are invested an a traditional portfolio of stocks/bonds/real estate.

[SilasX]

Even Aave itself has better rates -- the figure the author is quoting is from the the platform's option to lock in a fixed rate for your loan. Currently you can lock in 12.24% [1], but you can also borrow at the variable rate, starting at 3.15%.

Now, that does subject you to uncontrollable variation, but if you look at the chart, it's historically stayed at a very low level. Even the occasional spike you see is only for a day or two and has little impact on the annual average. [2]

Furthermore, the whole time, you're getting credited for interest accrued on your collateral. (1.18% on the USDC here -- so, all in all about a 2% annual carrying cost, not a bit issue if you think the crypto market are on borrowed time!)

"But what about the case where USDT borrowing surges and you have a persistent high rate?"

If that happens at all, it's probably because everyone else is dumping Tether, meaning its price is probably falling, and it's a great time to close the short anyway!

[1] https://app.aave.com/reserve-overview/?underlyingAsset=0xdac...

[2] People often miss that "omg high interest rate" for a few days translates into a very little expense in absolute terms. It was especially bad when banks were complaining about having to do one-off overnight loans on a very temporary basis for 4% rather than 2%, supposedly meriting Fed intervention!

[robocat]

> People often miss that "omg high interest rate" for a few days translates into a very little expense in absolute terms

That is assuming crypto rates are like USD bank rates.

Do you know any structural reason the rates can’t spike to a Megapercent (annualised) rate or higher? If you are being charged interest, and the rate spikes, you could lose your collateral quite quickly (and it seems likely trading would be stopped so you might not even be able to close out).

[SilasX]

Yes, I do -- you can look at how the borrow rate varies with the fraction of available tokens borrowed, e.g.:

https://compound.finance/markets/USDT

It saturates at a pretty low level.

I have no idea what you mean by the expression "like USD bank rates" though. Fixed? (bank rates aren't that, necessarily)

[aeternum]

Why do you believe that Tether is investing in riskier assets than treasuries and equivalents? With so much capital, and all the scrutiny they've had for many years and throughout many cycles it seems incredibly foolish to do anything else.

Tether effectively has a risk-free golden goose, it seems quite foolish to slaughter it in an attempt to gain slightly more alpha.

[chollida1]

> Why do you believe that Tether is investing in riskier assets than treasuries and equivalents?

That's easy. I can assume US treasuries will be here in 3 month, or a year or 10 years, and almost everyone will agree with me.

Almost no one would agree with close to 100% certainty that Tether will be here in 10 years or a year or even 3 months.

[hiq]

1. doesn't this describe FTX just as well?

2. if they're not doing anything shady, how come they can't be more transparent than they are?

[loeg]

Sure but the author put less than $250 into this scheme and is not viewing it as an investment.

[arisAlexis]

Yes it’s a click bait exactly. Projects like a smart trade but not really since even OP thinks it isn’t. Weird.

[loeg]

It is not click bait. It’s a thoughtful discussion of the challenges of shorting Tether, and a personal anecdote about attempting to overcome those difficulties.

[arisAlexis]

It is a click bait because the articles goes: Shorting Tether is a great idea and ends with ah actually it’s not a good idea , expensive so I put 200 eur in something with extreme risk to short it. Yes, it is click bait