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!
