I made a video for fun essentially bringing up what I have written below, although the story continues to unravel with updates being posted frequently.
If you don't have time to read the thread, 2x my video and take a listen.
There has been some less than elusive tactics employed in this market, and as we’ve seen in some cases, dumb money follows. Bitcoin’s enthusiasts claim that cryptocurrency will save us from the “big brother” of centralized banking. But what if, in some twisted way of irony, Bitcoin’s unraveling was actually the very same problem it set out to solve: namely the fiat “printing press”, except this time it was being used to prop up the Bitcoin bubble from its inevitable collapse?
Will this be the trigger event that causes the house of cards to come crashing down once again?
Many are being lead to believe that Tether may be insolvent, and is now printing hundreds of millions of dollars in tokens to propel the price of bitcoin above the psychological $10,000 level.
But to explain this, let’s first start at the beginning: what is Tether?
Tether, otherwise known as USDT, is often referred to as the “tether”, or link, to the U.S. dollar. Tether, by definition in the whitepaper, is a “digital token backed by fiat currency providing individuals and organizations with a robust and decentralized method of exchanging value while using a familiar accounting unit.” And the goal seems simple enough, right? Tether exists because there is demand for a "stablecoin", a coin that traders can move their money into when they believe the market will decline. However, exchanges offering actual USD balances to customers means that these companies have to comply with anti-money-laundering (AML) and know-your-customer (KYC) laws.
Some exchanges, like Coinbase, Gemini, or Kraken, have decided that complying with Uncle Sam is worth it, which is why you are required to provide legal documentation to trade on these websites, such as your Driver's License or social security number. Other exchanges, such as Bittrex, Poloniex, and Bitfinex, may not request your personal information, but are required to deal only in cryptocurrencies. The solution? Tether.
Before diving deeper, let’s create some context.
The Catch-All
In November, an article written by Lily Katz of Bloomberg points out an underlying catch-all hidden in Tether Holding’s policies, which states
“"Tethers are not money and are not monetary instruments," the company says. "There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money."
Source: https://www.bloomberg.com/news/arti...the-first-controversy-for-cryptocurrency-firm
Since then, Tether has quietly updated their policy to read
“Absent a reasonable legal justification not to redeem Tether Tokens, and provided that you are a fully verified customer of Tether, your Tether Tokens are freely redeemable.”
Which, for a moment, almost seems more reasonable.
But when you try to sign up as a customer, you're met with an error stating that registrations are closed “while the system is being rebuilt”.
This update means that Tether is only redeemable by Tether Holdings if you are a customer of them, which as of today, you can not become.
So, does Tether actually have the money they claim?
Truthfully, we do not know. It is written explicitly in their white paper, on their website, and in their policy that every tether created is backed by 1 USD. The decision of frequent audits of the reserve was made by Tether Holdings to ensure transparency between the company and the customers that used it. And in March of 2017, provided they did.
In April of 2017, Wells Fargo had decided to sever ties with Bitfinex and Tether Holdings, which no longer allowed them to use the banking structure they once had, and the audits stopped. Later, in September, Tether published a memorandum compiled by Friedman LLP. This document claimed that Tether had the 442 million USD in reserves to match the 442 million USDT that had been printed at that time. However, formally written at the top, is a notice which states
Source: https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf
Although Tether Holdings never claimed the memorandum was an audit, certain names, account numbers, and other personal details were redacted from the document. Tether has gone to publicly state that “it would be a mistake to be too forthcoming about the specifics of any particular money transfer solution.” This is likely linked to the banking incident that happened with Wells Fargo back in April. Phil Potter, CSO of Bitfinex, has voiced his opinion on the banking problems as well, saying that they have had to resort to hiding behind other companies in a 'cat and mouse game, as all others who participate in bitcoin do'. After filing and then dropping a lawsuit against Wells Fargo, Bitfinex/Tether have now resorted to hiding behind shell companies, so that banks cannot identify them as the sender or recipient of transfers and block them. Some of those shell companies have been exposed, such as "CRYPTO SP. Z.O.O.", using an account in a small Polish bank.
Sources: https://tether.to/tether-update/
http://www.trustnodes.com/2017/11/2...polish-bank-account-panama-registered-company
As of January 2018, Friedman LLP has seemingly cut all ties with Bitfinex, removing any mention of them across their website completely.
https://i.imgur.com/7Y0Wraz.png The original announcement is still cached on google.
http://www.friedmanllp.com/insights/auditor-engagement Will 404.
Check out for more proof on that.
This is likely the reason why Tether Holdings claims to only be interacting with their biggest customers. If their banking details were needed to be kept quiet, it would be much easier retaining that information between only the biggest players.
So, why does this matter?
Well, although we’ve known that both Bitfinex/Tether are unable to produce an audit at this time, and have had issues with their banking solutions for the past 10 months, new Tether is being added into the market at an alarming rate. To understand why this is an issue, we have to look at how USDT works.
Why does 1 Tether = 1 Dollar?
There is only one direct trading pair for USDT, which is on Kraken, but as mentioned earlier, USDT and USD are also traded through the proxy pair of Bitcoin. For example, if 1 Bitcoin was selling for $15,000 USD on one exchange and $14,500 USDT on another exchange, both bots and humans would buy the $14,500 bitcoin and immediately sell it for $15,000. This is called arbitrage and allows the USDT price to equal $1.
Why does 1 Tether not equal 1 dollar?
Generally, in times of volatility, the demand of tether can increase. When prices go above $1, Tether Holdings steps in, forging an appropriate amount of new tethers to sell for 1 USD. Since the market rate is above 1 USD, there should be no shortage of buyers. This increase in supply causes the USDT price to decline, and the USD that Tether Holdings bought should now be backing the tethers they sold to the market.
When the price of 1 USDT drops below 1 USD, things get more interesting. According to the whitepaper, what should happen is that traders will buy the USDT at that price (thus pushing the price upward) and sell it to Tether Holdings directly at the promised rate of 1 USD. Tether will then "burn" (destroy) those tokens, taking them out of the supply and helping consolidate the price at a lower level. We already know that redeeming USDT for USD from Tether Holdings is difficult for anyone who is not a customer of Tether, but what's also interesting is that there doesn't appear to be a record of USDT tokens ever being burned.
Sources: https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf
In the event of investors losing confidence in Tether: the price will skyrocket on USDT exchanges and drop on USD exchanges, as people holding USDT start to panic-buy BTC to transfer to a USD exchange to sell and cash out.
So, what now?
The market supply of Tether was around 50 million USD as of April 2017, but has since grown to over 2 billion dollars. Keep in mind that the NYT, Bloomberg, and Fortune Magazine were already ringing alarm bells when that number was at 500 million, and we're 4 times that now. The amount issued in January has been astounding, with 100 million being added each day for six consecutive days.
Sources: https://coinmarketcap.com/currencies/tether/
Which is not a problem, as long as they've been receiving fiat USD for every USDT they created. So, do you believe that Tether Holdings is holding 2 billion dollars in an offshore bank account in an undisclosed country?
But what if they don’t?
Then Tether is participating in what is known as fractional-reserve banking, which is where a company only holds a fraction of debts owed. While not an uncommon business model, Tether is not held liable for any losses in debt, which leaves the investor holding Tether with no course of action if the price crashes sharply.
Source: https://en.wikipedia.org/wiki/Fractional-reserve_banking
If you don't have time to read the thread, 2x my video and take a listen.
There has been some less than elusive tactics employed in this market, and as we’ve seen in some cases, dumb money follows. Bitcoin’s enthusiasts claim that cryptocurrency will save us from the “big brother” of centralized banking. But what if, in some twisted way of irony, Bitcoin’s unraveling was actually the very same problem it set out to solve: namely the fiat “printing press”, except this time it was being used to prop up the Bitcoin bubble from its inevitable collapse?
Will this be the trigger event that causes the house of cards to come crashing down once again?
Many are being lead to believe that Tether may be insolvent, and is now printing hundreds of millions of dollars in tokens to propel the price of bitcoin above the psychological $10,000 level.
But to explain this, let’s first start at the beginning: what is Tether?
Tether, otherwise known as USDT, is often referred to as the “tether”, or link, to the U.S. dollar. Tether, by definition in the whitepaper, is a “digital token backed by fiat currency providing individuals and organizations with a robust and decentralized method of exchanging value while using a familiar accounting unit.” And the goal seems simple enough, right? Tether exists because there is demand for a "stablecoin", a coin that traders can move their money into when they believe the market will decline. However, exchanges offering actual USD balances to customers means that these companies have to comply with anti-money-laundering (AML) and know-your-customer (KYC) laws.
Some exchanges, like Coinbase, Gemini, or Kraken, have decided that complying with Uncle Sam is worth it, which is why you are required to provide legal documentation to trade on these websites, such as your Driver's License or social security number. Other exchanges, such as Bittrex, Poloniex, and Bitfinex, may not request your personal information, but are required to deal only in cryptocurrencies. The solution? Tether.
Before diving deeper, let’s create some context.
- Although previously denied, Bitfinex and Tether Holdings have been proven to be part of the same corporate entity. In an event similar to the Panama Papers, dubbed The Paradise Papers, new information gave us insight into who was registered under Tether Holdings Limited. One of the directors listed is Phil Potter, who is also known as the CSO of Bitfinex. See https://www.bloomberg.com/news/arti...her-and-its-links-to-biggest-bitcoin-exchange
- Although Bitfinex claims to trade on a USD pair, it is more than likely USDT. Due to severed ties with Wells Fargo and the slew of other banking issues Bitfinex has faced, customers have made it clear that deposits/withdrawals of USD are simply unusable on Bitfinex. See https://tonyarcieri.com/the-tether-conundrum
The Catch-All
In November, an article written by Lily Katz of Bloomberg points out an underlying catch-all hidden in Tether Holding’s policies, which states
“"Tethers are not money and are not monetary instruments," the company says. "There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money."
Source: https://www.bloomberg.com/news/arti...the-first-controversy-for-cryptocurrency-firm
Since then, Tether has quietly updated their policy to read
“Absent a reasonable legal justification not to redeem Tether Tokens, and provided that you are a fully verified customer of Tether, your Tether Tokens are freely redeemable.”
Which, for a moment, almost seems more reasonable.
But when you try to sign up as a customer, you're met with an error stating that registrations are closed “while the system is being rebuilt”.
This update means that Tether is only redeemable by Tether Holdings if you are a customer of them, which as of today, you can not become.
So, does Tether actually have the money they claim?
Truthfully, we do not know. It is written explicitly in their white paper, on their website, and in their policy that every tether created is backed by 1 USD. The decision of frequent audits of the reserve was made by Tether Holdings to ensure transparency between the company and the customers that used it. And in March of 2017, provided they did.
In April of 2017, Wells Fargo had decided to sever ties with Bitfinex and Tether Holdings, which no longer allowed them to use the banking structure they once had, and the audits stopped. Later, in September, Tether published a memorandum compiled by Friedman LLP. This document claimed that Tether had the 442 million USD in reserves to match the 442 million USDT that had been printed at that time. However, formally written at the top, is a notice which states
Source: https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf
Although Tether Holdings never claimed the memorandum was an audit, certain names, account numbers, and other personal details were redacted from the document. Tether has gone to publicly state that “it would be a mistake to be too forthcoming about the specifics of any particular money transfer solution.” This is likely linked to the banking incident that happened with Wells Fargo back in April. Phil Potter, CSO of Bitfinex, has voiced his opinion on the banking problems as well, saying that they have had to resort to hiding behind other companies in a 'cat and mouse game, as all others who participate in bitcoin do'. After filing and then dropping a lawsuit against Wells Fargo, Bitfinex/Tether have now resorted to hiding behind shell companies, so that banks cannot identify them as the sender or recipient of transfers and block them. Some of those shell companies have been exposed, such as "CRYPTO SP. Z.O.O.", using an account in a small Polish bank.
Sources: https://tether.to/tether-update/
http://www.trustnodes.com/2017/11/2...polish-bank-account-panama-registered-company
As of January 2018, Friedman LLP has seemingly cut all ties with Bitfinex, removing any mention of them across their website completely.
https://i.imgur.com/7Y0Wraz.png The original announcement is still cached on google.
http://www.friedmanllp.com/insights/auditor-engagement Will 404.
Check out for more proof on that.
This is likely the reason why Tether Holdings claims to only be interacting with their biggest customers. If their banking details were needed to be kept quiet, it would be much easier retaining that information between only the biggest players.
So, why does this matter?
Well, although we’ve known that both Bitfinex/Tether are unable to produce an audit at this time, and have had issues with their banking solutions for the past 10 months, new Tether is being added into the market at an alarming rate. To understand why this is an issue, we have to look at how USDT works.
Why does 1 Tether = 1 Dollar?
There is only one direct trading pair for USDT, which is on Kraken, but as mentioned earlier, USDT and USD are also traded through the proxy pair of Bitcoin. For example, if 1 Bitcoin was selling for $15,000 USD on one exchange and $14,500 USDT on another exchange, both bots and humans would buy the $14,500 bitcoin and immediately sell it for $15,000. This is called arbitrage and allows the USDT price to equal $1.
Why does 1 Tether not equal 1 dollar?
Generally, in times of volatility, the demand of tether can increase. When prices go above $1, Tether Holdings steps in, forging an appropriate amount of new tethers to sell for 1 USD. Since the market rate is above 1 USD, there should be no shortage of buyers. This increase in supply causes the USDT price to decline, and the USD that Tether Holdings bought should now be backing the tethers they sold to the market.
When the price of 1 USDT drops below 1 USD, things get more interesting. According to the whitepaper, what should happen is that traders will buy the USDT at that price (thus pushing the price upward) and sell it to Tether Holdings directly at the promised rate of 1 USD. Tether will then "burn" (destroy) those tokens, taking them out of the supply and helping consolidate the price at a lower level. We already know that redeeming USDT for USD from Tether Holdings is difficult for anyone who is not a customer of Tether, but what's also interesting is that there doesn't appear to be a record of USDT tokens ever being burned.
Sources: https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf
In the event of investors losing confidence in Tether: the price will skyrocket on USDT exchanges and drop on USD exchanges, as people holding USDT start to panic-buy BTC to transfer to a USD exchange to sell and cash out.
So, what now?
The market supply of Tether was around 50 million USD as of April 2017, but has since grown to over 2 billion dollars. Keep in mind that the NYT, Bloomberg, and Fortune Magazine were already ringing alarm bells when that number was at 500 million, and we're 4 times that now. The amount issued in January has been astounding, with 100 million being added each day for six consecutive days.
Sources: https://coinmarketcap.com/currencies/tether/
Which is not a problem, as long as they've been receiving fiat USD for every USDT they created. So, do you believe that Tether Holdings is holding 2 billion dollars in an offshore bank account in an undisclosed country?
But what if they don’t?
Then Tether is participating in what is known as fractional-reserve banking, which is where a company only holds a fraction of debts owed. While not an uncommon business model, Tether is not held liable for any losses in debt, which leaves the investor holding Tether with no course of action if the price crashes sharply.
Source: https://en.wikipedia.org/wiki/Fractional-reserve_banking
Last edited:
Banned forever. Reason: Scamming (https://www.mc-market.org/conversations/659455/)
