Seems like a fairly small fine in grand scheme of things no? If the critics are right and $70B+ supply is just made up paper money, then it'll be huge losses for all Tether holders. I'd conjecture it would tank the entire crypto market - and possibly the equity market too.
It's all tied together. If one asset class is crashing people sell others to grab cash. Another way, according to Janet Yellen, that Tether and other stables can destabalize markets, is that they have large portions of reserves in corporate debt, a crisis in these coins would cause a fire sale of billions of corporate debt they hold, itself probably cascading into all risk markets.
Crypto markets maybe, but not main indexes. Experienced financial players smell tether for the scam it is and don't touch it, or I'd they do, they're in on the grift.
Laymen who bought the hype stand to lose a lot though.
My understanding is that Tether has bought a bunch of bonds and other financial instruments. If they need to raise cash, they would sell those instruments for whatever price they could get. That could lower the prices, which could have negative effects.
Tether keeps moving the buck. First it was all USD backing, then when pressed, they said they actually have it all in bonds/securities, which is just as nebulous and doesn't make it any more authenticated.
It's not verified by third parties at all, and they're printing non-stop, which is why many people can spot it for the scam it is.
There is one scenario in which the 70 billion was at one time made-up money, but where it won't ever actually tank the crypto market:
1. Tether prints $1 billion with no backing.
2. Tether buys $1 billion of Bitcoin with the the fraudulent tokens.
3. Bitcoin triples in price.
4. Tether sells 1/3 of their position in exchange for hard currency, and holds that money in their reserves.
5. Tether now has 100% reserves backing the tokens they created, and is also holding $2 billion in Bitcoin. Maybe they sell the extra Bitcoin to diversify.
6. Rinse and repeat.
Under this scenario, what these guys did was to take a massive uncollateralized loan from ordinary consumers, use it to buy buy Bitcoin, and sell off the Bitcoin in order to pay back the loan. Basically an uncollateralized version of what most DeFi borrowers are doing right now, but at a massive scale.
As long as the price of Bitcoin is going up, the scheme a surefire way to make a lot of money. If the price of Bitcoin starts going down before they can cash out, then it can easily bankrupt them and crash the market—which is also a big risk with DeFi.
It could be that we are passed that point with Tether, though. With as much scrutiny as they are under right now, if Tether ever defaults, the people who run Tether are going to be wanted for criminal prosecution in dozens of countries. They will be running and hiding for the rest of their lives. I can't believe that a few more billion dollars in the bank is worth the risk—especially if they won't be able to access those billions.
If you look at the rate of issuance of Tether since June 1 of this year, it has flattened out dramatically.[0] Could it be that the people at Tether have realized that the jig is up, and are now just trying to get things in order so they can walk away clean? Maybe.
Or, it could be that they printed so much funny money last year that the amount of Bitcoin they need to sell is more than the market can accept without tanking the price of Bitcoin, given current market liquidity. Maybe they aren't generating more Tether for themselves because they figured out that whenever they try to sell the Bitcoin they need to sell in order to replenish their reserves, they crash the Bitcoin market. Maybe they're stuck.
Or it could be that Tether is fully backed, that they have never minted any Tether that didn't correspond to $$ in their bank account, and the reason that Tether's growth has slowed is only because people are now buying USDC and other stablecoins instead. (Not likely, in my opinion.)
If the 95% crash in 2017 didn't kill Tether I'm not sure what kind of price action could, unless they are in a materially worse position now than they were in 2017 (the accusations were already super common).
It really can't happen this way. Between 3 and 4, you'd tank bitcoin's value significantly (assuming $1B is able to triple bitcoin's market value). Any sizeable liquidation of bitcoin at an inflated price is going to affect the price heavily and so now you no longer have 100% backing. (This of course depends on how elastic BTC/USDT price is)
He isn't claiming the $1b tripled bitcoin's price, just that the price tripled while they were holding $1b in coins.
$1b could also triple bitcoins price without the liquidity problems you're talking about because the initial purchase, done intelligently, can increase the price enough to kick-start another buying cycle (bitcoin goes up 100%, ends up on MSM news channels, people download coinbase and buy bitcoin, loop continues).
Why would it necessarily tank the price? Using tether to pump the price attracts new investors, and if the rally starts to slow, they can just print more
Or people will accept it as paper dollars and carry on regardless. Honestly this wouldn't surprise me - it'll just be a representation of the dollar that things use as an intermediary step.
Well, if Tether isn't backed by dollars, then there's some pretty big questions to answer - for example: "When people buy tether using fiat currency, they hand $1 to bitfinex, and in return get 1USDT. Where did that real $1 go?"
Seems like a fairly small fine in grand scheme of things no? If the critics are right and $70B+ supply is just made up paper money, then it'll be huge losses for all Tether holders. I'd conjecture it would tank the entire crypto market - and possibly the equity market too.