I've been following Tether for quite a long time. I have no absolute proof it is a scam but the writing is on the wall. Here are some facts.
- The current Market Cap of USDT is 34 Billion Dollars. It was 4B this time last year. Since the value is pegged this means there has been an influx of cash of 30 B into this shady company in the last year alone. Who invested this money? We have no idea since Tether doesn't disclose, but we're supposed to believe all this money entered USDT even with the red flags we see.
- There's a correlation between Tether printing new USDT and the Bitcoin Price.
- There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.
- Daily volume of transaction is in the 100 B mark. Twice that of Bitcoin and 3 times Tether daily volume this time last year.
- BitFinex is included in the NY decision because it's proven now that Bitfinex and Tether are operated by the same people. Note that a few years ago this was not only undisclosed but actively denied by Tether.
- Tether initially told its investors it was 100% backed by dollar reserves and that it would be subjected to constant audits. The audits never happened, and they eventually conceded only ~70% was backed by "short term cash reserves".
My conclusion is that the folks at BitFinex came up with a new currency, printed billions of it and used it to wash trade against itself and other crypto, creating an artificial demand that drove the prices up. It's textbook Ponzi scheme and will inevitably come crashing down, killing Tether, BitFinex and a chunk of the Crypto Market.
Crypto folks will counter argue that people has been saying this for years but Tether is still chugging along and crypto is healthier than ever.
Personally I won't touch any crypto with a 10 foot pole until this thing blows over. If that means missing out on a lot of possible gains so be it.
It appears from the link in the settlement agreement:
https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
Tether wasn’t backed at all times. The argument was that this happened due to asset seizures in Poland and Portugal in 2017-2018.
https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...
Seems to me they couldn’t prove malicious intent, so they suggested they stop trading. Frankly this seems a bit of a click-bait title with the whole “illegal activities”.
Sure, tether wasn’t backed at all times (probably is now), due to governments seizing their funds. Also banks do this all the time, every time they issue a loan for instance. The bank only keeps 10-30% collateral on your home.
> (probably is now)
This kind of argumentation makes cryptocurrency proponents so insufferable. There’s no evidence Tether is backed, but somehow we can just assume in a parenthesis that they probably are, and then go on a tangential rant about banks or fiat or digital gold or something.
Exactly.
We've traded confidence in centralized, old world financial institutions, for decentralized, techno-utopian...financial institutions.
Same s**, different marketing.
At least banks have to operate within the realities of regulations and legal recourse. It’s not perfect, but it does provide a forcing function to make them think long and hard before doing anything that might be fraudulent.
Cryptocurrency proponents like to tout crypto’s ability to escape regulation as a good thing, while ignoring that the same property makes it a dream come true for financial fraud schemes.
Nothing about Tether or Bitfinex is decentralized.
> makes cryptocurrency proponents so insufferable
Tether is not a cryptocurrency.
It's a cargo cult: A plain old centralized system which got the word "cryptocurrency" slapped onto it to attract dumb money.
That is beside the point: "(probably now)" is an entirely fanciful and blatantly self-serving attempt by a cryptocoin proponent to avoid the very real problem Tether poses for Bitcoin.
Tether is Tether. Bitcoin is Bitcoin. The fact that exchanges exist which allow you to trade one for the other does not make them the same kind of thing.
No one would care how many Bitcoin they had without an exchange rate.
Tether printing is a convenient way to inflate the exchange rate. Remove Tether printing and the exchange rate falls.
As long as people talk about Bitcoin in terms of the exchange rate, Tether and Bitcoin are deeply connected.
That assumes that Tether is being honest and not printing unbacked coins to drive the price up.
So, no, it would still tank the price, because the price is quite likely inflated through fraud.
If I could buy tulips on cryptoexchanges with freshly printed Tether, I could bid the price of tulips up. If the majority of tulip trades took place on crypto exchanges and much of that was bidding the price up with newly printed Tether, tulips would be exactly as useful as before, but cost a lot more. As such, if Tether were to collapse, people's bulbs would be worth a lot less. Tulips would still be tulips, but they'd be part of a Tether bubble.
Remind me, what percentage of Bitcoin trades happens in Tether, again?
Seems logical they would given the investigations and the reason they supposedly didn’t have the funds at the time. I don’t think tether is necessary or a good idea, simply stating what I see.
Frankly, the AG admitted it was backed, just not “the entire time”.
> Frankly, the AG admitted it was backed, just not “the entire time”.
The AG did not. Certainly not completely, nor to the extent that Tether claims that it is. The AG merely acknowledged that Tether had some portion of the funds it claimed to.
>This kind of argumentation makes cryptocurrency proponents so insufferable. There’s no evidence Tether is backed, but somehow we can just assume in a parenthesis that they probably are, and then go on a tangential rant about banks or fiat or digital gold or something.
Ah yes, because all cryptocurrency proponents are pro-tether.
The comment you're responding to isn't implying they are. It's implying a larger issue: that claims are often made by cryptocurrency proponents without any evidence to back them.
You can take redemption from tether and they will wire you the money, they are in fact registered and regulated. on several exchanges it can be exchanged into fiat, for smaller participant.s
It would collapse a long time ago, if it weren't backed.
Heh. I just made another comment saying that Tether is not like Madoff, so of course I now need to make one comparing Tether to Madoff.
Bernard L. Madoff Investment Securities was also registered and regulated, and also had to wire people their money when asked. Even though they didn't actually have all the assets they said they did. He was able to keep it up for 3 or 4 decades.
It will only collapse if outflows exceed inflows for long enough to deplete their supply of assets. Which is something that is unlikely to happen for as long as this Bitcoin rocket keeps racing toward the moon.
Was Madoff also subpoenaed by the NYAG who investigated and announced there was no fraud and settled for a trivial amount?
I've tried, six months on they are still stringing me along saying we'll get back to you.
As far as I know tether only allowed a few crypto "king makers" to redeem tether, and even then, only at a very small scale.
"A market currently exists, is currently liquid, and currently trades 1 USDT:1 USD" is not a universal truth that will hold in perpetuity.
You very specifically claimed "You can take redemption from tether and they will wire you the money".
There is no evidence that this is the case. Tether sure doesn't offer such a service openly.
That isn't a redemption.
Redemption means I give the tether corporation some tether and they burn that tether and hand me back USD.
> You can take redemption from tether and they will wire you the money
Tether says they will. Has anyone successfully done this?
> on several exchanges it can be exchanged into fiat, for smaller participant.s
No one says you can't trade USDT. But that requires a counterparty, and if it turns out that Tether is mostly backed by air they may evaporate as well.
I'm surprised that you read a settlement narrowly focused on activities in 2017-2018 and apply it to today.
Tether was nearing a lifetime market cap of two billion when investigated. Their "100% backed!" claim at two billion turned out to be 13.8% backed.
They printed two billion USDT over the course of six days earlier this month. Wonder how backed that is.
Please name the regulators you think have verified Tether's backing. And once you've listed them, please explain why even though they missed the specific points at which the NYAG has proved Tether was not fully backed, you still think they can be trusted.
(I ask only for my own entertainment, of course. If Tether were actually backed, they'd publish regular third-party audits from a responsible accountant. Anybody thinking it's backed is a fantasist that could make Baron Munchausen seem resonable.)
> Sure, tether wasn’t backed at all times (probably is now),
Even Tether admitted that they weren’t backed by funds, and that was before they printed most of their current supply: https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...
I don’t understand why anyone would be in a rush to take them at their word when every new piece of evidence demonstrates that Tether’s operators are not interested in behaving honestly.
> Also banks do this all the time, every time they issue a loan for instance. The bank only keeps 10-30% collateral on your home.
Fractional reserve banking doesn’t mean banks can simply print more money than they have on the books.
Regardless, if a bank loses funds due to fraud or government intervention or whatever, they can’t simply continue pretending they had the money all along.
I don’t understand the desire to pretend that what Tether is doing is normal or good for the crypto community. It’s not.
I think it has a pretty simple explanation. The crypto community started with a few dedicated idealists. But it quickly attracted loons, fantasists, scammers, and get-rich-quick dreamers, along with some reasonable people interested in the hype.
Over time, as the space has produced almost no actual utility and generated billions in theft, fraud, and losses, the reasonable people generally got out, often with fingers burned. A few idealists remain. But by now the dominant group are the people low on sense and scruples who are hoping to Make Money Fast, so anything that keeps the industry aloft is great by them.
That's how bubbles work, alas. The dot-com bubble was less extreme, but still at the end there was all sorts chicanery that made no sense to a vaguely rational actor. We saw it again in the mortgage bubble. There was one bank CEO who stayed out of the more dubious mortgages; when questioned, he said, "If something grows too fast, it's a weed." But there were plenty of hucksters saying that everything was normal and good.
The good news is that bubbles eventually pop. I loved the post dot-com bubble period! Most of the MBA-holding locusts who had rushed in went away again. I hope the people truly interested in digital financial innovation enjoy a similar period of quiet soon.
> so anything that keeps the industry aloft is great by them.
Bingo. Tether being less than 100% backed isn't a surprise. Heck, they've admitted it publicly for over a year now - this is, however, the first time we've seen how big the gap truly is.
But the peg is still holding, which means that
1) the market had already priced in the risk of USDT being 14% rather than 100% backed, or
2) the market for USD:USDT is not rational.
The issue is that if it isn’t backed they can print more at any time. But they claim it is backed to avoid inflation devaluation of the currency. Banks are not lower to print currency but tether can at any time. The potential for fraud sufrounding tether is huge and no one is checking over them. Do you trust them? They are already known for lying. This is why banking regulations exist.
> The issue is that if it isn’t backed they can print more at any time.
That’s how all banking works. China, for instance, never even publish how much money they click into existence.
Not saying it’s correct, just explaining how the system really works. They really do “create” money. Even synthetic shares are created on the stock market (largely when creating ETF blocks), see “naked shorts”. It happens all the time.
Here’s an explanation on how banking & interest work in a digestible way: http://anuparty.org/on-interest-slavery/
Tether isn't a bank. It's a stable coin supposed to be backed by real dollars. But that's of course not the case in practice.
If they're backed then they can prove it with an audit. Considering their last auditor told them to kick rocks, I'm highly skeptical.
I thought it hilarious that 1) Bitfinex/Tether (when they were still pretending they were two completely unrelated entities, remember that?) thought that handing an auditor the front summary page of a bank account would be sufficient to 'verify holdings', and 2) when they told the public they had another audit done, but were unable to release it because it would be in Mandarin...
> probably is now
Here are the facts we know about Tether being backed:
1. They used to say they were backed 1 to 1 by cash.
2. This was a direct lie.
3. They now say they are backed 1 to 1 by cash and "cash equivalents", not otherwise specified.
Which one of these facts is it that you are basing your claim that they "probably are now" on?
3. "... while printing multiple billions a week."
> Sure, tether wasn’t backed at all times (probably is now), due to governments seizing their funds. Also banks do this all the time, every time they issue a loan for instance. The bank only keeps 10-30% collateral on your home.
Exactly. Tether has made no claims about the quality of the collateral they use to back Tethers, so they can probably get away with some very questionable accounting. Anyone who actually has skin in the game understands this about Tether. If you want to take the risk, go right ahead. I've traded at least $50M in notional volume over the past 3 years and never, not once, have I touched Tether.
You’re ignoring the systemic issues that come from having Tether printing drive the price action.
You may not have touched Tether, but Tether’s influence on asset prices can’t be understated. You are at risk by trading assets that are inflated by Tether.
These things aren’t uncoupled.
The entire point of the tether was that it was backed 1:1 by US Dollars. Later they asserted that it was 0.75:1.
The bank doesn't lie about it's capitalization.
Is this the first official ruling on tether that shows it isn’t backed 1:1 by the US dollar?
That has long been speculated, but if this is the first official verification how does that affect the Market.
Especially the self dealing of Bitfinex.
Tether themselves essentially admitted that it wasn’t fully backed in 2019: https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...
The strangest part of the Tether story is how much of it was obvious or even out in the open. Cryptocurrency proponents were happy to look the other way as long as prices were only going up. I suspect cryptocurrency proponents and Bitfinex are working hard to spin this as a win for Tether right.
Getting rid of the fraud (tether) at the core of btc will strengthen btc. This cryptocurrency proponents should be all for it.
I have honestly been surprised how long this obvious tether saga has gone on.
This is only true if we accept your unstated premise that BTC itself isn't a big ole Ponzi scheme.
I guess we could argue, "It's good news for our slightly more subtle fraud if the blatant, obvious fraud gets stamped out."
Sort of. There are many many people hyping Bitcoin (and various bitcoin-adjacent projects: mining rigs, wallets, dodgy unregulated exchanges, etc.), and most of them have a vested financial interest in it.
BTC didn't get to the price it is today on the backs of a few cypherpunks experimenting with decentralized digital currency technology.
> but it's certainly no more a fraud than Beanie Babies or tulip bulbs
Did their bubbles also last 12 years, went through multiple bear/bull markets?
might strengthen it but not it’s price
no the strangest thing isn't how it was out in the open - that's precisely how to get away with fraud...the message and the reality aren't the same but the message is pumped into echo chamber
This isn't a "ruling" at all. The parties just reached a settlement agreement and Bitfinex/Tether did not admit any wrongdoing.
The market doesn't care. Hasn't cared for years now, just look at the Kraken USDT/USD market which is freely tradable. Tethers are mostly backed by USD - no 100% but that's because some funds were seized due to regulatory scrutiny, not because they disappeared.
I am not sure why I should trust kraken, but even if I trusted them completely, this only proves tether has enough liquidity to maintain their peg, not that they are "mostly backed." That is to say, it only puts a relatively small bound on their reserve ratio.
I'm not convinced your argument works. Bubbles exist until they suddenly don't.
This isn't a strong argument that it's a bubble, but the burden of proof is solidly on the tether folks to show that they're 100% backed, not the other way around.
I'm not arguing - I'm making a statement. It's evident from market prices that investors don't care. Whether the market should care is another discussion but the parent asked about the market's reaction.
Honestly, this is kind of a nothingburger. The press release seems to merely reinforce what was an open secret in the cryptocurrency world, which is that Bitfinex and Tether have played fast and loose with whatever reserves they received for their Tether issuance. Which is, of course, utterly unremarkable to anyone who knows anything about how financial sausage is really made.
Bitfinex and Tether are shady. Caveat emptor, and carry on hodling.
It’s more important than that. Cryptocurrency proponents have been trying to downplay the Tether situation for years.
One of the common dismissals was the idea that if what Tether was doing was truly fraudulent, some government institution would step in to intervene. Proponents pointed to the lack of intervention as a signal that Tether was operating above board.
This also reveals new facts and numbers about the scale of what has been going on. We still don’t know the full story, but it’s clear that reality is even worse than we thought.
I don't disagree that Tether is likely a big fraud, but my point is that even the regulated financial system is full of questionable accounting and long-running, undiscovered fraud. Remember Bernie Madoff? His fraud lasted 17 years before falling apart.
It would be nice if Tether eventually falls apart too, but the world will never run out of fraudsters and hucksters.
Bernie Madoff's fraud was big and awful, but, if the allegations about Tether are true, then (edit: for the purposes of this particular discussion) comparing the two is a category error. Madoff's fraud never raised any questions about whether the exchange rate between USD and some other currency was legitimate.
The innovation of Bitcoin is that it is a decentralized Ponzi scheme.
Bernie Madoff's scheme fell apart because it was centralized, and so, once you arrested Madoff, it was over. The end.
There's no one at the center of Bitcoin. There are big players, sure, but they are all replaceable. It's happened before and it will happen again. And each time one exchange or big player is arrested, shut down, or slinks away having stolen enough money to sate themselves, someone new can seamlessly slip in and start hyping Bitcoin and taking a percentage from the new rubes without missing a beat.
I honestly don't think it will ever go away, completely, for good, no matter how often it booms and busts. When I'm in a nursing home I'm going to be getting calls from boiler rooms trying to convince me to move my retirement savings into Bitcoin, I'm convinced.
Wombats poop cubes -- they stack them to mark their territory.
I did not see any data in that post that is new. The latest news this-year is that Tether paid-off the remaining balances of borrows/loans from other asset classes to make the USD holdings whole. The only way to tell is an independent 3rd-party audit, which would bring some finality to this discussion.
This is not "utterly unremarkable". Rational investors don't buy investments whose very basis is a lie. It's only unremarkable to cryptocurrency gamblers who've already accepted everything they're doing is a slow motion scam.
Considering the meteoric rise of BTC is tied so deeply to Tether issuances, it sounds an awful lot like you’re trying to convince us the emperor really has clothes.
> Considering the meteoric rise of BTC is tied so deeply to Tether issuances
Got evidence for that? Because printing USDT after BTC went up is not a manipulation, but a liquidity boost.
Let's not forget that USDT isn't the only stablecoin in town, it's ratio is actually decreasing, all the way from 3k to 50k.
As a matter of fact,
Correlation is not causation. And your mental model of how the cryptocurrency markets work is likely way too simplistic--did you know that cryptocurrency perpetual swap derivatives clear over $350B in daily volume?
Pretend for a moment that Tether pulls a Nixon, and closes the "dollar window" ending redeemability. Then what would be the difference between Tether and e.g. the BitMEX XBTUSD perpetual swap contract? Just think about it for a while.
Ending redeemability? Can you redeem a tether for a USD today?
Sorry, trading it for a dollar isn't the same as redeeming it for a dollar.
Editing my response because OP has edited theirs- putting my original comment out of context.
Go read more economics. And maybe trade some financial derivatives, lose some real money and see how that sharpens your mind.
If they are shady, then it's high time to employ and enforce regulations - if they can't regulate themselves, then someone else has to.
Arguing that this is old news, and that a small minority has been "in the know" doesn't hold much water either - the crypto scene has long since become mainstream, and as such, attracted regular masses.
In the end, it boils down to consumer protection.
"Contrary to online speculation, there was no finding that Tether ever issued tethers [USDT] without backing, or to manipulate crypto prices"
I hope that ends the spreading of FUD - claiming that bitcoin and other cryptos are propped up by the printing of fake tethers - which seems to spread here every time there is a sharp rise in prices.
Read the settlement agreement: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
Page 4 of the agreement:
> 20. Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.
That's 14% of the cash required to back the issued Tether.
"there was no finding" means that they did not show that that happened, not that they showed it didn't. You're reading something into that quote it very carefully does not say.
This lawsuit only covers up to 2019, when the Tether supply was only a fraction of what it is now.
It shows that Tether had no desire to correct the situation with the unbacked Tethers. Why does it matter why the Tethers were unbacked? The fact is that they were unbacked and Tether continued operating as if they were.
Why would anyone trust an institution that has already demonstrated they don’t care about backing and, moreover, that they’d rather hide that fact as much as possible until forced to reveal it.
Where is that quote from? I don't see it in the linked article
https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...
> Jason Weinstein, a partner at Steptoe & Johnson and counsel to Bitfinex and Tether
Ahh, so their attorney said something nicely carefully worded, intended to imply to the lay person: "There was no specific finding that allegation X had absolutely occurred, so this shows that all along, allegation X has never occurred".
Noted unbiased participant "the defendants attorney" has been quoted in a pro-Bitcoin publication ;)
I think you are reading too much into it. That's just how the justice system works. You don't have to prove your innocence, you have to prove someone's guilty.
So there are 34B outstanding USDT right now. In the documents I see talk about some 850M USD is missing. Are all the other ≈ 33B USDT backed?
Will we only know that on the first report they obliged to do each quarter? Will those reports be made public?
I'm confused what to make of this.
The most damning detail I've seen comes from US treasury TIC reports, which fail to reveal matching bond ownership inflow to the country that is the reputed host of Tether's segregated bank account.
It is possible that Tether holds funds in some kind of strange non-interest-bearing account, but that seems highly unlikely. Another possibility is that the primary bank is actually a wrapper around some overseas correspondent bank where the funds are really held.
Occam's razor: a company selling a 1:1 hedged coin should have absolutely no difficulty whatsoever proving on a daily or hourly basis that all coins are verifiably fully hedged. It should literally be the company's prime directive, and in this particular case, especially following the endless stream of controversy. The fact they haven't managed to convincingly achieve this even once in 7 years is all I need to know.
The whole thing stinks terribly. Good luck for those who invest in it, but I'll be there if/when it blows up to quietly feel smug about it all
The NYAG investigation is about what happened up to 2019 or so. What has happened since (which includes printing 33 of those 34 billion) is a separate matter, and NYAG is basically saying it's irrelevant because nobody in NY should be able to use Tether/Bitfinex anymore.
What's confusing is that in addition to the slap on the wrist of 18.5m and the prohibition for BitFinex to operate in NY, it is written:
"agreement with iFinex, Tether, and their related entities will require them to cease any further trading activity with New Yorkers, as well as force the companies to pay $18.5 million in penalties, in addition to requiring a number of steps to increase transparency."
What are these steps to "increase transparency"? On activities related to these 850m or on the 33 bn+ printed since then?
To benefit whom? New Yorkers cannot use BitFinex anymore. If it's now irrelevant to the NYAG because from NY's point of view BitFinex is out, why ask for "a number of steps to increase transparency"?
The minting of tether accelerated in 2020 and continues in to 2021 including one week alone where $2B was minted.
https://www.coindesk.com/tether-mints-record-2b-usdt-in-one-...
Feels like the NYAG preferred to take an easy win over fully exposing the fraudulent scheme. But I guess in the grand scheme of things it's better to get $18M for state coffers now than be another bag holder when Tether inevitably combusts.
This particular lawsuit started in 2019 and was narrowly scoped. They don’t have infinite jurisdiction over Tether’s global operations.
"Contrary to online speculation, there was no finding that Tether ever issued tethers [USDT] without backing, or to manipulate crypto prices," said Weinstein, a former federal prosecutor. [0]
[0] https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...
EDIT: For some reason I'm being downvoted, but I'm genuinely curious to understand why this news is being simultaneously interpreted in two opposite ways.
Huh? The NYAG press release literally says: "Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie."
Edit: The difference between the two statements is that Tether can still be "backed" by something other than USD, notably crypto. And the PR is silent on what exactly Tether is backed by. This saga isn't over yet.
I'm also confused by the contradicting news. CryptoTwitter (and the markets) reacted enthusiastically...
Those two quotes aren't necessarily contradictory, they're about different timings. Tether could have been fully backed when issuing new tethers, and stopped issuing tethers during period(s) when it wasn't fully backed.
When was the last time CryptoTwitter didn’t try to spin something as good for Bitcoin?
Read the settlement agreement: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
Page 4 of the agreement:
> 20. Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.
That's 14% of the cash required to back the issued Tether.
That's a really good point, this settlement is extremely favorable to Tether and Bitfinex. It's odd to see people persist in pinning Bitcoin's market performance on Tether issuance after reading this settlement from NYAG. Chunks of Tether collateral weren't fully liquid but my takeaway is that they operated on a genuine best-effort basis. As another comment put it, Tether definitely operated in a grey area legally - they hacked the system, but they're not the fraudsters some media, comments, or rumors made them out to be.
This settlement shows they operated as if Tether was fully backed and claimed Tether was fully backed when they knew it was not.
How it that extremely favorable?
If someone sells something they don’t have under false pretenses, that’s fraud. It’s not a simple liquidity issue.
The linked webpage is from the New York Attorney General's office and the quote you quoted is from one of BitFenix's lawyers.
That statement was made by their counsel, so it should probably be taken with a grain of salt.
I guess we'll know more in the next few hours.
From 2019:
https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...
"The USDT stablecoin is only about 74 percent backed by fiat equivalents as of April 30, says its issuer’s general counsel.
Tether, the company behind USDT, holds about $2.1 billion in cash and short-term securities, wrote its general counsel Stuart Hoegner in an affidavit Tuesday. Hoegner is also general counsel to Bitfinex, a crypto exchange which shares executives and has overlapping owners with Tether.
The two companies are at the heart of allegations by the New York Attorney General, who says Bitfinex borrowed more than $600 million from Tether after losing as much as $850 million to a currency converter."
Because the issue is this:
A "finding", in legal terms, is a specific, explicit statement with the supporting rationale behind it.
You can make statements in a legal document, even a settlement, without classifying them as "findings" (that have specific legal ramifications).
Indeed, the AG says in the documents that absolutely Tether did not always have backing. However, it doesn't address -issuance- without backing.
So the attorney for Tether is doing as attorneys do, making a carefully crafted statement that will paint a specific impression to the world, whilst being entirely aware (and maintaining plausible deniability) that he is artfully weaving through several other "inconvenient truths".
It also documents all their attempts to verify the peg required mixing funds with an exchange known to have a running $500m+ hole in their balance sheet
So even back in 2017, Tether was backed only by a fraction of USD.
>Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.
Wonder how much of the tether they pumped out through last year has been backed?
Nearly none I would guess... Which large company, investment firm or rich individual will wire Tether Inc millions of dollars in return for a promise from a bunch of people that look like arrest warrants will shortly be issued for them...
Do people here not realise that people give them bitcoin and other cryptocurrencies for that in exchange for tethers? If they were only a week late in converting it to USD they'd be up tens of billion in profit this year.
The lack of critical thinking and mindless mob mentality around tether is amusing and has been going on for years now. Proven wrong everytime.[1][2][3]
Even this announcement is dumb politiking that people seem to lap up. Bitfinex has banned US customers since 2017.[4]
[1] https://news.ycombinator.com/item?id=14934874
[2] https://news.ycombinator.com/item?id=16252365
[3] https://news.ycombinator.com/item?id=16182423
[4] https://www.coindesk.com/bitfinex-suspends-sale-select-ico-t...
> Do people here not realise that people give them bitcoin and other cryptocurrencies for that in exchange for tethers? If they were only a week late in converting it to USD they'd be up tens of billion in profit this year.
So they're speculating to cover their "1:1 Backing!", and relying on BTC still being hyped, like they said all along?
No, wait, hang on. They were the ones who said they received 1:1 USD inflow for each and every Tether printed.
Now you're like "mindless mob mentality!" while fully admitting that their claims all this were exactly as the mob said.
Tell me, what happens to Tether's ability to create backing out of BTC (or whatever) arbitrage and trading if and when BTC craters again?
> Bitfinex has banned US customers since 2017.
NY is still investigating and believes that Bitfinex has knowingly kept US customers while claiming that they don't.
And if they used made up tether to buy a bit of extra btc or a lot they would be even further ahead. The easily exploitable opportunities for fraud surrounding tether is huge. Bernie Madoff should be jealous.
A 145m sell just sent BTC down 13k. It's not so easy to just sell your ~30b worth of buttcoin.
If anything it's shocking that "we checked and it's all fraud" is seen as a win for crypto.
Where can you find data on sell volumes? This seems very material.
Something to note: they only had data from 2017 to 2019. Tether printed the majority of their coins in 2020/2021.
I bet they pinkie-swear those new coins are really really backed by dollars this time.
Settlement agreement available here: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
This news is so funny. Tether detractors see this as confirmation that they were right all along, while crypto currency fans say that this is confirmation that it was FUD all along. No bridges were built in this endeavour.
I like btc but in a declaring that tether is fraud isn’t about building bridges, it is about being correct. Getting rid of tether is the best way to legitimize btc. The sooner the better.
It is confusing why you care about bridges with regards to fraud. When was fraud related to consensus building activities? Huh?
I meant it as a figure of speech, in that the 2 parts can't see eye to eye. I care about the legitimacy of the space and I am not a big fan of these backed stable coins, because they can't be easily verified.
The same way the fascists and the democrats can't seem to unify?
Tether isn't decentralized but as it turns out users prefer convenience over ideology. This is pretty apparent from the rise of Binance.
If you want to blame anyone though it's probably the folks that have been working on layer 2 since 2017 but haven't delivered in a major way.
> Tether detractors see this... while crypto currency fans
Be reminded that the overlap in this venn diagram is enormous.
Absolutely! I’m part of that venn diagram and I am disappointed that there wasn’t more light shone on the whole thing.
No bridges need to be built, only people saved from losses and fraud.
Lots of dead bodies in this camp going back years. I used to be one myself. At this point if the ny ag can’t outright bring this supposed scam down then you have to admit it’s not a scam and move on.
What!? NYAG’s jurisdiction is New York. Tether and Bitfinex are barred from doing any business in New York or with New York entities. They went almost as far as they could go without criminal charges against the executives personally. The US justice system is not necessarily done with them.
Looks like Tether is taking the settlement as an agreement of no wrong doing and that no tether coins were issued without backing.
https://tether.to/tether-and-bitfinex-reach-settlement-with-...
They’re moving the goalposts.
The issue was that they didn’t have the money at some point, but they continued operating as if they did. I’d be even more concerned if they think this is okay now. Tether isn’t useful if they’re only backed at time of issue.
They also printed the majority of Tethers after this 2019 lawsuit.
LOL
"Contrary to online speculation, after two and half years there was no finding that Tether ever issued tethers without backing, or to manipulate crypto prices."
I like how they say "this report doesnt include wrong-doing" instead of saying "we didnt do anything wrong"
The price of bitcoin dropped substantially yesterday.
I wonder who was trading on this information before release...
It was always public information that this was coming out today or tomorrow.
Meanwhile, daily Tether volume is $170B. The entire crypto ecosystem is reliant upon the Tether scam.
no its not. that is bad data from no name exchanges lying about their volume
Ha. The exchange reporting the highest volume is... Bitfinex. I believe you that Bitfinex would lie.
Coinbase is reporting $210 billion daily volume.
Is every market lying? Or are you just personally wrong?
where on earth are you seeing coinbase doing $210 billion daily volume? Coinbase has only done 94 billion of volume for the month of February so far
monthly volumes by exchange: https://www.theblockcrypto.com/data/crypto-markets/spot/cryp...
ya that is wrong. not sure where coinbase is getting their data from.
keep in mind the total crypto market cap is 1.5 triilion. so tether alone doing 200b is an absurd statement. Total daily volume across all exchanges is only just getting to 50b these days
But Coinbase doesn't trade Tether. What is the point you are trying make here?
wait.. this seems contradictory to this -- https://www.theblockcrypto.com/post/95207/bitfinex-tether-ne...
This article doesn't make that much sense IMHO. You can read the settlement agreement for yourself here: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
Page 4 of the agreement:
> 20. Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal.
That's 14% of the cash required to back the issued Tether at the time.
I think I trust ag.ny.gov much more than theblockcrypto.com...
It suggests the latter is 100% made up news, possibly with the aim of market manipulation by sentiment bots who will be fooled for a few minutes until humans intervene.
I would also prefer to trust that source, however it is written as a press release. So they write it to make them look as positive as they can and stress the Bitfinex bad points. The blockcrypto article seems to indicate that the accounts were now balanced, but the ag.ny.gov makes no mention of it, which is expected if they are still trying to paint bitfinex as a wrongdoer, but calls into question their impartiality, so it becomes difficult to accept either at face value.
The settlement agreement[1] I suspect is a good middle ground.
It looks like the NYAG believes the loan from bitfinex to tether has now been repaid, but makes no claims about either having sufficient reserves to cover liabilities.
[1]: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
> I would also prefer to trust that source, however it is written as a press release. So they write it to make them look as positive as they can and stress the Bitfinex bad points.
Whereas theblockcrypto is quoting Bitfinex's counsel who is weasel wording over people's understanding of what a "finding" is at law?
> The blockcrypto article seems to indicate that the accounts were now balanced
Given that in 2019, Tether's lifetime holdings were $2.1B and even that was not fully backed, and they're now printing $3.5B a week, I'm intensely curious how they are comfortable drawing that conclusion.
I'm also very interested in the $18.5M number in the settlement...
It seems surprisingly small for someone who can't explain where $200M+ has gone to...
If I'm reading the settlement correctly, Bitfinex will now have even less USD to back Tethers, since they'll have to wire an $18,500,000 transfer to the State of New York.
Tether is over collateralized. If they paid that $18.5M from their collateral it would still be over collateralized by $145.9M https://wallet.tether.to/transparency
Tether claim to be over collateralized. This settlement contains numerous instances of Tether lying about their collateral situation. Why trust them without evidence at this point? They’re required to submit a report on their specific reserve holdings within 90 days. We’ll see then.
But if there are 34 billion tethers, $18 million is like a rounding error.
According to the agreement with NYAG Tether admitted no wrongdoing. The statement: https://tether.to/tether-and-bitfinex-reach-settlement-with-...
They also don’t deny wrongdoing. That’s frequently how settlements work even though it’s clear to anyone who reads the settlement findings that there was wrongdoing on Tether’s part.
Hopefully this isn't drowned out by all the crypto discussion.
How can NY require mandatory reporting on core business, if both entities are forbidden now to transact with New Yorkers? How would this even be enforceable? "Sorry, we don't do business in your state."
> How can NY require mandatory reporting on core business, if both entities are forbidden now to transact with New Yorkers?
They can because that's the term the firms agreed to to settle the investigation and avoid a suit over misconduct identified by the OAG.
> How would this even be enforceable?
The OAG takes the firms back to court for violating the settlement agreement, which can include filing charges for any misconduct preceding and covered by the agreement, for which the statute of limitations is suspended by the agreement.
> "Sorry, we don't do business in your state."
That...doesn't help them at all.
I'm so confused why everyone just blindly believes Tether is this whole big conspiracy. I am by no means defending the organization but let's just take a step back here:
> Where does the funding come from to print tether?
When they mint 1 Tether they sell it on an exchange for $1. They don't need anyone to upfront lock up $1 and then also sell it for $1...
Are stablecoins not just essentially an interest free loan to the minter? That's why hundreds of them are popping up all over the place. Minters can go invest that money however conservatively they want and just rack up free interest on billions. Why the hell would they NOT print more if there is demand. Consequently, why the hell would they need to participate in any illegal activity when the can print interest free loans whenever they want?
Yes, ideally you'd prefer someone with this position to be overcollatorized and not simply ensure $1 = 1 tether. But that is the risk you take holding that stablecoin. Pick up DAI if you want an overcollatorized asset.
I just don't see the incentive for some of the other arguments out there - many imply they are just printing it and selling it for $0 I guess? Or is the argument they just siphon the money to another organization? Because that would be a more valid concern. There just seems to be this assumption that somehow someone is fronting or magically creating value from nothing. No, the market is by buying newly minted Tether on exchanges. That's where the funding comes from. How is this not obvious?
There is probably a lot more depth to this topic than I am aware of, but some of the top upvoted comments here just seem to be spewing nonsense.
tldr; If a stablecoin minter sells a newly minted coin for $1...then by definition there is now $1 available to back that coin. Stop conspiring where the funds are coming from. The worry should be how they are investing said collateral backing the coins from there.
> When they mint 1 Tether they sell it on an exchange for $1. They don't need anyone to upfront lock up $1 and then also sell it for $1...
According to the argument against Tether, your first principal here is wrong. In this argument, Tether mints a USDT and trades with someone who has bitcoin or other crypto and wants a stablecoin. What the trader believes they are getting is a coin which is 1:1 backed by USD. In this situation, it is not.
Tether gets bitcoin. Tether can then print more USDT which they trade for bitcoin at a higher price. They would then have an infinite money cheat for buying crypto assets (as long as people believe a USDT = $1) which enables them to drive the price of crypto upward.
Tether claims that the pattern is "Someone gives us USD, we give them Tether, they trade for whatever they want", this was provably false at some points in time.
I think that does help clarify, but I'd say it also aligns with the point I was trying to make in some important ways. They are trading one USDT for $1 of value. If they keep that capitol invested in BTC and do hold only 1:1 in collatoral...no shit, that's is pretty damn reckless BUT they are making the promise that they have the capitol to back it. Given the exponential rise in BTC again this last year I'd be inclined to agree with them for now.
Claims that this process inflates the process of BTC seem far to exaggerated. It's reallocating value that was already there. Firstly, someone has to sell the BTC in order to buy the Tether with it so that argument is somewhat of a moot point. And if they are selling the BTC for USD or other fiat it's actually increasing the sell pressure of BTC against said fiat. It might open the opportunity for trades/swaps which could drive the price either direction faster...but it doesn't make value out of thin air.
I'm not saying Tether is not responsible for poorly investing or protecting the collateral that backs their coin. I'm just saying I can't compute the claims that this is some sort of manipulation scheme. The concept is exactly the same as decentralized stable coins like DAI except the backer is a centralized entity and not a contract. Does me minting DAI magically pump the value of ETH because that is the coin I put up as collateral? No that's a ridiculous claim. I can however feel comfortable holding DAI knowing that the contract will enforce the value of the token no matter the price of the ETH backing it.
> but it doesn't make value out of thin air
You are right, but it can drive the price. Imagine you have an infinite supply of USDT and are deeply in debt, people currently believe the USDT are backed by $1. You are incentivized to create USDT, trade for Bitcoin/crypto and then, since you are also an exchange, create fake trading volume with yourself to drive the price up (it costs you nothing, just some fake $0 USDT!), which drives people to get in with real money.
Do you not see how the incentives here are for Bitfinex and Tether to behave terribly?
I think it is worth noting that I am pro-cryptocurrency and want alternatives to government backed fiat to exist, but to do that the whole industry needs to operate on solid, transparent foundations. People choosing to trust companies that have lied to them repeatedly is an enabling behavior that will result in more scammers and, eventually, regulators.
"Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market."
The word "itself" is doing heavy duty in this sentence. Was there another entity holding dollars in this period? Did Tether issue USDT without a corresponding inflow of USD? We don't know. One would hope that the transparency agreement actually answers these questions for its future operations. It's those questions that matter, after all, not Ms. Letitia James' "efforts".
Have no idea why ycombinator is so salty towards anything crypto.
Yes, tether was wrong when they said USDT was backed by “US Dollars”. But, the conclusion is USDT is backed by something, the likes of which is probably a fractional reserve.
Case is resolved, with Tether admitting no fault.
"Backed by something"! It sounds so reassuring when you phrase it that way.
That was the conclusion of the AG.
Case is moot. Tether is definitely sketch, but it’s not this massive money laundering/conspiracy HN thinks it is.
"Partially backed by something" was indeed one of the conclusions of the AG in this limited scope investigation.
Meanwhile, Tether is, was, claiming "Fully backed by USD!". And yet you are acting like the AG was supportive of Tether's claims, "Oh, yes, even the AG says so!"
It's pretty amusing in the context of YC specifically, and less so HN, given that Coinbase is very likely to become the most valuable YC company to date.
Are there any other active government investigations of Tether/iFinex that we know about?
The hypocrisy. Tether was pushed to the "darkest corners of the financial system" *because* of regulators. It seems they tried their best to remain solvent and didn't steal cash reserves. But regulators made their life hard at every turn. If you care about protecting USDT holders, maybe stop interfering with their operations and stop seizing their funds? And now, they have to submit regular reports to the NY regulators while being banned from doing any business in NY? I doubt many USDT holders are very happy today about the NYAG's attempts to protect them.
From the article:
> Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General James. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie
Are you claiming this is false and they paid the 18.5m penalty for not lying about USD reserves?
Part of their USD reserves were frozen by regulators in Poland and Portugal. It is debatable whether having funds frozen by regulators can be de accurately described as sustaining "massive financial losses". Sure, they could have been more transparent about what was going on. But so far, it seems that all their issues originate from regulators making it impossible for them to run a legitimate business, not fraudulent intentions (which is what they are often accused of).
Your statements don't align with the claims in the article. It says they lost (as in, "where is it") almost a billion dollars and said they still had it, while knowing they didn't.
Bad situation but honest: Legal. Bad situation but dishonest: Illegal.
The announcement by the Attorney General is quite biased and doesn't tell the full story. For a better understanding, I invite you to read the official settlement agreement[0] and Tether's (obviously biased) take on it[1]. It seems that Bitfinex funds were frozen by government agencies and that Tether temporarily provided a line of credit to Bitfinex while awaiting for the funds to be released. The line of credit was repaid in full as of January 2021, according to the settlement.
I'm not saying Bitfinex/Tether acted irreproachably, they surely could have been a bit more transparent about what was going on. But I have some empathy for them. They wouldn't have been put in that difficult situation if it weren't for the insanely restrictive regulatory environment that made it impossible for them to obtain banking relationships.
[0] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
[1] https://tether.to/tether-and-bitfinex-reach-settlement-with-...
New Yorkers haven't been allowed to trade on Bitfinex since 2017. That's when they updated their terms to discriminate against US entities. If US persons are illegally and fraudulently trading on Bitfinex, that does not give any US authority jurisdiction over Bitfinex. How grandiose.
usdt/usd market at kraken holding at ~$1 https://cryptowat.ch/charts/KRAKEN:USDT-USD
Does this mean that Tether is not buyable by NYers in Coinbase and Gemini?
Gemini offered/offers USDT?
Oh actually maybe only Coinbase
No, Coinbase has their own stable coin USDC.
This is the important part going forward:
"Tether must offer public disclosures, by category, of the assets backing tethers, including disclosure of any loans or receivables to or from affiliated entities. The companies will also provide greater transparency and mandatory reporting regarding the use of non-bank “payment processors” or other entities used to transmit client funds."
So from now on Tether must be backed 1:1 and provide transparency. This should severely limit the risk of Tether blowing up the crypto ecosystem.
Here we are again, with a steady stream of nocoiner comments validating their long held positions while bitcoin slowly marches ahead year after year.
Madoff’s fraud took decades to unravel, too. You’d have looked silly declining to invest there, until the collapse.
Madoff took in large sums of money, gave out little and lied about solvency. Tether is 1/30th the market cap of bitcoin, yet there is a magical belief (based on anonymous articles) that it's the primary source of price levitation.
If true, Grayscale would have this same power.
> Madoff took in large sums of money, gave out little and lied about solvency.
That's exactly what Tether has done?
Large sums? Check - tens of billions.
Gave out little? Check - https://cointelegraph.com/news/tether-explains-why-it-hasnt-....
Lied about solvency? They admit in this suit that they weren't 1:1 backed, despite asserting it on their website. They also claimed to be regularly audited, until they had to admit they'd never completed one. (Still haven't, to my knowledge?)
> USDC and possibly Libra will be excellent choices
Tether is scam and even use of Bitcoin looks unethical when you know that:
>> the power consumption of bitcoin is 160% times the energy use of Amazon, Google, Microsoft, Facebook and Apple all combined
So let's assume tether is a fraud. All they have to do is buy bitcoin with their cash received for tether and they are out of reach of us regulators. Is it Fraud or is it Genius? Yes.
"Junk" bonds seemed like an appropriate term for questionable bonds back in the 1980's... By the same logic, cryptocurrencies should be called Junk currencies
question for HN.
If tether has been so successful at avoiding scrutiny while also making money, why is it that we don't see more tethers?
It seems like a very easy way to make money.. given the authorities are asleep at the wheel ?
Well the issue is eventually if DOJ steps in and convicts the founders can all go to jail. Jail is a good deterrent.
It's weird that this has sent the price through the floor.
This is why I like Stellar Lumens. The exchange is built in!
This is how the US continues to lose to Asia.
Does it ever feel like the government is using the excuse of protecting the consumer, as a reason to shake down exchanges for tax purposes?
I'm waiting patiently for the whole Tether printing scheme to fall and crush to finally purchase Bitcoin / Ether. However I'm not viewing them as inflation hedges so long as Bitfinex / etc. are allowed to continue with their obvious money printing scheme.
When most crypto trading volume is traded at trustworthy exchanges which actually hold dollars as much as they say they do, I'll trust $/BTC to be a fair market.
It's dumb escaping from Powell's printing machine straight into Bitfinex tether printing machine. BTC isn't the hedge people think it is so long as it's traded against fictional dollars. Tether's volume exceeds Bitcoin, so that's the scale of fictional dollars supporting Bitcoin right now.
Cryptocurrency isn’t the only way to escape USD inflation. Investors have been investing to avoid inflation long before Bitcoin was invented.
Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. Inflation is an increase in asset prices, resulted in reduced buying power. You only need to invest in assets (stocks for example) and minimize holdings in cash if your goal is simply to avoid losing buying power of your cash. Cryptocurrency currently functions as a speculative instrument, not a stable store of value.
Cryptocurrency in general is only deflationary if we pretend only a single cryptocurrency exists and ignore all of the increasingly brazen financial instruments offered by exchanges. As it stands, the ever expanding list of crypto currencies, NFTs, crypto lending products, and new crypto currencies represents a general inflation in the cryptocurrency space.
On top of that, any asset for which demand comes mostly from being an "inflation hedge" is a bad inflation hedge since prices will rise when people want more inflation hedging and drop when they want less hedging, meaning the majority of people inflation hedging will buy high and sell low.
Gold has had that dynamic for a long time, which is one reason it is not considered a good investment most of the time. Buy assets that are productive and you will be much less subject to that. Real inflation hedges look like stockpiles of goods, inventory or production capacity thereof.
Could that make such inflation hedges a good pre-inflation hedge? For example buying gold with the expectation that people will soon want more hedging than they do now, though this relies on getting in earlier than others.
This is how derivatives trading (and speculation, and investing itself ultimately) works. It's all about mentalizing how others will trade.
The big question is to pick the optimal asset for hedging.
Yes, but at that point, you should just borrow money, and do something useful with it, because being in debt is a simple, straightforward inflation hedge.
So, just price speculation then?
This proven logic is drowned by people's instinct to follow the herd... and buy Bitcoin.
Stocks prices get negatively impacted by rising interest rates. With interest rates at ~0%, there's little money to be made in bonds, savings accounts, or anything that pays interest income, so people put money into stocks w/ the hope the stocks will go up. When interest rates go up to fight inflation, there's more incentive to put money into bond markets, which means there's not as much money going into stocks, which means stock prices don't go up as much. Housing prices also tend to go down as interests go up, as rising borrowing costs mean fewer funds are available for buying a home.
What’s your recommendation for least-worse inflation hedge?
I'd love to see someone try to sell yellowed 20-year old paper towels (with branding from 3 generations ago) after thinking they were hedging inflation.
Back in the roaring '20s Charles Ponzi came up with a way to theoretically make a profit trading postage stamps, and raised a lot of money from investors, although in fact he never actually bought the stamps, and instead invented the Ponzi scheme.
My wife is a lawyer and she buys a lot of stamps. Recently she stumbled onto some strange stamp firesale on Ebay and bought forever stamps at below face value. I could only guess that this was an unwinding of the trade you propose.
There's a quaint and quirky thing in the UK called a premium bond, which you can buy and which the government guarantees to buy back from you at its initial fixed value (1 bond costs 1 British pound). Every month, a lottery system pays out prizes to holders of bond numbers, as chosen by "ERNIE" - "Electronic Random Number Indicator Equipment".
This is not financial advice. This is just a reflection of knowledge that has kept all my long term investments stable or growing through every dip and shift in the last 25 years.
- Stable index funds are the best long term hedge. (Date targeted mutual funds have largely been doing very well in the last 15+ years too.) - Then consider LONG TERM materials investments. - Then consider Treasury Inflation Protected Securities. - Then consider property, as in real estate.
Actually personally I'd drop the materials at this point. It's easier to screw up materials investments and they're often in stable funds anyway.
This is all long term, you'll note. I would argue there are no true short term hedges. There are bets against the market and that's often what you see in "hedge funds" that go relatively short term. But if you're in that space, well, you probably shouldn't even be having this discussion on Hacker News. I'm sure I'll take flack for that reinterpretation but it's important to be honest about these things, and many make money in this space by eschewing that honesty.
But, your basic goal of keeping your money valuable long term is not a hard problem, it's literally a solved problem and it's what the S&P 500 & similar indexes and/or TIPS exist for. If you think you need to hedge against the fall of the US or at least the USD? I think you should be hedging outside the financial system entirely, go full prepper, because, that's where that fatalistic logic will take you ultimately anyway.
Actually, with less snark, it is always reasonable to keep moderate term survival in mind. An actual major financial meltdown would likely be survivable with minor prepper-like approach to long term food and water stores, especially if you own property. So maybe move property up on your list if you are in a position to own it outright, and bury some water and long term preserves there as a bonus?
Solar panels, water filtration, and indoor farming!
Not very practical if the amount to be preserved is multiple 7 figures, I should have clarified my question better.
Potentially high opportunity cost here
So invest in toilet paper?
The Swiss would appreciate if you did NOT buy Swiss francs as an inflation hedge. This kind of speculation hurts our export industry.
Land and stock have the issue of being inversely related to interest rates and interest rates do rise with inflation.
I totally buy ibonds, but their 10-15k limit a year is unfortunately a joke. I wish I could buy way more.
The returns you can make in securities over ten to twenty years is much more impressive than bonds.
On an individual basis perhaps but not if you're in an S&P 500 ETF.
Even if we assume only Bitcoin, it's not currently expected to stop printing money until (assuming Ray Kurzweil wasn't right all along) long after we're all dead.
The Bitcoin inflation story is more political than simply economic. Right now, it's not really possible for it to be narrowly about whether printing money is OK. But one could easily mount an argument about whether humans should be able to twiddle with the money printing policy.
It is supremely ironic that we’re supposed to believe that the best way to escape money printing is to buy a cryptocurrency that was invented out of thin air, which is continuously mined (during most of our lifetimes) out of thin air by doing useless calculations.
Or even worse, a basket of multiple crypto currencies, where the number of available crypto currencies and crypto assets grows larger every day.
While it may well be self-serving, this is also a near tautological statement, as you'd expect someone who pushes crypto to also hold a lot of crypto if they genuinely believe in it - whether for sound reasons or not. As such the fact they're holding crypto tells us nothing about whether they're pushing it because they're holding it or pushing it because they believe in it.
This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.
Maybe that means something, maybe it doesn't. If I had some way of knowing, I'd have a lot more money than I am now. It's worth remembering, though, that prices are just that: prices. Nothing more, nothing less.
What does it mean to be wrong? Should I have mined 1000 coins in my CPU a decade ago? Duh. Does that mean that BTC is a useful financial hedge against inflation? Why would it? BTC went up by a factor of a gazillion during a decade when USD inflation was not out of the ordinary. Clearly something other than "inflation hedge" is driving the price.
That makes no sense.
Lotto tickets have an expiration date. No value fluctuation over time. At expiry, they're worth X or zero.
How is that like Bitcoin?
You can inflate the money supply and still be "deflationary" if the convenience yield of holding the money (tokens, UTXOs, or whatnot) exceeds or neutralize that inflation rate. You make an excellent point, Bitcoin doesn't have to overtake gold or become a global-reserve to change the world. It just has to be a plausible alternative that enables people to opt-in or out of the system. It has largely already achieved that and I'm hopeful for a future of monetary pluralism.
If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it's not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is far from being "a failed state," but if you want to send US$500 abroad via non-Bitcoin means it's basically impossible, and the only broadly available savings vehicle is real estate ("ahorrar en ladrillos"), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought "as an investment". Historically Argentines have saved by buying dollars but that's limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):
https://www.ambito.com/finanzas/dolares/cronologia-del-cepo-...
You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it's AR$147. So whatever savings you had in pesos in 02019 have lost 57% of their value to peso devaluation.
In 02001 a lot of Argentines had saved dollars in their dollar-denominated bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years.
You suggest, "alternatives to banks like credit unions where customers—as owners—hold more power," but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That's more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.
But we're not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you'll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a year ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland's 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)
Most of the world is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:
https://www.gfmag.com/global-data/economic-data/worlds-most-...
And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise! It's well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.
Bitcoin handles a few billion dollars per year in such remittances. This might seem like a trivial amount of money to someone in a rich country, but in poor countries, it's enough to keep several million people alive.
Even in the US, it's common for the police to confiscate large amounts of paper currency just because they can ("civil forfeiture"); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don't seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.)
So, Bitcoin doesn't have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like "instant and extremely low-fee ACHs" and "decentralized utopia", this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon — the loyal subjects of Kaiser Wilhelm in 01913 certainly didn't expect that in 15 years they'd be in the middle of a hyperinflation episode that remains legendary a century later.
As much as we hear about things like M1 money supply, the vast majority of wealth doesn’t exist in the form of cash. Investors hold companies, stocks, real estate, and so on. Fluctuations in money supply (or demand for currency) have exaggerated significance in online crypto discussions because crypto proponents find that angle more favorable to their “buy crypto” argument, not because it’s the full picture.
The global reserve currency issue is worth watching, but remember that it isn’t a binary on/off switch where everyone changes overnight. Likewise, it’s not really true that USD is the global reserve currency so much as one of the most trusted. Again, crypto proponents like to suggest the collapse of the US currency is imminent, but the global market believes otherwise. Likewise, crypto proponents want you to believe that Bitcoin is the logical alternative, but again that’s missing the point that part of the reserve currency math depends on things like stability, resistance to manipulation, and backing of a powerful government.
For one the USD is only the largest reserve currency used internationally: GBP, EUR and JPY are also used as reserve currencies. For another the US has been trying to reduce the role of the dollar as a reserve currency because it actually has significant downsides and fewer benefits than is popularly portrayed - this even has it's own term, "exorbitant privilege". Here's Ben Bernanke talking about it:
https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d...
TL;DR: the USD's reserve currency status is very much exaggerated.
>18.5M of bitcoin has already been mined of the maximum 21M. So the amount of remaining future inflation from increased supply negligible. That the remaining 2M will be mined asymptotically over many years is not important except for purposes of incentivizing miners to run transactions.
That's mostly fair, but worth noting that insofar as Bitcoin is mined on a schedule the inflation can be priced into the current price, so it's less deceptive than when the government suddenly prints a ton of bills and whoever was unlucky enough to be cash flush at the time takes a big haircut in purchasing power.
While your point is correct, I live in NY and true, it's heartening to see that someone is looking out for obvs fraud. But it's really annoying that I can't (straightforwardly) open an account at most crypto exchanges, and I'm banned from investing according to my choosing and to my knowledge.
If I decide to hedge inflation with some obscure or even mainstream "coin" that should be my choice why should gov be able to deny that right?
So much for freedom right?
Yes! Value producing assets produce value regardless of the nominal price of that value. It’s insane that people don’t understand this.
This is why I think the proper crypto currencies are backed by another functional use instead of "just coins." (e.g. Ethereum vs. Bitcoin)—one is a useful Turing-complete machine; the other only exists to send coins.
Bitcoin will probably always outshine the other "just coins" because it was the first. Why get another coin if this one works fine for monetary transactions?
Similarly with the functional ones: Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.
The rest of them really ought to provide another service underneath to become valuable.
> Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.
We didn't need the first one.
>Inflation is an increase in asset prices
Inflation is an an interaction between the supply of any non-dollar "thing" and dollars. Sometimes that means certain assets like equities become more expensive in $, sometimes that means commodities like oil, sometimes it means labor.
But to be clear, rising Consumer Goods Inflation (what people most commonly talk about when they mean inflation) can lead to significantly lower asset prices, depending on valuation methodologies.
It’s absolutely not true that investing in any assets besides cash will shield you from inflation. Inflation impacts companies very differently, and you want a preservation of real earnings power taking into account the need to replace plant and equipment over time. The best inflation protection would come from a company with a pure revenue royalty with fixed expenses. The worst would be a company with bad pricing power and lots of commodity inputs.
Is there an easy way to determine which companies are which? Do I need to be well-studied in business, or is there a chart or key statistic I can look at to tell one from the other?
This article gives a lot of good criteria for finding companies that should thrive in an inflationary environment: https://horizonkinetics.com/app/uploads/Q1-2020-CVALUE-Revie...
What’s your recommendation for least-worse inflation hedge?
I used to say "a house will always have the price of a house" (it has issues of course cough 2008 cough) to illustrate what you're saying here as I never managed to explain it properly like you did.
But it also has property taxes and maintenance costs, which will likely be higher than inflation. So it's not a great passive investment unless you expect the value minus costs to gain faster than inflation. Otherwise you gotta live in it or rent it to make back your money, and that's no longer passive.
Cryptocurrency "in general" obviously isn't deflationary, given that one can create a new cryptocurrency with a simple code fork. But Bitcoin is, no?
As commenters hinted at in a previous thread, the price is a measure of the combination of demand and supply. The mechanics of Bitcoin only address the supply side. OP hinted at the demand side: if a new cryptocurrency were to become more popular, then Bitcoin could lose value.
Which Bitcoin?
> Investing in virtually any asset other than cash will, almost by definition, shield you from inflation.
... which is why virtually every nation on Earth adopted some kind of inflationary fiat currency. It pushes money to be invested, not held. Wealth is a verb, not a noun.
The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.
Not holding wealth in cash has been investing 101 material long before cryptocurrency. It is fascinating how crypto proponents took over that narrative to imply that crypto was the only investment that could escape inflation.
They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. It hasn’t spiked upward 100% of the time because USD became 50% less valuable overnight
Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Given that even when you buy stuff with BTC, you're buying a product or service denominated in USD, their analysis is generally more correct than arguing that Bitcoin should be analyzed as a currency.
> The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.
Wealth is never held in currency, ever. It's a physically impossible thing.
When a person holds savings, it doesn't prevent humans from working, or raw resources from being used, or land from being purchased -- it just means that person is not redeeming a claim on those resources at the time. Their failure to redeem at a point in time does not preclude others from doing so: otherwise said, for every debit there's a credit.
But historically, you don't have to take my word for it. The United States had deflation and 0% interest rates on government bonds for 100+ years during the period between the National Banks and the Fed. You held money in cash at 0%, because when you purchased goods later, your dollars were worth more.
Not only that, but inflation is a feature not a bug. Maybe a bug turned into a feature, but still a feature. Something governments and national banks use to stimulate investment and thus economic growth. Because, as you say, hoarding and holding cash (or cash equivalent) does no good for the world. Even though our instinct is to do just that: secure what we have, secure our future and avoid risks.
The strange thing about this is that it's not some secret knowledge, but something that is being discussed in (front of) e.g. the media constantly.
This makes sense when you are under forty and can wait out a bad market. If you are 75, expect to live to be 83, you are much better off being able to guarantee your assets.
This is a strange pattern emerging on HN lately - that inflation is fine because you should be fully invested in equities anyway
Stocks might fall in inflationary circumstances, depending on many things such as how much of the companies revenue can inflate - and most times, the answer is worse than inflation. Bonds might not give you a yield exceeding the inflation, especially in inflation created for the sole purpose of buoying bonds.
Speculative inflation hedges might also act erratically, like bitcoin and gold, getting ahead of themselves and the inflation sometimes.
I have the same doubts you do about Tether's legitimacy, but there's a few conclusions I believe you're jumping to which I think don't quite hold:
- Tether's volumes being greater than other crypto-currencies don't have much impact on the legitimacy of other crypto-currencies. The volume is so high because USDT is the other side of most crypto-currency trading pair. Given the liquidity of the market, you can trade almost anything (BTC, ETH, all alts, etc) against USDT without being exposed to any underlying USDT risk.
- The market value of crypto-currencies minus any deposit-backed USD coins far exceeds those coins. Tether "printing" coins out of nothing cannot alone explain the market capitalization of cryptocurrencies.
- Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.
> - Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.
Currently Tether is printing $3.5B worth of Tether per week.
They, and supporters are claiming with a straight face that those printings are supported by USD deposits. But who knows what bank this supposed $180B/year is going into?
Recognizing that revenue is not a straight comparative metric (but that much revenue is banked and/or/then invested), that would put Tether's deposit rate at the top 20 in the world (https://en.wikipedia.org/wiki/List_of_largest_companies_by_r...). We're going to need to accept that there's some pretty large optimism needed to believe this.
Tether is using Deltec Bank and Trust in the Bahamas. Deltec's CEO actually did an interview where he responded to the Tether fraud claims: https://unchainedpodcast.com/is-tether-a-fraud-its-bank-says...
When Tether started, most financial institutions weren't open to working with cryptocurrency companies, but the fact that it's still the top stablecoin by value is troubling since there are plenty of better options now.
You mean this interview?
https://www.reddit.com/r/Buttcoin/comments/l5m2my/gregory_pe...
See my previous comments, the Deltec Deputy CEO claims that he was simultaneously Professor of Finance in a Lebanon University, administering Swiss investment funds, oh and working for a company in Jacksonville FL. He gave his interview from his gaming setup, and talked all about seeing all the Tethers personally from their operations (Why? You're just their bank).
You're going to forgive me on being a little skeptical here.
Especially when his LinkedIn has him graduating HEC Lausanne in 2001 with a Masters in Science...
when he was fifteen...
Funnily enough, Deltec bank removed him from their website when this interview was published, then re-added them when people asked questions, and then arranged a very quick website complete "redesign" (I use that word lightly - this looks like a WordPress template that they've struggled to fill with any content whatsoever - most of the pages are effectively empty, many of the buttons to "learn more" are not linked to anywhere).
This is such a scam.
And the Bahamas does annual reports on the total amount of reserves its banks hold, and the government numbers aren't close to what Tether claims to deposit in Deltec, even if Deltec were the only bank in the Bahamas.
I'm sure it'll get me flagged as a naysayer, but this raises more questions than it answers (https://www.coindesk.com/tether-bank-deltec-stablecoin-reser...):
> "Every tether is backed by a reserve and their reserve is more than what is in circulation," said Gregory Pepin, Deltec Bank's deputy CEO.
What business does the bank have in auditing Tethers? Why would they care? They're just holding funds.
> “We can see it firsthand, so I can confirm that.”
That to me more reads like Deltec is heavily involved in the actual day-to-day operations at Bitfinex/Tether. Which wouldn't be surprising - after all, remember when Bitfinex and Tether were claimed to be entirely separate and independent entities.
It's a little bit of a stretch to say that Bitfinex has been able to get Deltec on board with keeping this all going by providing a "partnership" above and beyond the usual "banking relationship", but that's very much the vibe I get from all this, and as I said, to me, it just increases the sketchiness of everything.
Oh, and WTF, I watched the video of the interview with the "Deputy CEO" of Deltec Bank, self-described as a "50-year-old bank [whose] customers range from asset managers to high-net-worth individuals"
It's a damn "kid" who looks to be 30 at most, sitting in his gamer seat with red slashes in the black, wearing a Razer gaming headset.
He has almost no photos on the internet, his LinkedIn profile is full of multiple spelling errors ("Independance Weath Management"), who claims to be a Professor of Finance at a University in Lebanon (a year after graduating from a Lausanne University) while working for numerous Swiss funds, oh and in Jacksonville, Florida, simultaneously.
How the hell are people taking this seriously?!?
EDIT: He's 33.
So he apparently graduated with a Masters in Science from HEC Lausanne when he was FIFTEEN. I'm sorry, I'm crying now with laughter.
Sources:
- https://wallmine.com/nasdaq/tenx/officer/2087842/gregory-pep...
- https://www.linkedin.com/public-profile/in/gregory-pepin-0a8...
People have already researched that the total volume in-out of Deltec and it could not be more than a fraction of Tether's printing meaning:
1) They aren't holding the money as USD 2) They aren't holding the money in the Bahamas—then where? 3) They are printing money without a corresponding asset aka Ponzi Scheme.
> If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.
The difference is that central banks aren't lying about whether they're printing money or not.
Instead, they control the methodologies that define the value of what they've printed as well as the flows.
Differences...Distinctions...are there?
> Even if everything alleged were true, it really wouldn't be a drop in the bucket compared to the kind of shenanigans central banks have been pulling for centuries. If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.
Man, I find it endlessly amusing that cryptocurrency utopians touted the benefits of BTC based on how it will democratize finance and finally remove the yoke of corrupt governments manipulating currencies and markets to their benefit.
And then when a private company like Tether comes along and starts engaging in shenanigans in this cryptoanarchist libertarian fantasy land, all of a sudden the whataboutisms pop out and the excuse is "well... whatever dude, like, the government does this, too!"
Both your paragraphs are correct, yet each refers to different groups of people.
> If the crypto-currency market is illegitimate due to money printing by Tether, then so is the conventional financial system due to quantitive easing by the Federal Reserve and other central banks around the world.
IOW, "Meet the new boss, same as the old boss"?
No, there should be no moral relativism to get Tether out of the hook. It doesn't matter if they manipulated the market by one or one hundred billion dollars, they are a bad actor in the space that we must get rid of.
I've always championed DAI for a stablecoin. I don't know why it's not more popular. https://makerdao.com/en/
Instead of it being (supposedly) backed by a dollar reserve, it's collateralized by ETH and several ERC20 tokens in a smart contract. The smart contract does things to make DAI tend toward $1. It's been out for years and I think it has worked pretty well: https://coinmarketcap.com/currencies/multi-collateral-dai/
It works through collateralized loans.
DAI is very cool.
If you want to really blow your mind, check out RAI: https://stats.reflexer.finance/
Very interesting. I wonder how stable it will be vs USD over the long run.
I am interested in someone making a CPI coin, that tracks some value of a basket of goods instead of another currency. I think that would be sort of the ultimate inflation hedge because ideally the value would not change at all over the long run.
Well, DAI exists and is pegged to USD without USD backing. Why couldn't one create a similar system with a CPI value target instead of a 1 USD target?
Short description: RAI dampens volatility (goes up slower, goes down slower) of its collateral (Eth). All thanks to some straightforward control theory tricks!
Can you summarize the dynamics/phenomena that those smartcontracts in DAI exploit to maintain stable value? What stops it from gaining -- or, more importantly, losing -- value?
I couldn't tell from the link.
There are a few different mechanisms. I might be missing some, but here are the ones I know about.
* The interest owed on loaned DAI (called a stability fee) changes depending on the market price. So if DAI goes too high, the stability fee increases which makes getting a DAI loan less attractive. If the market price goes too low, the stability fee drops. If it drops to 0, this would mean interest free collateralized loans.
* There is a savings account smart contract that generates a variable savings rate on DAI. The savings rate changes depending on the market price.
* There is the Target Rate Feedback Mechanism which frankly I don't understand. It has something to do with changing the amount your collateral is worth depending on DAI's market price.
* When the value of the collateralized asset drops to some defined percentage of the DAI withdrawn (currently 150% I think?), the smart contract can liquidate and auction off that asset for the value of the withdrawn DAI. This increases the value of DAI and also ensures that all DAI is overcollateralized.
* MKR token holders function as the governance for DAI and vote on stuff, like the collateralization rate mentioned above. They get rewards for holding MKR and in normal circumstances the amount of MKR is static. But in the event of a black swan, if the collateralized assets drop to below 1:1 faster than the normal system can handle, MKR is automatically generated and sold to raise the additional collateral needed. This devalues MKR in order to keep DAI stable.
Thanks, I appreciate the overview!
Super interesting project and tech, but it’s competing with USDC (and similar USD-backed tokens). Adoption will just take longer for DAO-backed stablecoins.
You'd need to do better than that. How exactly does printing USDT lead to BTC price inflation? I haven't heard anything convincing yet. Most of the vol doesn't come from the BTC USDT pair. Exchanges don't seem to be doing anything shady like manipulating the price upwards by themselves.
The story is that Tether has been printing tethers and buying Bitcoins. However, they haven't released any concrete holdings or submitted to an audit AFAIK, so there's a lot of speculation on how big of a problem this actually is.
I don't think there are any claims that Tether the organization itself is doing anything like that. They just print USDT and send it to people who are interested in buying USDT like exchanges.
The two problems as I see them are:
- Is USDT actually backed 1:1 by USD / cash equivalents as Tether claims? w/o independent audits we have no idea. So technically, if you hold USDT on an exchange and use it to trade alts and evade the taxman, then if this whole thing falls apart your USDT might be worthless.
- The owners of Bitfinex and the people who run tether are the same set of people. So theoretically it's possible that
+ Bitfinex generates artificial demand for USDT somehow
+ Finds a way to swap actual USD for USDT (customer
deposits? 19bn worth of customer deposits? Unlikely)
+ In turn goes around and buys BTC with that USD for some
reason
+ Does it w/ enough vol that all the arbitrage bots won't
be able to arbitrage it away.
I'm not a finance guru, so I'd love it if someone more informed than me can comment on how someone can pull this off.
The settlement agreement shows that at multiple points Tether was not backed: https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
I think the best case is tether printed usdt, used it to buy btc, inflated the btc price and is now fully backed by their btc holdings. This works as long as people want btc
They were able to do it because people accepted usdt as dollars.
Yes I agree, but still trying to figure out what impact that has on the broader eco system if USDT ends up being worthless starting now. How exactly will it impact the BTC price?
It's well known that USDT is not 1:1 backed and this is true since the AG started their investigation.
Market doesn't care. Right now USDT trading is popular since people are used to it. There are so many stable coin alternatives (backed with various collateral, some like USDC backed by USD 1:1), so you can always remove the risk.
Good luck to those shorting crypto due to "Tether scam". If you're a newcomer, this kind of news makes rounds every X months and market sometimes reacts widely, just to return back and inexperienced crypto investors/users get spooked. I'm not saying that Tether is all good and for sure they run a hazy operation there, but there is a wider crypto adoption taking place now. Companies are diversifying their treasuries, starting to load on BTC as a hedge against inflation.
PS: Expect news of China banning bitcoin, India banning bitcoin, Russia takedown on crypto, Yelen commenting that BTC is a scam. All of this will be amplified to move price down and shakeout small time holders while large investors keep buying more and more.
As recently as a couple of weeks ago, I've heard people claim that Tether is still "1:1 backed with USD". Oh, and:
> Keep in mind that in relationship to tether, $1.5 billion is tiny. It's only 3 days of tether printing.
apparently depositing $3.5B a WEEK into some bank (unnamed of course, because Tether won't disclose).
While there is a large deal of potential, and some real value in crypto, there's definitely a non-negligible portion of True Believers, the crypto equivalent of Qanon.
> As recently as a couple of weeks ago
For more recent claims, just read the comments on this post in this site.
And what about all the cash-for-difference swaps and futures? BitMEX's XBTUSD swap is basically a synthetic dollar that can only be redeemed for Bitcoin within the walled garden of BitMEX. Tether is like a dollar swap contract that can be moved on-chain and, in theory, can be redeemed for the nominal currency. Of course Tether represents itself as a fully reserved stablecoin, which is likely a total fiction, but in the grand scheme of things I don't think it actually matters much.
Bitcoin is going up because young people want to buy Bitcoin. Most young people are trading (i.e. WSB) and not investing in cryptocurrency. That has a lot to do with price fluctuations. Also taxes, vacations, etc are all funded by cashing out.
Both are still printing machines. Dollars are backed by faith in the USA. Is there any difference ?
Powell - "We print money digitally. As a central bank, we have the ability to create money."
I mean, if you accept that Bitfinex is printing tether, then the difference would seem to be the fact that Bitfinex is lying about it while the US Government isn't lying about it?
The ability of the US Government to create more dollars is a well understood aspect of the financial system. The US Government acknowledges is has the power to print money, and regularly tells us how much it is printing.
Bitfinex claims they do not print USDT and that it is backed by USD.
For a system that's based largely on trust (for both the USD and USDT), lying is a significant problem.
| Dollars are backed by faith in the USA. Is there any difference ?
Jesus lord, yes, absolutely. The weight of the US Empire and all its combined military and economic might versus what... some shell corporations and the whisper of a promise?
You have no idea that a lot of people, including high profile analysts forgets this very crucial fact, and refuse to invalidate their analogy. You thought flat Earthers are ignorant enough, surprise surprise.
Many people think that money is money. They think money is what makes a nation strong, not products and services. I don't know how even highly educated people missed this part.
Money is a side effect of power, not the other way around.
Sorry, is the question really "what is the difference between the US Government printing dollars and Tether printing dollars?"
One has a standing army and a history of successfully deploying it against countries that attempt to disrupt the geopolitical status quo by moving away from the dollar.
The other does not.
Absolutely absurd. The degree to which the people of New York are being infantilized, when the state is telling outside parties to not allow them to trade their digital assets, is a textbook example of why the philosophical underpinnning of the modern regulatory system are illiberal.
How trustworthy Tether is is completely incidental to my comment on the New York regulator.
Bitfinex isn't an American company. This is ridiculous
What’s ridiculous?
That the company’s home jurisdiction allowed them to defraud the public?
It's not even clear where the company is physically located. It's a Hong Kong company but all of the addresses here are just virtual offices and shell companies.
Do you expect to get away with illegal activity when you travel abroad?
A lot of people do. For example driving over the speed limit because they can't be fined.
Note the headline should add “in New York” or the like.
The full title ends with "Illegal Activities in New York", not sure why it was removed.
Because it's too long for HN (I instead replaced "Attorney General" by "NYAG", not ideal but an ok compromise IMHO)
"Bitfinex banned from New York."
Edit: I'm getting downvoted but I went soft on him. You know what, I'll say it. The choice of which words to retain (virtual currency trading platform??) and which to drop (in New York) is really bad and veering into suspicious, seems like it's trying to stir up panic.
You make it sound like they have been taken down globally. That's not a "minor change".
Meanwhile, a group of hackers claim to have penetrated Bitfinex/Tether's bank Deltec:
https://deltecexposed.medium.com/deltec-bank-trust-and-their...
Grab some popcorn, the show is only getting started.
no evidence. looks like some random post.
America lied to the world when it claimed each dollar was backed by gold.
When the world figured it out and there was a bank run, the gold standard was "temporarily" put off by Nixon in 1970.
Bitfinex just seems to be playing the same game America has always been playing.
Link?
thanks!
Almost all fiat deposits into Bitfinex create USDT.
Thats an additional fact that the amount is in line with the amounts that would be deposited into any big exchange.
If Coinbase minted USDC whenever someone deposited, you would see the same kind of growth.
The basis of your entire post is assuming impropriety based on pretty normal behavior with the addition of the business quirk of when USDT is created.
The ability for impropriety is a good enough reason to avoid it, and their unilateral willingness to do so without any discussion can reinforce that. But people thought everything you thought since the beginning of Tether in like 2014 or so, but the reality is that it “only went fractional reserve” in 2018. Its kind of like they threw up their hands and said “well people think its a ponzi anyway might as well cover this business debt!” The irony being that the NY AG investigation actually proved that prior to 2018 it functioned exactly as promised, barring their 2017 distress by having nowhere to put their fiat deposits.
But if you assume that it hasnt come crashing down because Bitfinex does what they said, then it still does make sense: crypto prices pump after Tether mints because it is people depositing into the exchange and then buying crypto.
Any way glad USDC and DAI are growing a lot now, which have grown by the same orders of magnitude.
Is 'pretty normal business behavior' pretending two entities (bitfinex and Tether) are arms lengths entities with no relationship to each other to hide the conflict of interest, along with the provably lying about the actual backing of the coin, and using what were supposed to be customer trust funds to bail out what was supposed to be an explicitly stated unrelated business?
If so - be aware those are felonies in many industries and are probably criminal in most jurisdictions (fraud at a minimum). For very good reasons.
Surprisingly, yes. That is fairly normal in financial institutions. It seems nonsensical at a first glance, but:
https://www.investopedia.com/articles/analyst/090501.asp
USDT, USDC and DAI each have their own set of counterparty risks. USDT is regulated somewhere sunny, USDC somewhere that could be hostile if given enough power, and DAI is backed by digital assets such as custodied Ethereum. The sooner there are more solid options in more jurisdictions, and more certainty around USD stablecoin regulation, the better. I will be very glad to see Tethers go away.
Goldman absolutely does play games like this on the market making side, but the difference is that the chairmanships of Goldman and the Federal Reserve tend to be a revolving door. They’re a special kind of royalty.
Your linked article keeps calling "The Chinese Wall" an "offensive and racist term." I don't understand that. I always assumed that the term refered to the Great Wall of China, i.e. a large, famous and fortified wall designed to keep groups on opposite sides separated, hence its metaphorical use in business. Is there some other connotation with regards to that term that I'm unaware of?
I am able to perceive things that don’t all reach negative conclusions. That doesn’t mean I like the product or the organization or have any specific opinion on it. That’s how due diligence works.
Yes, this is precisely how investment banks work.
If fiat deposits into Bitfinex create USDT, shouldn't fiat withdrawals from Bitfinex burn USDT?
I'm having trouble to find comprehensive data on USDT burns but https://coinmarketcap.com/headlines/news/tether-just-burned-... seems to suggest that one billion is extraordinary (and those weren't removed from circulation but swapped to another chain), and Tether finds it Twitter-worthy when they burn 100 million: https://twitter.com/Tether_to/status/1225088948243968005
For sure I don't expect Bitfinex fiat withdrawals to match fiat deposits, but 100 million USD withdrawn vs 30 billion deposited seems unordinary?
I agree and have always found this interesting. But it is similar behavior in more transparent stablecoins. Only Gemini’s GUSD has seemed to completely burned to nothing at one point. But USDC and DAI have growth so similar to Tether during bear markets that I cant put the lack of burns squarely on Bitfinex.
Either there is a broader accounting issue with minting and burning methodologies or people/entities really do hold.
During bear markets large market participants are still buying, and a tiny portion of people are providing the price discovery, and this is mirrored in the increasing amounts of crypto that have not moved from addresses in a long time.
Many people hold the stablecoin itself, instead of going back to fiat. So there is growth of all market participants, even during bear markets when other cryptos are falling out of favor.
Thinking out loud, I've paid a lot of graphic designers and marketers in India this year in Tether. They arent familiar with crypto but just notice that their Unocoin app takes it. We’re not doing paypal, and all fiat transfers are domestic with none of fees, time, or scrutiny that an international fiat transfer would have.
The nature of all stablecoins is that if the supply does not match the demand then there are arbitrage opportunities to mint more, which can be initiated by the user. If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.
So if all the stablecoins have similar growth patterns, the things going for Tether are simply first mover advantage and greater clout in Asia.
If you have a bitfinex account you can redeem the tethers for dollars at a 1:1 rate still and this would burn the tether reducing the supply.
Not all countries like US can get an account there or use fiat so I wouldnt know if the redemption mechanism is currently working or not
Yes it’s a scam and 30 billion dollars deposited in a year is a laughable claim, particularly from a company with a history of lies and fraud. Nobody in the crypto space calls them on it because the fact they get away with it calls into question the entire ecosystem.
> Almost all fiat deposits into Bitfinex create USDT.
As a matter of fact that is NOT true. (speaking as a crypto hedge fund manager, active since 2013, and trading > $1B/month on all major exchanges). It used to be like that in the past (when USD and USDT where one just represented as "USD" on Bitfinex), but this changed a year or two ago. Now, USD wires are being credited as USD and USDT deposits are being credited as USDT. And there is a USDT/USD market on Bitfinex to exchange between the two.
Nice this is how Coinbase functions with USDC too
Likely they all piggyback off of each other’s implementations in the face of evolving regulatory guidance
Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.
You send USDC/USDT to another exchange, use it to pay for stuff, store it in a hardware wallet, etc. USD can only be transferred back to your bank account.
Because many exchanges are in no way capable of holding a banking relationship with a legitimate bank that transacts in USD.
edit: Perhaps that was overly snarky - the issue is that the US requires legitmate banks to take certain efforts to identify their customers (KYC), and prevent money laundering (AML). Meatspace banks aren't perfect in this regard either, but many crypto exchanges are either unable or unwilling to do this, or are already proven to be engaged in fraud or other financial crimes.
Sending USDT is cheaper, faster and easier than sending actual USD.
a significant amount of cross-border trade (yes, actual goods transported in meatspace) is conducted in USDT for many years now.
If everything is fine and dandy with them why are they stopping trading in NY? Why is the AG claiming they lied about reserves, the one thing they really-really shouldn't have been? (Insert "you had one job" meme.)
I didn’t write that everything is fine and dandy with them.
The world toolset doesn't function under a “your either with us or against us” mentality, it functions as a gradient.
That gradient is that the NY AG case showed Tether was functioning properly until 2017/2018. If you were around crypto at that point in time, you would know that people would not have believed they had full reserves ever.
Just reread what I wrote. You are deciding to see advocacy for Tether which is not what I wrote at all.
Not everything needs a dissertation long disclaimer just so you can decide if you want to listen to me
The accuracy of any statement can be weighed and discussed on its own merits
I am not sure how you interpret the AG report to think it shows they were functioning properly. They haven't shown proof of backing at any point. They have shown they had the money in the account at one point which is nowhere close to showing you have backing. Statement of balance is completely meaningless, especially when it comes from ac transfer done from your sister company like a day before.
All the AG report shows is just more evidence it's one huge scam.
How come you just come here telling that deposits in bitfinex creates USDT
But Paolo himself post that all the usdt minted is 'tron replenish' everytime whale alert tweets about 800,000,000 USDT frwshly minted
So, basically, in your intentions to defend USDT you are even contradicting what its own CEO says...
It's also funny how tesla 1.5b investment and microstrategy few millions buy are to be 'celebrated' as big and huge, yet you are trying to convince us there is people depositing 800m daily into bitfinex?
US equities are choosing to make a big deal out of something benign at fairly small amounts. The corporate debt market is massive with almost all blue chips routinely issuing short term debt that dwarfs anything Microstrategy did, for completely ambiguous purposes and the market does not care as long as its paid back. 100 billion $ worth of US commercial paper was issued just in the last month with no fanfare whatsoever and no disclosure on what the proceeds are for. Microstrategy’s dabbling in the corporate debt markets is only news because the CEO wants it to be.
The volumes from a large crowd that can also include institutional can very easily be large.
A recent example is the Saudi Aramco IPO, particiption in that IPO used Saudi retail investors and Saudi payment rails and resulted in $25bn in purchases. That one country’s internal financial system was able to handle it and there was just that much participation.
Tether doesn't have the transparency we will want. Choose a different product for that reason alone, and there are options now.
But assuming the worst, out of the universe of assumptions, is just as useless as assuming the best. The western world says “all this is improbable so lets assume it is impossible”, the eastern world doesn't seem to care and there are examples where much larger sums of money could show that Tether’s growth is not improbable or impossible.
The point is that $30bn of deposits (whether some of that is counted incorrectly on multiple blockchains) is not noteworthy enough on its own to reinforce your conclusion. Many random brokers have that. If they had a stablecoin that was minted upon deposit, you would see the same thing. And here, institutions also use Bitfinex and $30bn is actually then a reflection of how small the crypto markets are.
I agree with you that GP's post hardly makes any sense but
> ... yet you are trying to convince us there is people depositing 800m daily into bitfinex?
800m daily would have meant 300 bn USDTs created in a year. They create 30 bn in a year, no 300 bn. It's huge but you are one order of magnitude off no?
Their post doesn't describe normal behavior. It describes what would be illegal behavior elsewhere. It may be somewhat legal depending on the underlying reasons due to the quirks of not being regulated but renegading on promises to investors is not normal behavior when it comes to things like audits.
> Almost all fiat deposits into Bitfinex create USDT.
Which is insane. Those are customer funds, that Bitfinex owes to their customers, if they choose to withdraw from their ecosystem.
They aren't a personal piggybank for them to dip into as they please.
This is not at all like fractional reserve banking, where a financial liability (customer deposts) are used to print dollars (in the form of loans), because customer deposits can be called back anytime, while loans cannot.
With Tether, if Bitfinex takes a dollar a customer deposits, and then prints and sells a USDT, and the customer withdraws their deposit, they have to destroy a USDT, in order to maintain the 1:1 peg. There is zero evidence that they are doing this at anywhere near the rate they claim.
Ironically, what they are doing is very similar to a double-spend.
This case stops short of proving exactly what percent they are currently backed at - there is almost certain some level of "legit" deposits (Tether has value in evading capital controls). The weight of evidence is strongly in favor of past financial crime, and the imposed transparency requirements suggest NYAG suspects these issues are ongoing. I dont suspect they will ever provide satisfactory evidence of legitimacy, and the DOJ is almost certainly investigating them by now.
so bitfinex customers deposited 30B US$ since last year? hard to believe.
I think Tether is mostly a fraud, but the market for escaping capital controls (aka money laundering) is almost certainly $30B/year or more.
If this was for money laundering, why such a high balance?
> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.
There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.
I'm not saying I disagree with your overall thesis. But this specific point makes it sound like USDT is some sort of roach motel ("you can get in, but you can't get out"). That's not true, it's fairly easy to get back to USD at low cost. The fact that USDT is trading at near parity with USDC on Curve indicates that most of the market doesn't perceive a risk.
> There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.
Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.
> that most of the market doesn't perceive a risk.
That is absolutely no indicator for safety.
> That is absolutely no indicator for safety.
Currently, several billion in value is locked into Defi-based liquidity pools with USDT. If USDT collapses tomorrow, the stakers will lose nearly all of their principal. (Fast traders will quickly swap worthless USDT for all the USDC in the pool, before hardly anyone has time to remove liquidity.)
The largest of these pool, currently pays about 2.6%.[1] Even if all of that return reflects USDT credit risk, that market implies a 1/50 chance of USDT collapsing within the next year. I'm not saying the market is necessary correct. But what I am saying is that very deep, liquid markets are not pricing any significant USDT risk.
If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.
[1]https://www.curve.fi/3pool [2]https://compound.finance/markets
> If it didn't, there's no particular reason multi-billion dollar
This is true in theory but in practice it seems much more commonly false. Even in vastly more mature and liquid markets, straightforward arbitrages can persist for years and in some cases decades, even after an inefficiency becomes public knowledge
> Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.
https://global.bittrex.com/Market/Index?MarketName=USD-USDT
Dunno about Bittrex but Kraken also has a USD/USDT pair. Withdrawals via wire transfer take around 2 days.
I have not had problems with them, but I'm also not doing any large transactions.
That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one, and seems like it would have to involve multiple parties during the exercise.
Many exchanges have pretended for a long time that USDT is 'the same' as dollars, and there are going to be a lot of folks pissed that it isn't actually the same thing.
>That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one
This. If Tether truly were just a token backed 1:1 with USD on deposit at a commercial bank, you would not need to make multiple hops across multiple entities to actually convert it to dollars.
Also imagine how "well oiled" this financial transaction's machinery will work during a market contraction.
There was a similar situation the last time the NYC AG tried to shut down Tether and withdrawals from Bitfinex were blocked (June 2019). What happened was that Tether started trading at about $0.93 and USDC/DAI started trading around $1.04, as the supply of other stablecoins wasn't quite adequate to accommodate all the people fleeing Tether. Bitcoin actually ended up being the reserve currency instead: the price of Bitcoin spiked from $5200 -> $8700 over the course of a couple weeks as Tether holders dumped it to buy Bitcoin and move it to other exchanges.
Personally I'm surprised the risk premium wasn't more, but Tether is still around today despite both Bitfinex and Binance blocking withdrawals and the NYC AG initiating fraud charges against them, so ultimately the folks who decided it was nothing were right. Then, at least.
>There is an easy way.
How many fees have you paid through the 3 or 4 steps to get to this "easy" solution? Is that solution available to everyone worldwide? (I'm not familiar with Curve or Coinbase and whether they're US only or something of that nature)
I’m wondering how high volume would need to be for the first step (from USDT to USDC) before something breaks?
Why don’t more people use USDC anyway?
Well, because Tether is happy to look the other way for money launderers, cartels and other bad actors. USDC can't.
>Why don’t more people use USDC anyway?
USDT got there first.
> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.
It's perfectly possible to exchange USDT for USD and withdraw USD to your bank account; it does not involve complicated steps nor outrageous fees. Kraken, for example, has a very liquid USDT/USD market, is a well respected exchange, and processes USD withdrawals that arrive within minutes to US bank accounts. I'am speaking as an industry insider and hedge fund manager that trades ~$1B/month on the crypto markets.
How do you get withdrawals arriving within minutes? Mine take about 2 days, I'm on the highest verification level that they list publicly ("Pro").
It may help that we bank at all of the same banks as Kraken, so most transfers are internal transfers. But even to outside banks, normally US wires should be pretty fast (usually within the day). It may also be the case that we literally wire millions every day on a regular basis, so our wires probably don't get held up at any compliance checks.
As a start, you can check out Signature Bank and Silvergate Bank. They are known for being crypto-friendly banks, and they bank literally every exchange that trades crypto versus USD.
In Europe, one bank is Fidor.
That's a trade, not a withdrawl. You cannot withdraw 1USD for 1USDT.
What will happen to NY AG which investigated Tether for 2 years, went through 2.5 mil pages of documentation, yet missed such an obvious scam that a lot of people, including on this forum, can clearly see?
If Tether implodes, is this proof that NY AG is incompetent or even worse, somehow implicated in this giant scam by covering it up?
In the NY AG settlement PDF it clearly states that they will not indict Tether in the future for the investigated crimes, including not being backed up by assets, which happened before the date of the payment of the fine:
> 56. Within five (5) days of the receipt of the penalty ... and agrees not to bring any claims or causes of action against Bitfinex or Tether ... for matters relating to the conduct set forth in the Findings and the Petition ... arising out of Bitfinex or Tether’s representations concerning the backing of tethers during the time period January 1, 2014 to the effective date of this Settlement Agreement; transfers of a portion of the cash reserves backing tethers to Bitfinex pursuant to the line of credit
Doesn't mean the DOJ or any other State AG can't bring action. NY also doesnt remove themselves from prosecuting over any future action, like being unable to provide the agreed upon transparency reports.
I wouldn't be surprised if they are into the scam and got bought.
The real world isn't a nice place and police show...
>There's no way to transfer USDT into USD
Use Kraken. You can change USDT to USD and withdraw money. I've done both.
This is the confusing part to me. Everything I read online talks about Tether being fraudulent. Shouldn't the price of Tether reflect a discount based on that? If it doesn't, does that mean the market is okay with a Tether being 1 USD even if it is not backed by anything?
At some point yesterday, BTC/USD pair was trading up to 400$ lower than the BTC/USDT, that should be enough to tell you that a lot of people don't really want the USDT anymore and were willing to pay a 400$ premium to get real USD, it will start getting ugly at some point
Not necessarily because Tether the company will use the USD or similar that they have to buy tethers on the market if the price falls below $0.995 or so. The worry is if there are say 30bn tethers out there and they only have $20bn cash and enough people redeem the the price will stay about $1 until the $20bn runs out and then suddenly drop to not much.
It's actually possible that rather than just holding US$ against USDT they have put some into bitcoin instead which would mean they may have plenty of funds unless bitcoin crashes in an unfortunate way.
I've held tethers before now. The 'fractional reserve' thing is unknown. If I were a crook and running the thing I probably would have printed lots of tethers to buy bitcoin in the slump then sell them at a profit to fix the reserves and buy and island. But who knows unless they do an audit which they seem very reluctant to do. The above scenario would be illegal but would not lead to the collapse of tether unless the law got them which is tricky as they are based in various offshore locations.
I've been through this whole tether is a scam which will collapse thing before around late 2017 or Jan 18 and inspite of the crypto downturn they didn't.
A HN story from Nov 2017 https://news.ycombinator.com/item?id=15745441 for example.
I've also been following Tether a while. I even shorted a bit back in 2018 but I'm starting to think maybe they are basically legit apart from maybe not dotting all the Is on the money launder regs. Here's Gregory Pepin "Deputy Chief Executive Officer at Deltec Bank & Trust", Tether's bankers, saying they have the money: https://youtu.be/rQ3nQ8-KY28?t=281
The author of this report from 2018 agrees with your assessment https://www.tetherreport.com/
Not considering your other points - I never had issues converting between USDT and USD. I just did it yesterday in fact.
Did you exchange USDT for USD through the exchange or did you trade USDT for USD, there is a difference.
In the first instance the exchange is on the hook for the USDT and they have to go to Tether to get USD to cover it.
In the second instance the other user you traded with is on the hook for the USDT and they will probably just trade it for USD in the future or another crypto.
Even the 70% backing number is too high. According to the findings of the NYAG:
"Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal."
https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.
So what actually happens when people sell Bitcoin? They get USDT on an exchange and then can never get cash out? Is there some convoluted series of trades you can make from USDT -> ??? -> USD or something instead? And people selling Bitcoin have made enough profit to just ignore the overhead of those trades I guess?
OP got that wrong. It's very simple to exchange USDT for USD, you can do it on Kraken and Binance and withdraw to your bank account. No problem at all
Isn't that trading, you're selling USDT to someone who wants to give you USD for it? That's different from telling the operators of Tether itself "Here's some USDT, give me the USD that backs it".
Backed by cash in a bank account doesn't mean that much. As you probably know any bank will take deposits and use them for loans.
Strangely USDT sells at a premium to USDC (audited) for years now.
My guess is it will slowly be replaced by an audited stable token if the market wants that.
In addition to all of this they claim to bank in the Bahamas. Bahamas discloses total banked assets and the amount of Tether issued far outpaces the rate at which the whole nation of the Bahamas' assets have been increasing.
"There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try."
How about Bitfinex? I had some problems with withdrawals there in the past - but now it seems to work.
> Personally I won't touch any crypto with a 10 foot pole
if you dont mind explaining to a relative newbie - how does any of this affect Bitcoin? it clearly has had some effect, but I just dont understand the causal chain.
If the total amount of USDT exceeds their USD cash reserves, who became the beneficiary of the extra USDT?
Bitcoin holders.
Which BTC holders and how? What's the path from onboarding on an exchange website, to eventually getting unbacked USDT? If I put USD onto an exchange, why would the exchange give me more USDT than what I deposited (and if this never happened, then how did the first unbacked USDT come into existence)?
I hold BTC but didn't use USDT in the process, just deposited normal fiat and bought BTC using that.
Good explanation. Why do they do step (3)? Aren't they just opening themselves up to massive legal liability?