Lots of people want to hold bitcoin, because it might be a great investment.
Lots of people want to hold USD, because it has the backing of the world's largest economy.
Nobody wants to hold USDT.
The only use for it is as an in/off ramp for bitcoin (where it is used only briefly). Or as part of a probably-illegal scheme where Tether Inc uses bitcoin as collateral to issue a loan to buy more tethers...
>75% of USDC, which is audited, has been printed in the last 6 months, so not surprising, or indicative of anything sketchy that USDT would be growing at a similar rate.
USDT and USDC are fungible. It’s almost a certainty that USDT has leaked into USDC.
Imagine this:
1) Print USDT out of thin air
2) Send USDT to Binance and buy BTC
3) Send BTC to Coinbase and sell for USD.
4) Convert USD to USDC
You’ve now turned imaginary USDT into what is properly backed USDC. Why do this? Because then you don’t have to worry about pesky USD money trails or bank account seizures.
No, it doesn’t. Occam’s razor literally says if it walks like a duck and quacks like a duck, it’s probably a duck.
Tether has admitted to being fractionally backed. They are unaudited and the directors are ghosts.
Who the hell would deposit with that type of an organization? Most people would rather just transact in fiat and for those who must have stable coins, every other stablecoin is an order of magnitude safer.
It's strange how perfectly rational people who know Occam's razor and Popper's falsifiability principle, and can explain with great eloquence why correlation is not causation, are unable to apply the same logical reasoning to cryptoassets.
So if you can't get it out, then doesn't that break your conversion model? Why are these entities holding millions of dollars on Coinbase that they can't get out?
The end game all depends on the abilities of the proprietors to launder the proceeds. But that’s the rub in all criminal operations and why money launderers are paid so handsomely.
Apparently the size of Tether seems huge, 34 B$ of dollar-denominate liabilities, but Binance, the largest exchange, has most fiat customer deposits in USDT. Moreover, in the last year futures trading has moved from Bitcoin margined to USDT margined and it is very profitable. So I wouldn’t be surprised if large funds are trading those future markets and they require USDT.
But offcourse it could still be insolvent if they issued too much or simply made insolvent if the assets (t-bills, cd) backing the issuances are frozen from US authorities. Just assume that as a known risk and plan accordingly
Kind of, see the monthly attestations at https://www.paxos.com/attestations/ . It's significantly better than USDT, but IMHO not fully at a level where you can say "properly audited" without any caveats.
Who is holding all this tether? I fully get the usecase of buying tether for usd, then going to an exchange to buy Bitcoin, there the exchange might briefly hold the tether, but would they not go back and convert the tether to dollars rather than hang on to it?
Or are we really in a scenario where the majority of the usd pumped into crypto are held by tether and only “IOU’s” at the exchangs? And a crash in tether would simultaneously pull a my gox on almost all exchanges?
Users. Users are holding all of this USDT. Anyone with a dollar pnl on Binance and most other exchanges is actually holding USDT.
The exchanges don’t have any USD. They never did and they don’t have banking relationships to process USD anyway.
As to why anyone would hold USDT especially when there are better alternatives? They wouldn’t. But it’s not redeemable (Tether claim it is but it’s never actually been proven).
Fiat goes in. Tether comes out. And that’s irreversible. It’s an amazing scam.
The consensus is that all/most trading there is wash trading to give the illusion of volume. But like all bank runs, they don’t occur until enough people actually ask for their money.
Until that point, people seem happy to consider USDT equivalent to USD (and that may never change)
That assumption is the key issue: Binance doesn’t have USD banking, there is no way for them to accept USD for which to buy USDT.
Exchanges use Tether because they don’t have banking and can’t accept USD. So the USD has to find its way to Tether by some other mechanism. They claim it’s institutions, which is absurd. No institutional investor would ever give billions to an unaudited offshore entity when they can send fiat directly to legit exchanges. Michael Saylor himself says no institutions are using Tether.
So where do the Tethers come from? Maybe it’s not a fraud. But the answer should be very simple, and yet they cannot explain it.
I don't know what percent of Tether's funds are actually backed by USD. And I don't trust them as a company.
But lets look at the economic game theory of it:
- There is currently no premium on Bitcoin prices on Tether exchanges vs non-tether exchanges (http://www.untether.space/)
- USD/USDT pairs can be traded on legit exchanges like Kraken and are currently trading evenly
If the theory is that unbacked Tethers drive up Bitcoin prices, then we should see a premium on Bitfinex/Binance, because that's where buying demand should prop up first. A premium doesn't exist at the moment.
And further, lets say Tether is exposed and crashes. We would expect that users race to buy Bitcoin with their bad USDT and withdraw. The only bag-holder is whoever is using USDT. Bitcoin holders would suffer in the short term as speculators become cautious, but technically should not be affected other than a couple of albeit large crypto gateways potentially going under.
In finance, no one complains about flawed schemes as long as everyone thinks they’re making money.
Enron was thought to be a market master until it fell apart.
Bernie Madoff’s clients were happy with their returns until the fraud was exposed.
The only difference in the cryptocurrency world is that a lot of the players have a suspicion that some parts of the system are powered by fraud, but they either wave it away (buyer beware / I can buy the dip if the market crashes) or they think they can get their money out before it really crashes down.
Agreed. Surprised there are so many Bitcoin lovers on HN and in the startup scene, which is supposed to consist of smarter-than-average people. Bitcoin is basically shitty gold, because unlike gold, it has no intrinsic value and can go to zero, it's all based on fragile sentiment.
I've been cashing out of my crypto weekly. Started in January, going to continue until i'm dry.
I can't predict when this garbage explodes, but i'll at least have the majority of the money out or all of it. If i'm wrong, i'm wrong, but all of this is fishy as fuck.
Defi loans, using your crypto as collateral to buy more crypto, tether printing off the charts. Most people don't care though, they see number go up and ignore the noise.
I think bitcoin can be a technological marvel that has utility to humanity, even if it's being pumped artificially and its value falls back to (or below) what it was before it was pumped.
I think you underestimate just how mighty 'fragile' sentiment can be.
The argument for gold is that it isn't 100% a speculative investment.
According to Wikipedia(https://en.wikipedia.org/wiki/Gold) 50% of gold's use case is in making jewelry and 10% is used for industry.
On the other hand, Bitcoin isn't used for anything, except as for a speculative investment, not even as a currency or as a "decentralized PayPal".
> The argument for gold is that it isn't 100% a speculative investment. According to Wikipedia(https://en.wikipedia.org/wiki/Gold) 50% of gold's use case is in making jewelry and 10% is used for industry. On the other hand, Bitcoin isn't used for anything, except as for a speculative investment, not even as a currency or as a "decentralized PayPal".
Also, Gold has literally thousands of years of cultural precedent as being a "valuable thing." Bitcoin, not so much.
For the vast majority of people Bitcoin in its current form provides a worse user experience than PayPal, VISA, etc.. because the fees are a lot higher and the transaction times are longer.
If you want to buy $1.5 billion worth of Bitcoin the $5-$50 transaction fee doesn't matter. For the majority of people it matters though.
Right, where would people even get 700 B.C. technology to “use” gold!?
(Of course gold has intrinsic value! Just because you can’t use a thing, doesn’t make it worthless to me, I’ll still buy your gold despite you not knowing anything but how to pull it from your pocket)
I assume you've weighed this against the waste materials and environmental impact that results from mining gold, such the usage of mercury or cyanide to process the ore.
> Agreed. Surprised there are so many Bitcoin lovers on HN and in the startup scene, which is supposed to consist of smarter-than-average people. Bitcoin is basically shitty gold, because unlike gold, it has no intrinsic value and can go to zero, it's all based on fragile sentiment.
Being "smart" often doesn't translate into making good decisions or having good judgment. Sometimes intelligence only amounts to better capabilities at rationalizing whatever harebrained thing you already wanted to do, instead of giving up on it.
I think Bitcoin hits a bunch of special-interest buttons in some people that make it very difficult to put aside, for instance: truly innovative technology, startup thinking/wanting to be in on the "ground floor" of a big success, sci-fi made real, libertarianism, etc.
The case is still ongoing (although note it's New York, not the US, that is prosecuting the case). As I understand it, Tether still has yet to provide the documentation requested by the New York Attorney General.
I wished people understood how Tether works. Bitcoin is up 6X this year , 600%. Many exchanges use Tether to onboard clients and that is why Tether is printed.
Tldr; Tether gets printed whenever Bitcoin demand goes up and that's in their whitepaper.
For downvoters: You are downvoting facts and truth, quite far from your scientific beliefs. Just read the actual whitepaper and then come and downvote. Don't repeat what you read or heard or think is obvious, obviously.
>Tldr; Tether gets printed whenever Bitcoin demand goes up and that's in their whitepaper.
The theory is sound, but the experimental verification of the theory (an actual audit of USD reserves) is sorely lacking.
Plus, if you really dig into the history of the folks involved with Tether, I mean, I'm generally no fan of ad-hominems and generally willing to give people the benefit of the doubt, but in this case, the reek of fraud is overpowering [1]
> Because the dollar supply has also skyrocketed in the same time period.
With the following difference:
USD is backed by guns, tanks, warships and missiles. And some actual tangible assets (a fraction of the mass of USD in circulation).
USDT is backed by a bunch of italian people that are very well-versed in:
- the art of engineering financial complications
- the art of running when the weather turns bad
- a vague, unaudited promise of USD reserves.
There is no connection to USDT issuance. As Michael Saylor, famed Bitcoin bull, says: no institutions and using Tether. Tether are printing it out of thin air.
Bitcoin bulls know this and they rush to hand wave away Tether at every turn.
M2 includes "I owe yous" by banks. But USDTs are only the "I owe yous" by the emitter. So a better comparison might be the federal reserve balance sheet:
No it’s not a better comparison as banks genuinely create money by lending. This is the whole point of FRB.
You can cherry pick your numbers but it doesn’t change the fact that Tether’s reserves likely don’t exist in the way they’re supposed to (cash and cash equivalents).
I don't think it's a better comparison when it comes to how much money is "printed". That's M1, not M2. Fractional reserve banking don't print money, it increases (and decreases) the money supply through lending.
Despite perhaps not being backed properly, Tether is not supposed to be fractional reserve, nor is Tether created through debt.
> Fractional reserve banking don't print money, it increases (and decreases) the money supply through lending.
Technically the Fed does the same. They lend money to the Treasury by buying Treasuries (or more recently, to other people by buying IG credit). When the Fed prints money, in theory it’s offset by a liability somewhere. They are the same. M2 is what matters.
It’s trying to imply that the dollar is collapsing and everyone is rushing for the exits, which isn’t true by any other measure.
These arguments are dishonest because they treat Bitcoin as a dual currency/asset but then only compare to the M2 money supply (currency) while ignoring the total wealth of the United States (including assets).
These arguments also confuse quantitative easing with traditional government debt spending, and they ignore that the stimulus money is designed to fill gaps in the economy left by COVID, in which case inflation would be negligible (although I think the US is overshooting that target)
They also ignore the fact that crypto isn’t the only exit for holders of USD looking to avoid inflation. They can invest in stocks or assets (crypto is a narrow subset of this), or they could exchange into the currency of another nation.
Counter-point: the US government added $2.2T more dollars, yet they are almost as good at buying commodities and other goods and services today as they were a year ago. Furthermore, the market expectation of their goodness, as determined by Treasury Inflation-Protected Securities, is quite strong. That seems like almost the opposite of dollar holders rushing for the exits!
I don't know, but I think the destination is primarily the stock market for the past year. Maybe some also went to bitcoin.
- Fed open market operations: $2.8T introduced over 9 month by the Fed in 2020[1].
- Stock market (DJIA) run-up in 2020: $2.2T [2]
I don't think this can be just correlation, even on the simplest reading of how the Fed OMO works, but there is debate about this[3].
[1] https://fred.stlouisfed.org/series/M1. I believe M1 money is a good proxy for the Fed's open market operations that would go towards the kind of asset purchases that would increase stock equity valuation. I'd appreciate any feedback on this
[2] DJI went from $22k on Mar 1 2020 -> $30k, for an $8k change by end of year. DJI had a market cap of $8.3T when it was at $29k Dec 2019[2.1], so 8/29=0.27. 27% of 8.3T = $2.2T.
I'm having trouble following your logic for [2]. Prices are decided on the margin whereas M1 is a metric of total assets, which is a cumulative measure. As a thought exercise: if I owned the entirety of $DJI, and you bought $2.2T of $DJI from me, M1 would be unchanged (your money is now held in deposit at my bank account), and the market cap of $DJI would be determined entirely by our transaction price. By what mechanism do you relate the two?
I mean it in the usual supply/demand sense: more money => higher prices.[1].
The Fed OMO directly drives prices level/inflation. Look at the series below... the 10 year break even inflation rate[2] looks almost exactly like the stock market since the crash, but they weren't in sync before. Ofc, it's primarily being used to shore up the value of the 10-Year Treasury Constant Maturity Rate bond [3], which would otherwise look like [4]. But I think the money supply pressure effects both, and the relative quantities are on par, so seems like the pieces fit to me.
Lots of people want to hold USD, because it has the backing of the world's largest economy.
Nobody wants to hold USDT.
The only use for it is as an in/off ramp for bitcoin (where it is used only briefly). Or as part of a probably-illegal scheme where Tether Inc uses bitcoin as collateral to issue a loan to buy more tethers...