Bitfinex is a crypto exchange kinda based in Hong Kong and kind of based in Taiwan (this seems to change depending on convenience.) Taiwan recently started becoming more rigorous about monitoring international USD wires, and lots of Bitfinex users had their money stranded in Taiwan. Bitfinex stopped supporting US customers because of these difficulties (AFAIK most customers did eventually get their money out though)
Tether is a company/product that is a cryptocurrency that (aspirationally) has a value of exactly 1 USD. The Tether company and Bitfinex are (supposedly) two unrelated companies that nevertheless have mostly the same people employed as principals. Because crypto daytraders need easy ways to quickly pull their money in/out of crypto exposure, the Tether currency has been a massive hit as a way to convert into pseudo-dollars. Because of this, people have bought billions of these "tethers" from the company, but no one has a good handle on where these billions of dollars are safeguarded, if at all.
a little correction. Tether and Bitfinex were exposed in Panama Papers as sister companies. They are not two unrelated as they say they are. Even more reason to stay away from Bitfinex and USDT
yes that's true. You can even see the tether printer and the sends of tether on the omni network. The omni network is a layer on top of bitcoin and is totally transparent
Exactly. There is some circumstantial evidence that Tether printing may be inflating bitcoin prices: http://www.tetherreport.com/
But it is just circumstantial at this point. There are a lot of ifs related to Tether, but it has that fishy feeling to it.
While I think there is a very good chance that Tether is not backed by USD, I think the regulators may actually be more interested in USDT being used for money laundering and non-reporting of investment proceeds. In fact, that is likely a larger crime with respect to US regulators.
That would be the SEC's domain. If CFTC is getting involved it's probably because they are potentially manipulating the price on a regulated futures contract.
But bitcoin futures didn't start until Dec 17, and the subpoena was sent Dec 6, so that would imply they're messing in futures based on some other commodity.
You are correct about the dates but the regulatory planning and preparation for the CFTC regarding the futures contracts has been a long process. CFTC had jurisdiction and interest in assessing asset pricing conditions leading up to the contract launch.
You're skipping a key bit here; billions of Tethers magically appeared on the market in the last month and were used to buy BTC in suspiciously regular fashion, in 100 million USDT amounts, and with no clear evidence that it was actually purchased by anyone using real USD.
Here’s what I don’t understand. You can exchange bitcoins for fiat currency. But afaik you can’t exchange USDT for fiat. So why is anyone willing to take the risk of holding on to USDT? Why are any exchanges even willing to touch it?
They’re earning fees from uninformed buyers coming from a community with an ideological aversion to governments. The first part makes it profitable. The last means the risk of their reporting you to the proper authorities is slim.
It lets the exchanges avoid dealing with USD, which they believe (IMO wrongly, but hey) exempts them from know-your-customer laws. A lot of Coinbase's customer service issues stem from KYC laws and the verification it requires.
Some of them are being very squirrely with their users, telling you your "USD" balance which is actually USDT.
Some may believe it's a fraud, but be happy to benefit from the apparent boost it's giving cryptocurrency values and think they're safe enough if it collapses.
That's where I also get confused.
So far the reasons I could come up with are:
- the exchange got bought out silently and is now owned/controlled by the people behind tether
- the exchange got paid to use tether (for example 0.5% of the volume as incentive)
- the exchange holds a part of tether's fiat as guarantee
- the exchange is run by people who are inexperienced in appraising counterparty risk
- the exchange is run by people who like to take risks
- the exchange expects to cover any potential losses with the profits they made so far
- the exchange has been offered proof that the 1:1 peg is genuine (backed by the Chinese govt using US bonds)
What risks does the exchange incur from allowing the trade of tethers?
Exchanges make their money from people trading--not by holding their own reserves and betting on their values. If Tether value drops to zero, anyone holding Tethers would be upset, but exchanges would just have been profiting from all the trades necessary to bring that value down to zero.
Allegedly, some exchanges commingle USD and USDT without informing their users.
For exchanges that don't do that, the question "Why would exchanges even touch it ?" is less applicable.
As to why end users would touch it, that's obvious - a (potentially misguided) belief that things will work out fine.
IIRC some exchanges don’t make it clear you’re trading USDT, not USD. If Tether were to implode users might be able to sue the exchange to try to recover the USD value.
You can't _easily_ exchange bitcoins for fiat currency, that's why USDT exists. Many banks are not accepting deposits coming from some shady offshore bank into a "normal people" account.
The average Joe who's paper rich because he has 100 bitcoins on an exchange and sells them, there's a good chance their local bank branch won't be happy if he's receiving a wire transfer of $1M from the Virgin Islands or Cyprus. So instead, they keep that $1M as USDT and they can keep trading with it and still be paper rich.
The same applies to exchanges, a lot of them are totally unbanked in the US. USDT allows them to play with Monopoly USD instead of the real thing.
> there's a good chance their local bank branch won't be happy if he's receiving a wire transfer of $1M
Eh. If I'm Joe Average cashing out my 100 bitcoin in your situation, I call my bank manager a few days ahead, telling him to expect a wire transfer along those lines.
I think the risk on such transactions is _far and away_ "will your exchange honor the cash out?", "how long will it take?" (up to 12 weeks for some exchanges) "will there be onerous restrictions on cash out limits?" (this example would be 100 consecutive days of $10K transfers) - much more so than "Will Chase Bank NA be happy to accept a wire transfer from Scotiabank BVI?"
A lot of exchanges have a hard time setting up traditional banking partners that can handle physical currency for them. If these exchanges don't offer USDT to their customers for parking money, they wouldn't have any customers anymore.
I think the market believes that even if there is some level of foul play, bitfinex has the deep pockets to make it up to them, in at least the strange way they made it up to the people from the previous hacks.
Bitfinex DOES seem to have very deep pockets to be able to respond somehow to it. I doubt bitfinex could pull off the self-heist move and dissapear.
You can exchange USDT for fiat, on demand, for exactly 1 USD/USDT, but only at Bitfinex. For bank wires, they charge a .1% fee, so technically I guess 0.999 USD for each 1 USDT. For verified customers, there is no withdrawal limit.
Kraken offers a USD/USDT market that allows you to obtain fiat for your USDT, and the price stays fairly stable but the liquidity is low (thus slippage is high). It's currently trading at a discount; you could sell ~1M USDT for ~954k there. Kraken's withdrawal limits are way more severe than Bitfinex's, though, so it would take some time to get all of that out.
> You can exchange USDT for fiat, on demand, for exactly 1 USD/USDT, but only at Bitfinex
My understanding is this isn't the case. My understanding is Bitfinex will take your USD and convert to USDT which you can then use to buy crypto. But it won't take your USDT and turn it back into dollars. In fact, my understanding is the only way to turn USDT back into USD is either directly through Kraken or indirectly through another exchange by going USDT -> BTC (or ETH/DOGE/whatever) -> USD.
Bitfinex lost the ability to bank in USD a while ago, which is how this whole tether business was invented in the first place.
As a US citizen, I can no longer access Bitfinex. My personal experience, when I could, is that you are never exposed to USDT on the site at all except as an option to transfer your deposited USD to another exchange via tether. They may have changed that, but I don’t know.
As for withdrawing, you can’t withdraw to the US any more, but you can still make international USD wires to banks in other jurisdictions, specifically Taiwan and Hong Kong. I have not heard anything contradicting this, and have seen a fair bit confirming it.
> My personal experience, when I could, is that you are never exposed to USDT on the site at all except as an option to transfer your deposited USD to another exchange via tether.
One exciting "feature" of all this is that most tickers that price out crypto currency values treat USD and USDT as one and the same. I've yet to see Bitfinex, for example, show up on a ticker as "BTC / USDT" (which is what, in fact, the pairing is).
It worries me because people use these things to inform their "investment" decisions and my hunch is most of the data they use is not quite on the up & up.
There are exchanges (a lot of them, actually) that list USDT as part of a trading pair. Bitfinex, as I understand it, allows withdrawals in USD (modulo the restrictions above). From an end-user perspective, the only time you ever deal with tether is when you make a tether transfer. They are correct in not treating the on-exchange trading pair as BTC/USDT.
Just as when you deposit on any exchange, for example, Kraken, you don't have "USD" per se, you just have "Kraken USD credits" which you can withdraw, subject to their limitations, via wire transfer. Also, when you deposit your USD in Chase Bank, you don't have USD, you have "Chase USD credits" which you can withdraw, subject to their limitations, on demand.
In all cases you are dependent on the solvency of the institution, which is what is in question here. But Bitfinex is correct in not saying that you are buying or selling USDT -- you are trading with USD, regardless of what internal accounting practices they use to ensure that they are solvent.
> Also, when you deposit your USD in Chase Bank, you don't have USD, you have "Chase USD credits" which you can withdraw, subject to their limitations, on demand.
No, I have USD in my account when I deposit to Chase. I can go to Chase and say "give me my fucking money" and they'll give me sweet cold, hard dirty fiat dollars with, in general, no questions asked. I deposited in dollars, my account balance is denoted in dollars, my withdrawals in dollars. 1 USD == 1 USD.
All of these Bitcoin exchanges.... ...... maybe you can do that but good luck..... maybe?????
Unlike a real bank, your "Bitfinex Credit" is actually backed by USDT, not USD. When you go to Bitfinex and say "Give me my fucking money in USD", they'll laugh and point out that you never had USD, you bought something called tether which is. Tether being, of course, the space-age crypto currency that is pegged to the USD using ...$methods.... and has, according to their marketing website, been subjected to "multiple professional audits" (cough).
So what you see on all these ticker sites is a bunch of USDT that is silently folded into the USD marketcap and pricing models people use to make their decisions. All of it assuming USDT is actually legit. If USDT goes south, it is going to fuck over the entire crypto market because almost everything there is now completely mispriced. Worse, there is allegations that USDT was being used to drive up and maintain the current crypto prices... if that is true, crypto is double-fucked because even the underlying valuations are bullshit.
> Bitfinex, as I understand it, allows withdrawals in USD (modulo the restrictions above).
Show me an average joe retail "investor" who has been able to successfully withdraw USD from Bitfinex. People have been asking for that person to stand up and raise their hand for months. Crickets is all you get in response.
You try it - try to get more than 10,000 USD cash out of your bank, and then tell me how sweet that fiat money is (much less doing this without any questions asked). This is not to send out the ridiculous trope of “fractional reserve banking is a fraud” or anything; Chase, for the moment, is solvent, and recent events have made it clear that the Federal Reserve will sooner barbecue children than let a bank customer not have access to their funds, regardless of the solvency of the bank.
If you look in the Bitfinex subreddit, you’ll see tons of posts complaining about slow withdrawals, but the older posts all say that the situation was resolved. It might be that they’re just oiling the squeaky wheels, but on the whole it looks like things are working, just slow.
You say that “Bitfinex Credit” is backed by USDT, not USD. Why do you think that? And even if they do this as an internal accounting trick, it is only problematic if Bitfinex is insolvent. USDT seems like a red herring here - either Bitfinex has the money to back their customer deposits or they don’t.
The last time they were insolvent they managed to issue funny money to recover, and, inexplicably, kept their position as the market leaders.
The allegations of market manipulation are concerning, but the crux of it is that if Bitfinex is printing unbacked USDT and using them to drive the price up, that simply means that they are insolvent. Because there are essentially no operating credit markets in the cryptocurrency space, the ripple effects of a run on Bitfinex would be limited by that; not to say they’d be nonexistent, but other market centers trade huge volumes now indepently of Bitfinex.
I have no opinion about the soap opera of crypto currencies but the implication that it is hard to get more than 10k in cash from a bank is ludicrous.
I’ve gotten more than that out of a credit union located in the basement of a grocery store using literally the exact same form that is use to exchange coins for bills and taking less time.
Maybe the assertion is you can’t do it without an irs notice from the bank? Sure but you can easily get the cash.
To be fair this is very hit or miss, depends largely on your transaction history, the specific bank (and branch) policies, if that bank manager is having a bad day, etc. And that's the problem.
I've been hit by the insanity of "yes it's your money but you can't have it" from banks before, and it's one of those things you think everyone else must be a borderline criminal and/or exaggerating until it happens to you.
Anecdote isn't entirely useful here. The fact is they can do it, and even with sizable assets I had far fewer avenues of recourse than one may initially think. This made me really rethink banking security in a new sense.
I don't know about where you live but I have withdrawn ₹50 lakh (about $80k) from a bank account and the only way it was different from withdrawing smaller amounts is the time they took to count the notes. And they don't ask questions, it's literally your money.
> inexplicably, kept their position as the market leaders.
Only because there is apparently a large segment of people who do not have functioning critical thinking skills. I know HN doesn't like to do politics, but there is a huge overlap, at least in terms of thought process, in the people who support a particular president and those who support bitcoin. Both seem to lack any kind of critical thinking and both dismiss anything negative about their worldview as "FUD". It is pretty amazing human behavior if at least one of the two categories didn't have some very negative real world consequences...
Honestly, both could almost be considered a very large cult.
> I know HN doesn't like to do politics, but there is a huge overlap, at least in terms of thought process, in the people who support a particular president and those who support bitcoin.
No, you can convert USDT directly to USD. However, Bitfinex can only wire you that USD to a Taiwanese bank account. I can't verify that they actually will wire it, but this is what they claim. And I assume if they were refusing to make these wires to people who had Taiwanese bank accounts, people would be pointing it out.
Actually, it looks like sometime in the past few weeks Tether changed their terms to say they do let you redeem your USDT:
"About Tether Tokens; General Restrictions: Tether issues and redeems Tether Tokens. Tether Tokens may be used, kept, or exchanged online wherever parties are willing to accept Tether Tokens. Tether Tokens are fully backed by the currency or property used to purchase them at issuance. Tether Tokens are denominated in a range of currencies. For example, if you purchase EURT, your Tethers are fully backed by Euros. If you cause to be issued EURT 100.00, Tether holds €100.00 to back those Tether Tokens. The range of currencies available to denominate Tether Tokens is within the sole control and at the sole and absolute discretion of Tether. Tether Tokens are backed by money, but they are not money themselves. Tether will not issue Tether Tokens for consideration that is other Digital Tokens (for example, bitcoin), and will not redeem Tether Tokens for other Digital Tokens; only money will be accepted upon issuance, and only money will be provided upon redemption.In order to cause Tether Tokens to be issued or redeemed by Tether, you must be a verified customer of Tether. No exceptions will be made to this provision. "
(all typos and spacing are theirs. This change looks very hastily put together and quite sketchy)
The catch is now "you must be a verified customer", and registration is conveniently closed for the time being. Users who got in before registration closed report it taking months to get verified. Also, no US citizens allowed.
They're doing their best to put up a good face here but good luck actually getting them to hand over cash. The thing is blatantly scammy, they obviously don't have $2.3 billion in cash reserves on hand and never did.
To safely "park" your crypto assets when it tanks in price. Many exchanges offer tether as a trading currency instead of fiat, to avoid regulatory hurdles.
> But it won't take your USDT and turn it back into dollars.
that's... unlikely. mainly because if that were true, nobody would want to sell anything at bitfinex, and cryptocurrency prices there would skyrocket. this happened at mtgox when they halted withdraws, BTC prices skyrocketed there.
The thread here is about Bitfinex not writing money, but on the thread a couple of similar issues get resolved. Could be shills or Bitfinex oiling squeaky wheels. I too would love to see someone here on hn post about their experiences, though.
I'd like to verify that myself; I even made a bitfinex account (with vpn). But the withdraw USD option (both wire and USDT) are disabled unless you can verify your account.
Yes, that's exactly what many people think is going to happen, and in fact there's already a small but persistent spread in BTC prices between exchanges that price them in USDT (like Bitfinex) and those that use actual USD (like GDAX).
The whole point of USDT is to use on it exchanges that can't get USD on it. If you can hold USD, there's no need for tether, and there's no need to go the extra mile put your faith in a foreign corp that supposedly has to money to back it (buy risking your USD to buy them).
The Tether foundation itself isn't going to buy back the USDT because then it will just have to burn them because it no longer has the supposed dollar backing it.
Up until this year many Americans could use USDT for accounting purposes. The IRS deemed crypto property (1031 exchange) meaning you could use like kind treatment and not pay taxes on the transactions ad they were both property. This treatment has officially ended in 2018.
Another key bit: Tether's website claims "frequent audits", but their auditor a) never completed their first audit and b) just severed their relationship.
I'm guessing the auditors weren't happy with "out of thin air" when they asked where the the backing currency came from.
The Tether folks were like "Our balance sheet is really simple! We just add numbers to this column until it evens out, what's the problem?!?" and the auditors are like "that's just fraud".
I'm pretty sure they did try to do this legally, but then they lost the ability to actually send and receive USD from the US. If you tried to do the same thing you'd run into the same problem. If the effective point of your tether is to allow exchanges to avoid enforcing anti-money-laundering controls and skirting legislation requiring them to be properly registered in the states they do business, then good luck finding any US bank that will work with you once they figure this out (either to hold your account if you are US based or to transfer money to and from your international bank if you're international).
So what likely started out as a legitimate operation probably found it impossible to continue that way once it could no longer easily exchange tether for USD. So the options were probably to shut down or keep operating "untethered" and basically have a free money printer.
It sounds like exchanges are using Tether because offering to cash out USD can be difficult if the exchange isn't in the US, so they let people use Tether as a proxy USD. e.g. If someone thinks the market's about to crash, they can sell their Bitcoin for Tether, then buy back Bitcoin when the price drops.
So if your coin has the same use case as Tether does now, people may not buy MyTetheredCrypto off you directly for USD, but they might buy it off you for Bitcoin or other cryptocurrencies you accept if it's not easy for them to convert to USD. Then you sell those coins immediately for their value in USD (you presumably having more access to do this than the buyer does) so you have your USD-backed tethered cryptocurrency with every MyTetheredCrypto backed by a real dollar USD.
Obviously I'm not really suggesting all this seriously though, there are lots of potential problems all over it.
The big problem being how you convince people to put real money into the system in the first place, especially if you want to keep the price fixed at 1:1. You end up with a huge quantity if BTC chasing tiny amounts of real USD. In a proper market the exchange rate should plummet due to the imbalance.
Banks can repossess your property if you don't pay. If you're not putting in much money as a down payment, they'll also force you to pay for insurance (PMI) on the mortgage.
They're also not promising otherwise and claiming to be regularly audited while firing/being fired by their auditor.
Also, 'aspirationally' is doing a lot of work in the grandparent post. Each instance of USDT is supposed to be backed by 1 USD in tether's accounts, which is what's supposed to peg its value... However.
1. Tether will not convert your USDT into USD. You can only offload it to a bigger fool.
Ok, so they printed billions of Tethers and bought BTC with them, I get this part.
What I don't get is: This means somebody sold BTC for billions of USDT (instead USD!). Who is doing this? Why would you sell for USDT instead USD?
Maybe there some daytraders on the exchanges that go in and out the Tether every day, yeah. But that should not account for that much. Who is hodling that giant pile of USDT? And why?
There are many traders that don't day trade. They set up a bunch of trades going forward a couple months and they just leave it. I've done this in the past. For example, you set up a bunch of buy orders starting at -25% of the current price and further down as it goes and a bunch of sell orders at +25% the price and a bunch up as it goes.
So then if you have volatility and you come back you can have double or triple your money. It's not a perfect system, but it's low work and you really only lose out if it goes to 0.
The problem with Bitcoin is that what do you sell it for? In many countries the only option is Tethers.
> On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset.
I'm sorry, but I cannot follow.
Let's say you want to sell a BTC, current worth about 10k. So you go to a shady exchange, click sell and 10k of USDT appear in your account.
Good, but what is the next step? The next thing you will notice that there is nothing that you can buy for your USDT. You cannot buy a house, you cannot buy a car, you cannot even buy food. The only thing that you can buy for USDT is BTC (or some other cryptocurrency). This is the only thing you can do next.
And the BTC is even worth more than the USDT, because there are actually people willing to sell you stuff for BTC.
But let's assume for a moment that people are really hodling USDT. This would mean that there is an increasing amount of such people, because Tether is printing more and more and more of USDT. This means there needs to be an increasing demand of USDT, and I really cannot see where this is coming from.
You sell BTC to USDT if you are not looking to cash out of BTC. Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops.
When you do want to cash out to real fiat, you have to sell to USD.
USDT allows a large number of exchanges to allow you to sell BTC and hold in something that looks like USD. Without USDT a number of exchanges won't see anywhere near the volume they get. By enabling a larger volume, USDT is indirectly helping inflate BTC (and other currencies) price.
> You sell BTC to USDT if you are not looking to cash out of BTC. Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops.
Why not just sell BTC for USD, and keep the USD balance that you get in the exchange? You can buy-back once the price drops. You don't have to wire transfer the money out, the exchange will happily keep it on their books for you.
If your exchange can't keep USD on their books, there's something seriously wrong with the exchange, and you should probably look into taking your business somewhere else.
If one cannot easily cash out USDT to USD or EUR or GBP or whatever else then USDT is also a garbage sea shell currency - you may as well sell for sea shells directly.
> Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops.
Yes, I get that. But as you mentioned this is "short term". How does it explain that Tether is printing more and more Tethers? Do you think more and more people are selling BTC for USDT for a "short term"? We are talking about billions here.
> How does it explain that Tether is printing more and more Tethers?
The demand for Tethers is high because the demand to be able to trade is high.
> Do you think more and more people are selling BTC for USDT for a "short term"?
More and more people have been getting involved in trading as the price of Bitcoin and other cryptos was spiking. Now those people are in the market, but Bitcoin has been dropping. It makes sense that a lot of them would want to hold a USD proxy under these circumstances.
Of course, that's the optimistic scenario. It's also possible that There's are being used fraudulently to pump BTC. Without proper transparency, it's impossible to be sure.
> It's also possible that There's are being used fraudulently to pump BTC.
My point is: How can you pump BTC with USDT? You need somebody to buy your USDT if you want to sell USDT. In fact, you need somebody to buy an enormous amout of USDT if you want to pump BTC.
Pumping BTC is not a one sided thing, and I fail to understand the other side. What I get from this thread is that that nobody really knows who is buying the 100 million USDT per week.
Get people to believe it's backed 1:1 by USD when it's not, so that it is viewed as equivalent to USD but less problematic in regulatory
terms, and then print a bunch of unbacked USDT and use them to buy BTC. To the market, the effect is as if a whole lot more actual USD were chasing BTC, effectively looking like higher demand.
> and then print a bunch of unbacked USDT and use them to buy BTC.
But who is buying and HOLDING the USDT? Sorry that I repeat myself but this is the whole point I want to understand.
Yes, somebody is selling USDT for BTC, I get that. It is nice but I want to understand the other side. Who is buying USDT for BTC? Why? Somewhere there is a billion of USDT lying around. Somebody bought it. Somebody is keeping it. WHY is somebody keeping it? Why is somebody buying more and more of it?
I think it is a very crucial point to understand. Yes, maybe you can convice some fools to sell their BTC for USDT. But they will notice, because there is nothing that you can do with USDT except buying BTC. So they will BTC again and try to cash out somewhere else. So who is holding the one billion of USDT?
I'm not sure how effective that would be in practice. Total Tether issued as of the end of 2017 was about 1.3 billion. Coinbase booked over $1 billion in revenue in 2017; the amount of money going into them was presumably much bigger than that. (There's also weak evidence from price differences etc between exchanges that the bulk of the demand has been coming from Coinbase/GDAX.)
The people buying USDT are people trading cryptocurrency. There are many exchanges (probably most) that don't deal with USD, so USDT or other Tether varieties are the only way to execute trades that approximate trading fiat currencies for pure cryptocurrencies.
I think you may not realize how large the market has become. The top 6 biggest exchanges are currently trading more than $10 billion worth of cryptocurrencies daily, and there are many more that trade $100s of millions daily.
If that volume is sustained (it reached a peak recently with the price spike), it would put the annual trading volume well into the trillions, perhaps around $5 trillion.
100 million USDT per week seems pretty reasonable (if not small) to support that kind of activity.
If a lot of people are buying USDT with BTC, it means they don't have confidence in BTC going further up and want out in order to wait for the price drop, so that they can buy in later , assuming the price will drop as expected by them. If they had a way to short BTC/USD, they would simply do that instead.
> Do you think more and more people are selling BTC for USDT for a "short term"
Could very well be. BTC is on a general downward trend, almost as low now as it was in November. If people think that seeing 18k again in the next couple of months is likely, then why not?
There's a reason to temporarily move from say BTC to USDT: If you think bitcoin/crypto currency is going to trend downwards for a bit and your exchanges don't have fiat balances (so the vast majority of them?) you sell your cryptos for USDT, wait for cryptocurrency prices to fall, then re-trade your USDT for more BITCOIN or whatever. Then you have accumulated more bitcoin (the premise is that you think it'll go up again).
Edit: ninja'd.
actually if you put 10k to buy btc and then revert it to usdt your 10k becomes usdt backing. since you are buying something that needs to keep the price inflation kicks in and more is issued. nothing magical about that
I hear you and this whole situation is clearly shady af, but at the end of the day BTC is fungible with USD, so I'm not sure at this in and of itself is that big of an issue (besides any explicit legal concerns that I can't speak to). If you're providing a currency pegged to the USD, then selling tether for BTC might be one piece of a strategy to do this- The issue for me is more that no one knows what's happening to the USD/BTC/etc after such a sale happens.
You're missing the point, OP is suggesting that Tether isn't really backed by USD. So instead of trading something backed by USD for BTC, they're just creating worthless IOUs and buying BTC (typically bidding it up on down days). It smells a lot like fraud.
The fact that they don’t publish financial statements that have been audited by a major accounting firm on a regular basis clearly indicates that the whole thing is a massive fraud.
Bernie Madoff’s operation sucked in billions for years and years. Were there an audit at any point, the scam would have been revealed.
No, I'm saying that when people on exchanges like Bitfinex "cash out" they're really getting freshly issued Tether that isn't backed by anything. It's fraud. The scam works as long as you can keep the price pumped up (new Tether issues seem to occur like clockwork during BTC sell offs), but if the price plunges they'll be insolvent in a hurry. Let's say they bought BTC with $100m of freshly minted USDT back when the price was $20,000 (round numbers are easier)... Instead of $100m in USD backing that issue they would now have ~$50m in BTC. Tough luck for anyone who wants to exchange their USDT for USD.
This would be something like a run on a bank, except without the FDIC to step in and make sure everyone gets their money out.
Accepting USDT is akin to giving Bitfinex an interest free loan with a high chance of default--no possible upside and lots of possible downside. No one should use any exchange that deals with USDT in any way.
It would make them "bitcoin rich". They still would need to convert to USD at some point. Which, if their buying and holding is what drove the price higher, would subsequently crash the price.
I'm being 100% pedantic here (I fully agree tethers are ridiculously shady) but if tether one day rises to 1.05 USD, and the tether company then sells more for BTC to bring it back to 1.00 USD, and the tether company subsequently converts the BTC to USD, how is that fraud?
That's not the concern. The concern is that if you have a contract that promises to pay the bearer X and you don't pay the bearer X when they ask because you lied, then that's fraud.
It's especially frowned upon when X has 10 digits before the dp.
Now, I happen to think that the Tether folk have been a tad more crafty than some of the black and white commentary is making out. More specifically, if they've been careful with who they've allowed to set up accounts, it may be effectively impossible for them to be called out.
I also don't think the CFTC calling in Dec is that interesting. It probably precipitated their change in T&Cs at the beginning of Jan though.
Because they're not claiming "We can maybe somehow come up with the money that the Tethers represent in the future." they're saying they have the money right now.
And again, you're missing the point that it doesn't seem like they are selling the USDT for anything, BTC or otherwise. They're just printing it and buying BTC with it.
EDIT:
That may seem like splitting hairs but the point is they aren't issuing them in exchange for value, they're just creating them and then using the value they supposedly have based to purchase BTC.
An analogy if you still don't understand the difference; it's the difference between buying a $50 Gift Certificate to a store with $50 USD or just printing one on my printer. One represents $50 USD that exist and were exchanged to buy it, and the other represents nothing.
Buying bitcoin with it and then selling the bitcoin immediately for USD, and banking it would mean they are at least solvent, is they key point he is getting at. Im not sure why anyone would want to trust money to that without audits, but its certainly possible. And quite important!
Edit: the assumption seems to be that they are buying bitcoin and holding it, which would increase the bid and result in not being backed by USD. If they are not holding the bitcoin, then the buys and sells even out, and they are not adding to the bid, and they hold cash equivalent to USDT. I am quite interested to find out which it is.
Their assets equal liabilities in either case (whether selling USDT directly for USD, or cyclling them through BTC). Call it what you will, but in neither scenario is anyone rich. Tether if backed by USD at the end of the day is revenue neutral. What am I missing?
This is irrelevant, though. You can commit fraud without losing any money - Martin Shkreli was famously convicted of fraud a few months ago even though the victims all came out ahead.
In the USDT -> BTC -> USD trip, there is a point, namely the BTC part, where more USDT has been issued than USD has been accepted. If they claim USDT is backed by USD, but there were points where that was not true, they have committed fraud, regardless of whether they were lucky enough to come out ahead.
No argument there. There are multiple arguments about what Tether is or is not, and what part of this story interests people. Im most fascinated and interested in what form the proceeds of USDT sales are in. If they are holding bitcoins it has much bigger implications than if they are holding cash. Thats kind of why Im probing this. If they are really holding bitcoins, it means a spectacular implosion is coming. If holding cash, less so. If or why they all go to jail is less interesting to me.
So, whether their books line up is irrelevant to whether they committed fraud, perhaps, but VERY relevant to the price of bitcoin.
What you are missing is that they created money out of nowhere. No individual loses directly, but it affects the overall money supply. In this case, the price of bitcoin was inflated artificially by buying it with an asset that was created out of nowhere.
It's like having a printing press that creates legitimate money. No individual loses, but the prices of everything you can buy will artificially increase (or another way to look at that is the currency deflates) if you print enough of it.
I think the math is fairly straightforward. There is a USD/USDT driven cross. Creating and destroying USDT is straightforward there. There is also a BTC/USDT cross. That creates a drive for USDT. If that demand to sell BTC and buy USDT bids up USDT, then USDT would be created, and the BTC would convert back to USD. I agree that Tether is not forthcoming that this happens, but yes this is exactly what I would expect to happen. Its not mysterious sounding to me, or necessarily nefarious. I dont understand why Im beimg downvoted, its a discussion about generic market mechanics. We can leave bogeyman words out of it.
Because Tether obviously does not have $2.3 billion in cash reserves on hand, there probably isn't 1/10th that volume of fiat in the entire cryptocurrency ecosystem (not market caps, liquid cash that could be withdrawn). They're writing checks they cannot cash, plain and simple.
It's called "lying" and "fraud", your "but what if they did have the cash" is irrelevant, because they don't, and you're getting downvoted because you're aggressively refusing to address that point in favor of hypotheticals.
Could you hypothetically have a legitimate Tether token? Yeah, sure. Is the Tether Foundation on the up and up? Hell no.
There's a reason their auditor bailed before completing the audit.
Actually, you are the only one who has brought this up, that the liquidity dictates that they couldnt have sold BTC for USD. If that is true, then youve answered my question of what I was missing. I didnt aggressively fail to address this, it quite literally wasnt brought up. Thanks.
EDIT: This apparently is no longer a site to ask questions or to challenge assumptions in good faith to get at an understanding. Its a religious conversation. One takes things on faith, or GTFO, apparently.
I might be getting lost in the discussion, but I still feel you miss the core point - it's not about liquidity. Even if they could sell BTC for USD without affecting the crypto market, they still seem to have printed out USDT out of thin air and - as I understand - proceeded to buy BTC with them. That is, you could say they literally stole those BTC.
Going from USDT to USD in a roundabout way through BTC doesn't change anything if USDT themselves are bullshit.
RE your EDIT: it is, but deep downthread like this, it's always luck what you get. Also don't worry about the downvotes, everyone gets their share of them here :).
I do understand that, they engaged in fraud, slight of hand, whatever. But my main interest is what happened after they exchanged USDT for Bitcoin. When they did this, or as they did this, they added $2 billion or marginal demand that didn't exist in dollars to the bitcoin market. However, if they subsequently and along the way sold the BTC for USD, they also extinguished that extra demand, so the bitcoin market net-net had no extra demand - all purchases ended up being backed by USD.
I dont know the answer to the above, but its critical for the future price of bitcoin and is really really important. Everyone just seems to assume they held the bitcoin, which is a crazy move. If they could have sold for USD, it makes sense to me they would have...thats why I think its an important question. It doesnt seem to interest anyone else tho, which is fine.
The comment above said liquidity dictates they could not have, that they must still be holding bitcoin. But I also say today, bitfinex'ed, the blogger that has been on this story, says they redeemed 330 million in past 24 hrs. Which is far above the 10% of 2 billion number he said of the entire crypto market is backed by USD. So to say the liquidity doesnt exist doesnt seem to make sense, there seem to be a lot of dollars into crypto. 1 million people with $1000 invested is a billion alone. That isnt crazy.
Because its exactly equivalent to selling Tether for USD, which we know they do. There are arguments that they couldnt have liquidated so much BTC, but I don't see any specific argument that leads on to assume that they wouldnt have. Unless one puts fraud as the entire goal. Which can't be discounted, but its just not obvious, to me.
It's somewhat equvalent but more complicated and more expensive (Transaction costs at each step). It also has one huge downside, which accounts for why you wouldn't do it.
You'd be flooding the market Tethers nobody is asking for, which risks crashing the value of Tethers. They could buy back the tethers for dollars to stablize the price, but that would make the whole transaction useless.
There is also volitity risk. In a falling market they might lose money.
True on volatility and transactions, I shouldnt have said exactly. But volatility speaks to why you would want to exit BTC as quickly as possible, if trying to avoid. One could argue it should net out to nothing over time.
I dont see it as flooding the market with anything, the Tethers are created in effect by people exiting cryptos into Tether on all these exchanges that only deal with Tether rather than USD (potentially!).
Lets step back to Tether creation. There are zero out there. Someone gives Tether $10 million for 10 million USDT. Those matriculate out in the universe, and are being exchanged back and forth for cryptos. Someone somewhere always holds those 10 million Tether. The price of cryptos rises and rises. Now all of a sudden the demand for USDT has increased, as people who exit crypto on those exchanges need more units than before, rather than 8500 USDT per BTC its 20000 USDT per BTC. No one has given Tether anymore USD directly for USDT. What would happen in this scenario is the price of USDT would rise. One way, not the only way, but one way for Tether to bring the price back under control, would be to buy BTC for USDT, issuing new shares, to bring the price back down. Which at $1 means equillibrium.
Is that how things work, I certainly dont know. But that mechanism is one way it could work. And it could explain why USDT are created on down days. Its the demand of people getting out of BTC driving it.
Now they could totally take that money and spend it on hookers and yachts for all I know...but thats at the end of the chain.
Right, so in the situation you describe, they no longer have a dollar backing the issue of new tether, in fact they have conjured them up from nowhere and used them to buy cryptocurrency. So while the original 10 million in tether is backed by USD, the new stuff isn't. And the mass printing has conveniently propped up the BTC price as well!
First of all, banks do have to balance their books. The 'fractional reserve' model taught in school is actually not how banks work in reality, and violates accounting rules.
Every single deposit in the bank does need to be backed by something - if banks just stored deposits then they would have to either have the full reserve backing, or other assets (cash, investments, etc.) backing every dollar. Lending seems different, but is really the same. Lending creates new money, by creating a new asset on the bank's balance sheet (the loan), and creating a matching liability of the bank (the deposit). But it is still backed by an asset - the debt to the person they lent to. (Central bank reserves don't actually come into lending, until the banks need to transfer money to other banks. Reserves are used for this, and the bank requires enough in their asset mix to maintain liquidity of their interbank transfers. They can just borrow reserves, for pretty close to the headline interest rate from other banks if they need some extra though).
So, Tether could be operating like the banking system, but, if they don't have full backing they would have to be creating matching debt for the remainder, with the intention of it being repaid. Otherwise their liabilities (the Tether) don't match their assets and it's just fraud.
Secondly, banking systems have a lender of last resort. If a bank faces a liquidity problem, they can still borrow reserves from the central bank. If Tether faces a liquidity problem, it's likely that nobody will lend them money, their business will collapse and all tethers will be rendered worthless.
Well, of course banks can become insolvent (i.e if enough people default on their loans), which is why many governments now insure people’s deposits (up to a certain limit).
But Lehman Brothers wasn’t a commercial (retail) bank, which is what I was describing. They were an investment bank, which generally don’t take deposits or directly offer loans.
Do you want Tether to be audited and regulated like the fractional reserves of a bank? I'd sure find it entertaining while it lasts.
This is also moving the goalposts, because they claim that Tether is fully backed, not fractionally. Changing their story there would involve admitting to a billion-plus-dollar fraud.
They just create one out of thin air and claim that it is backed by real money. But they don't tell you where that money is actually being held, and their auditor recently resigned, so there is no trustworthy independent verification that this money really exists.
They are probably holding Tether reserves in BTC, in a way gambling with the storage moeny. Figure that 2 billion dollars in sitting money generates very little interest, in comparison to 2 billion dollars in btc that might jump 10% in one week.
This bet however, inflates the price of btc alone, since its like someone selling a btc doesnt take any btc from the market (as a btc is traded for another btc concealed). This double spend increases demand for btc, and on paper makes tether rich.
However, if BTC drops below the cost of acquiring it, the fund becomes insolvent, and as it can't sell anything to recoup it can only spiral down.
So, it's better to sell BTC when the market is higher, and convert BTC back to paper currency. Then USDT could in fact be solvent and possibly earn a profit with the a jump in BTC price. If they have billions of dollars in BTC, it might not be infeasible then to print USDT because their profit would guarantee people would get their money.
Thats like saying you can make a loan for the bank, and buy the bank's stock saying that the bank is making more profits on loans now.
It may work in an incredible bull market (which we have) but it has immense risk exposure. Also bear that the monet that Tether sells their btc, they depreciate their own reserves.
Bitfinex is a crypto exchange kinda based in Hong Kong and kind of based in Taiwan (this seems to change depending on convenience.) Taiwan recently started becoming more rigorous about monitoring international USD wires, and lots of Bitfinex users had their money stranded in Taiwan. Bitfinex stopped supporting US customers because of these difficulties (AFAIK most customers did eventually get their money out though)
Tether is a company/product that is a cryptocurrency that (aspirationally) has a value of exactly 1 USD. The Tether company and Bitfinex are (supposedly) two unrelated companies that nevertheless have mostly the same people employed as principals. Because crypto daytraders need easy ways to quickly pull their money in/out of crypto exposure, the Tether currency has been a massive hit as a way to convert into pseudo-dollars. Because of this, people have bought billions of these "tethers" from the company, but no one has a good handle on where these billions of dollars are safeguarded, if at all.