So, how does this work legally? Bitfinex isn't a U.S. based company and doesn't work with U.S. citizens. The article says where it's based is unknown. Does the CFTC have the authority to subpoena them? Is it because they're claiming Tether is USD pegged, so they gain authority because of their use of the dollar?
Honestly just a curious question. (I'm not looking for snarky answers to the effect of "world police".)
There are two parts - one is the authority to request something (issue a subpoena) and the second is the ability to enforce penalties if the request is not satisfied.
They have the authority to issue a subpoena because Bitfinex had US-based customers.
The ability to enforce it is a bit trickier, but there are two things - first, it's plausible that they can get cooperation from local authorities; and second, they are able to seize USD transfers to/from them.
They claim to have the USD in a bank somewhere which means the US can come after them. This is why Wells Fargo dumped them (which is saying something!).
> A foreign bank can hold USD without any US oversight
If they hold it as hard cash, practically, sure. If they want to be allowed to send or receive wires and generally not get sanctioned by the United States, no. The U.S. Treasury claims international jurisdiction over U.S. dollars [1].
Definitely have suprising powers. I once sent a wire payment in USD from my Hong Kong company’s HSBC business bank account directly to my China company’s bank inside China, where my bank in China would convert it to renminbi. I was shocked to find out the bank wire was somehow held up in NYC! Blew my mind. Nothing to do with the USA in this transaction, except the USD. The reason the wire was held up? I had wrote the word “Grenade” in the notes field of the bank wire. The payment was a materials deposit for an action camera mount product we make at my factory called “Grenade Grip”. I regularly write the product name in the notes field for my accountants. Mistake.
There is no such thing as a non-US bank holding electronic USD. All non-US banks hold USD via a US “correspondent bank”, and a USD transfer from one non-US bank to another amounts to the sender telling their correspondent US bank to transfer to the other bank’s correspondent (US) bank, and credit the account of the receiver.
If you touch United States dollars, then you are captured by United States regulators. The United States dollar system is only accessible via the federal reserve system, which is regulated by United States regulators.
FYI, when people ask “why is a private transaction between two willing participants a problem,” this is why. Nobody blames themselves for getting duped into a scam. No, it’s Bloomberg’s fault for calling the spade a spade.
no snark: if you wanna get into YC, and a YC partner calls you up and says Good news, You're in! Oh but we'll need you to cut ties with that local accelerator, theyre suing us and we don't want you to testify but no big deal now right? you're part of the YC family now!
Glendower: I can call spirits from the vasty deep. Hotspur: Why, so can I, or so can any man; But will they come when you do call for them?
William Shakespeare, Henry IV, Part I
There are actually two issues here: Firstly, on what basis, under US law, does the CTFC have the authority to issue a subpoena, and secondly, whether, under international law or treaty, it has any power to compel compliance. The link in sna1l's post has something on both issues.
The SEC took much stronger action with AriseBank.[1] Emergency asset freeze. Receiver appointed. ICO shut down. The SEC alleges AriseBank "falsely stated that it purchased [a Federal Deposit Insurance Corporation]-insured bank which enabled it to offer customers FDIC-insured accounts."
Clearly, the SEC has had it with people running these huge scams.
For example, "Texas Banking Commissioner Charles Cooper finalized a cease-and-desist order on Friday that said the company, which is registered to a Texas address, is not authorized to engage in the business of banking in the state. The order also noted that Texas law prevents use of the word “bank” in a way that implies to the public that the person is engaged in the business of banking in this state."
That was on Friday ... and, in an astonishing display of ignorance and arrogance, they published an open letter stating that they refuse to comply. As the department said, they have had a bunch of cases where people have used the term “bank” in a name, but they had never ever seen a firm refuse to back down. So they sent in the sherifs to ensure that they actually do cease and desist.
They went completely over the top as a phony bank. Their web site is down, but archived by the Internet Archive.[1] They claimed to be a VISA card issuer. They claimed to own a FDIC-insured bank. They claimed to have ATMs. Plus they had a make-money-fast scheme where their "AIs" would invest for you.
The only real question is "why aren't they in jail yet?"
On business law, the US works well with Taiwan and Hong Kong. Mainland China is harder. But with China cracking down on Bitcoin, fleeing to the mainland would be risky.
At least if you're absolutely blatant about your lies. One quick call to the FDIC and it should have been clear that they were spewing bullshit that might come back to haunt the government.
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.
I'm not very familiar with this world, but that seems fast. I always assumed the world of financial crime enforcement moved like molasses. When I started hearing those rumors I just assumed it'd be months after the crash before the feds showed up. Maybe I'm just cynical.
My impression from watching financial crimes play out in the news is this: there's a long, slow period of investigations, interviews, etc. and then suddenly people get dragged out in the middle of the night in handcuffs.
This is good news for quality cryptocurrency organizations. Bitfinex has problems, so does Tether and it's good to see bad actors in the crypto world getting weeded out, called out and put down.
In the long term, perhaps, but in the short term there's going to be MtGox-or-worse level carnage in the markets if Bitfinex/USDT is exposed as a scam and people start panic selling to cash out.
if they sell their usdt for btc, the btc price could actually rise. it just depends if they try to withdraw all together and the money leaves the crypto market
It would rise as priced in tether, with tether depreciating against the dollar. You will see larger spreads between tether exchanges and dollar exchanges, which already regularly grow into the hundreds.
If people were holding tether because they wanted to be flat with respect to the cryptocurrency market, they will likely sell their cryptocurrency on a dollar exchange, suppressing prices there.
I suppose it's possible, but holding all else equal? I don't immediately see why dollar demand would increase in the event of a tether collapse.
Dollar prices will adjust as BTC->Dollar and Dollar->BTC flows change. Dually the Tether prices. The only thing that keeps these prices in line is a Tether/Dollar arbitrage, but that arbitrage will slow and halt as people flee tether.
If anything, I would guess that a sudden increase in selling pressure from people doing Tether->Crypto->Dollar risks pushing people into a Crypto->Dollar fear feedback loop.
I keep reading about these magical places. Say that I have a 1000 BTC. What is the exchange that would allow me to sell 500 BTC and wire money to my account in:
a) Chase Manhattan Bank in New York City ( USD )
b) National Westminster Bank in London ( GBP )
c) HSBC ( Paris ), account in Euros.
The wire must show up live in 72 business hours and post to the account within 72 * 2 hours.
For my small ventures ( <1000 euro) I've used bitonic.nl.
A dutch site using the standard dutch banking system iDeal.
First time I bought it took a day for a test transaction of 0.01 to confirm my holding the account.
When I recently sold (back to that same account) I received the money by 13:00 of the next business day.
Not sure how this works for non dutch citizens. Presumably a dutch bank-account suffices.
They don't seem to be an exchange though. Instead they are essentially market making, keeping their own supply. You don't have an account there. Instead, when selling they present you an address to send to, and when buying you give them the address to send to,
Moving 500 BTC there in a single trade would probably exhaust their supply. At the moment they report 250BTC+, I've seen ~150BTC the last few times I checked.
Still, it seems to be an actual functional on/off ramp for BTC - EUR.
You can request an increase to your limits. For a customer with a large, verified portfolio I’m sure Coinbase would work with you if you needed to move funds in large amounts.
It may not be overnight, and there may be additional fees, but it’s not going to take 100’s of days to move $1M unless you aren’t trying very hard.
My bank does not need to work with me to send a multimillion dollar wire. They only care that
(a) i am already a customer and they have verified that I'm me.
(b) i have completed all needed forms before
(c) i have followed the authorization protocol, including verification via control phone number registered with the bank and controlled authorization code
You are correct, but even banks and brokerages have limits (AFAIK) that they can invoke as needed.
Those soft-caps are significantly above $10k/daily, however.
My main point was with Coinbase you can do the required prework to request the higher daily limits and receive similar service, but you need to think about it in advance vs. having it automatically in place.
I totally dig the downvotes. They keep illustrating that the voting population of HN does not know much about what it takes to run a business and what those who run businesses know to be an undeniable truths.
those libertarians have been expecting this and have traded their tether-pumped btc for gold, land, etc.
it's the late to the game profit seekers who have bought in over the past few months who will get killed by this. even if the tether founders have made off with whatever cash deposits they had and there's nothing in the vault, cryptocurrencies will still have value and will rise again.
I haven't looked at it in any detail, but my impression was that shapeshift was fairly, uh, on the up and up?
Iirc, the idea is you say you want x amount of cryptocurrency M sent to address A1, and you want to pay in cryptocurrency N, and it gives you an address B2 and a quantity y, and you send it, then they send it. With this set-up, I don't see much of a way for them to behave dishonestly that wouldn't be immediately discovered, as either you get the currency or you don't, and if they don't, then you can quickly tell.
(I mean, the exchange rate they give might not be the best available, but it is the consumer's choice whether or not to accept the exchange rate for the convenience.)
Also, it is possible that I am substantially mis-remembering how it works, as I've never used it (I don't in fact own any of any cryptocurrencies, and never have except for testnet ether)
Also, I don't know if shapeshift is still around or not.
I mine eth and/or zcash in small quantities. If I want to buy a small quantity of something else I use shapeshift. This way I hold no accounts anywhere.
'course I have no way to cash out, but then my holdings total less than 1 ETH so it's no big thing...
What bothers me more than anything in this isn't the existence of Tether and the suspicious behavior of Tether/Bitfinex players...
It's that Bittrex and others are attempting to become mainstream and they've accepted these USDT since forever, and they continue to accept them well after the suspicions were public.
This is a black stain on the exchanges. It also personally makes me cynical of the entire space. I moved my mainstream coins off of Bittrex and back into GDAX where it seems safer.
<rant warning> Why can't profitable exchanges like Bittrex and Kraken self-regulate?? Over and over again the invisible hand of the market is proved to be eclipsed by the visible hammer of the regulator (which can't come soon enough, by the way). </rant>
Don't ever keep coins on an exchange. Use a hardware wallet. If you don't have them in your possession they're not really your coins and you can get "Goxed" - ie. the world's largest exchange at the time, Mt Gox, disappeared with most of the user funds.
Yes, all reasonable paranoia. However I do trust Coinbase/GDAX as far as BTC, ETH LTC are concerned.
It's a pain to store a few K USD worth of altcoins in my hw wallet (which I'm not even sure supports most of them). What if I'm at work and an event happens that makes me want to sell? The wallet requires an app to be installed.
If there's a hint of an issue with Bittrex, I'll trade to ETH and move them to GDAX.
Based on my research it seems like Bittrex allows the trading of Tether and lets people cash out to USD. Poloniex also. Seems like a round about way of getting USD out of Bitfinex.
So if I own USDT, I should be able to convert USDT to BTC (e.g.) or paper money. If everyone converts their USDT to paper money, the organization that backs USDT has to refund USDT to dollars. If there aren't enough dollars to cover the price of USDT selling, then the USDT market goes belly up.
BTC is buy/sell driven through some kind of exchange so the price can float.
They updated the article several hours later with:
'The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information.'
I'm just not sure why Bloomberg would choose to omit the date until being pestered online. Doesn't this change things quite a bit? If there was a true smoking gun, they would be shut down then and there already instead of continuing to operate/grow, such as issuing more tethers in the past month.
They don't operate in US jurisdiction or do business with any US corporations so they can run for a while ignoring the subpoenas and the wheels of justice grind slow but it will catch up with them.
Look up E-gold if you want to feel the experience of history repeating itself. For bonus points check the dates when E-Gold was shutdown and when bitcoin was created.
> if there was a true smoking gun, they would be shut down then
That's...an unwarranted conclusion.
If this were all done and resolved, then Bitfinex would have a strong incentive to say that clearly, specifically, and unequivocally. The fact that they aren't and CFTC isn't commenting strongly suggests that the process starting with the subpoena is ongoing.
The best way is probably to sell BTC futures, if Tether/Bitfinex go down the market will be chaos and won't have the Tether protection team to bid it back up. Those are cash settled and you will 100% get your money. Shorting on any crypto exchange has a lot more counterparty risk.
The easiest is probably through a stock broker. Futures are risky (typically highly levered, though less so for BTC) and they usually make you have a decent chunk of change before they'll give you access.
I have a few brokerage accounts at a few places (Fidelity, E-Trade, Vanguard). Haven't done much margin trading and never worked with futures (done a little with options) so I just don't know what to look for in the interfaces. Is there a "ticker symbol" that represents a future contract for Bitcoin? Are there multiple parties offering such contracts? Is there a broker that you know of who's currently offering these contracts?
Two futures exchanges run Bitcoin contracts, CME (trading under BTC) and CBOE (trading under XBT). They're not a lot different outside of size, CME's contract represents 5 bitcoins while CBOE's represents 1. Here's a decent listing of the differences:
It's definitely worth reading up on how futures work before trading them, but it's similar to stocks in terms of using a ticker[1] and making buy/sell orders. A key difference is margin, but with the volatility of bitcoin both exchanges have really high margin limits so you can't get into too much trouble. The other key difference is you're trading a specific month so you need to be more correct on timing than you would for a stock.
[1] The tickers work a little different than stocks in that the root is XBT or BTC, but the full symbol for the contract includes the month and year. This is similar to options. Your trading platform should make this clear.
I have considered this in the past. The issue is that the kraken order books are rather shallow. Someone could intentionally cause a flash spike and force liquidation of any shorts rather easily, so its far from risk free.
I've had good enough experiences with inter-cryptocurrency trading on Kraken, but I've never actually been able to get their site to let me wire USD in or out of it to a bank account. Always just site errors when I try to do that.
> and if it isn't a fraud it will stay right where it is
I'm not actually qualified to give investing advice. But this part isn't strictly true. In a functioning market, the price could be depressed by the regulatory uncertainty. If that were the case and it was cleared up, you would see the price rise.
We're talking crypto investors here. The ones that preach diversification, and then sell every single one of their alt coins when the bitcoin bubble is deflating.
If this is a grand jury subpoena, things could get ugly fast in the crypto space. Despite all talk of decentralization, the major exchanges pose a systemic risk.
Which just pushes the problem a little further away since eventually somebody will have to pay taxes in fiat so if your cryptocurrency is not convertible it's going to be a problem.
Originally, 'fiat' had the same link to gold as crypto has to fiat.
True, for taxes fiat is needed, but it is possible to have a thriving economy without needing access to fiat.
The moment people can start to pay rent and groceries in crypto, it makes sense to accept crypto even if you can't turn it into fiat.
As long as taxes are paid in fiat, you need some of it, but that wouldn't make crypto useless.
What use is a currency (or commodity!) that you can't convert into a good or service? It seems like a fundamental problem if the theoretical advantages of a currency are lost the instant you try to use it to buy something.
Otherwise we're just wasting gigawatts of electricity to print Monopoly money.
The assumption has always been that cryptocurrency driven markets would emerge completely decoupled from states and their systems of financial regulation, and so conversion would be neither necessary, nor desired. Everything you could possibly want to buy, legal or illegal, would be payable through the crypto market. Cryptocurrencies were supposed to undermine fiat, or at least render it unnecessary, barring taxes, not cooperate with it.
It took a serious tin hat warrior to actually believe that line. "If everybody in the world instantly switches over to my new currency overnight everything will be awesome!" That's so far divorced from reality only pure mathematicians could love it.
Not to mention it would never work, the blockchain has way too much overhead (many many orders of magnitude) to support an entire world's worth of exchanges every day. There literally isn't enough electricity in the world. People would have to do all of their transfers on third party exchanges that undermine all of the crypto guarantees of the currency in the first place. They're no better than putting your fiat currency in a bank run by criminals that have no respect for laws. And I'm not talking euphemistically about regular bankers here, I'm talking about full up scam artists. I mean why not, it's not like the law is going to get you. There are no pesky regulations to get in the way. No annoying insurance adjusters breathing down your neck. You have total freedom to scam everybody all day long.
Also consider nearly all of Bitcoin and other cryptocurrencies are "premined" in the sense that only a few early adopters control more then half the supply due to how the work readjustment algorithms are skewed to generate all the coins very easy for a few users but later new users don't have equal access to produce coins as easily or cheaply as those other users.
Also consider nearly all corporations are "premined" in the sense that only a few early founders/early investors control more then half the shares and new investors don't have equal access to buy shares as easyly (sic) or cheaply as those other investors.
It has diminishing returns on the amount of work you get out of each hash, so if you wanted to support millions or billions of transactions per second (world scale) it would become impossible to sustain.
A majority of "everything you could possibly want to buy" includes physical goods and physical services.
Markets cannot be completely decoupled from states as long as they trade in real goods and services - as long as you're not trading solely in virtual goods, the other part of the transaction still requires you to interact with the real world under the jurisdiction of some state, and thus the whole transaction, including the cryptocurrency (and the source of that cryptocurrency) is subject to those rules.
If you sell some virtual services for cryptocurrency and later want to buy a car with the proceeds, then not only the car purchase, but also your sale of these virtual services must have been done "cooperating" with all the rules of fiat - states can and will forbid using the proceeds made in markets completely decoupled from their systems of financial regulation; they will use their hold over the physical markets to try and regulate the virtual markets also as much as possible. In the long run, if cryptocurrencies won't cooperate, then they'll be ostracized - there's nothing stopping the gov't from passing a law that simply prohibits any legitimate merchant to accept bitcoin, greatly limiting the range of things that you can actually buy.
I agree. I have a comment somewhere in my history saying the same thing. No matter how decentralized we like to imagine crypto to be, the fiat on and off ramps are highly centralized and can bring the whole thing crashing down in a hurry.
How is this related? USDT is effectively a centralized currency. Bitfinex has always been shady. Are you saying that exchanges that accept USDT will get hit hard by this?
> Are you saying that exchanges that accept USDT will get hit hard by this?
Not necessarily but the market shakes from a major exchange going bust can definitely hit other exchanges as well (a classic bank run), and even if there won't be a bank run other exchanges, especially any with ANY ties to ANY US institution or customer (which basically every exchange has!), will be expecting their own "audits"...
yes, when people try to cash out their USDT to real USD the exchanges are going to collapse like house of cards because appearently the fake USDT is not 1:1 backed to real USD.
Note: only exchanges supporting USDT (tehter) is going to get hit hard, other exchanges such as BitStamp will probably see a downtrend but not going to crash
Only an exchange that is somehow on-the-hook to redeem USDT for actual USD at parity would have problems.
An exchange could offer USDT trading but still have negligible exposure to its value itself. And then if USDT goes to zero – radically breaking the intended parity-with-USD – direct losses should be confined to USDT holders, not exchanges.
> If USDT goes to zero, every exchange that trades it becomes immediately insolvent.
Nope. They'd only be insolvent if they had a legal binding commitment to redeem USDT 1:1 in dollars, and only if they didn't have sufficient other USD reserves to do so.
The exchanges get sued by the Tether bagholders, and everyone else gets spooked and attempts to exit. So not insolvent, but no active business activities and a bunch of lawsuits incoming, and might as well be insolvent.
On what basis? Other than ones that commingle USD and USDT and/or are organizationally associated with Tether (which, I think, is mostly Bitfinex and Bitfinex), I'm not seeing where there is much basis for holding the exchange liable for the collapse in value of a traded asset.
The nuances are tricky, it depends on how USDT is eventually treated by courts.
But, for example, if it happens to get legally treated as an unregistered security, then the exchange would be fully liable for the losses of their customers, since it was not allowed to sell unregistered securities to general public/unaccredited investors. And this argument by itself seems sufficient to press a serious prolonged case, even if the courts later decide that no, this interpretation isn't the right one.
In general, being an intermediary in shady products may easily mean that you're (also) liable. "Normal" stock exchanges and stock brokers are the exception, they have specially listed immunity exceptions that apply if and only if they fulfil a bunch of conditions; otherwise people may well sue you to cover their losses just because it seems that it's easier to enforce judgments on you than a Hong Kong company.
> Fraud, for accepting "USD" deposits and hiding the fact that they silently convert your balance to USDT.
Other than Bitfinex (with he comingling issue mentioned upthread), I understood the main use case for USDT on exchanges is to avoid even touching USD transactions in either direction; for exchanges doing this, they wouldn't be at risk here.
> And they don't have to win the lawsuit, they just need to not get it dismissed outright
Right, but I'm not seeing where you get a colorable cause of action that avoids that for a typical USDT-supporting exchange from a USDT value collapse.
Well Bitfinex is a special case relating to Tether, but I'm sure all exchanges hold some amount of money in some way to support operations. It's just misunderstanding how exchanges work to think a price drop in a thing being traded puts exchanges at risk.
It would only do so if the exchange has a strange unrelated agreement (like to trade 1 USDT for 1 USD), or were holding the money they're using to run their operation in that asset. Except for maybe Bitfinex (because of the special case), no exchanges are doing that with USDT.
There are a bunch of decentralized cryptocurrency exchange projects coming. My favorite so far are https://loopring.org and https://0xproject.com, but there are like a dozen out there.
This is just the beginning. As centralized exchanges start having all sorts of problems (CoinCheck, Bitfinex, maybe Bittrex and Poloniex soon), more people will start looking into decentralized exchanges and thus increase their liquidity. Even Binance, one of the biggest centralized exchanges right now, said that it wants to become a decentralized exchange.
All of this probably won't happen within the next year, but it will happen. It's just a matter of all the pieces falling into place for people to switch. Probably the #1 thing that could help their adoption is being able to integrate new cryptocurrencies faster than any centralized exchange can, especially if this integration is "permissionless", by simply allowing the cryptocurrency developers to support its protocol and then have the cryptcurrency automatically appear on the exchange.
> especially if this integration is "permissionless", by simply allowing the cryptocurrency developers to support its protocol and then have the cryptcurrency automatically appear on the exchange.
A shortage of shitcoins isn't the biggest problem currently for the cryptospace.
Whether you like it or not, people want to get their "shitcoins" early. It's also what I believe may be the #1 reason why crypto-exchanges aren't way more centralized right now, and why Coinbase doesn't own 80% of the market, as Mt.Gox used to.
No single exchange can keep up with every new cryptocurrency, so people start creating accounts with all the exchanges, and then start preferring the new ones if they also bring overall site improvements over the incumbents, and eventually dump the incumbents. This is healthy for the cryptocurrency market. If this wouldn't have happened, things could have been a lot worse with centralized exchanges.
I don't know what the "final form" of this ecosystem will be, but I hope it will be something like the internet. Decentralized exchanges essentially being "protocols" like TCP, which link all the cryptocurrencies (servers) and users (clients) with each other, and everyone can "exchange" (connect) one cryptocurrency to another.
But unlike the internet, I hope there will be a much bigger emphasis on P2P connections/transactions, and that we won't sacrifice that just to get a little more performance or more convenience. There will be such more centralized cryptocurrencies, too, just like today's internet continues to have huge walled gardens like Facebook, but hopefully it won't be the majority of them.
Well, Bitfinex and Tether is how legacy exchanges operate. Bitfinex is completely centralized and issues Tether (a stable coin) as a feature to enable traders to do "cash out" from the volatility of crypto when they feel like.
Going forward though there will be dexes and decentralized stable coins (such as Basecoin). Those would be extremely difficult to track down and have strong incentive structures to maintain their value.
Cryptocurrencies are in an interesting middle ground, from a regulator’s political perspective. They’re complicated and stand to harm mostly those who inflicted it on themselves. For an ambitious regulator looking forward to an administration’s nominating committee, Senate confirmation hearing or even campaign trail, that makes it unattractive relative to e.g. insider-trading hedge fund managers or Medicare fraudsters. (To the contrast, we’re approaching the critical scam mass in Asia.)
> They’re complicated and stand to harm mostly those who inflicted it on themselves
They're about as "inflicted on yourself" as most fraud is. You could say that a grandma getting scammed by a person pretending to be a government official[0] also brought it on herself, and so did the guy scammed by an insurance MLM. The truth is, there's enough of buzz around cryptocurrencies that it starts to impact regular citizens[1]. It's becoming a public issue, and so it's a perfect moment for the government to step in and start dealing with the fraudlent part of the cryptocurrency ecosystem.
--
[0] - Recent subject of fraud prevention campaigns by the police in Poland, not just a stereotype.
[1] - Hell, I heard a story about cryptoexchanges in local radio news this very morning.
Pardon me, I didn't mean to say it isn't something regulators should go after. I was merely commenting on their incentives.
If you're an ambitious regulator, an easy-to-explain high-profile bust is worth its career weight in gold. "I got Martin Shkreli convicted of securities fraud" is potent and messageable. "This cryptocurrency scheme...what's are cryptocurrencies?..anyway, this scheme in Hong Kong sold other cryptocurrencies called Tethers in exchange for Bitcoin...no, we're still fighting for extradition..."
That is messy. Maybe you get a promotion. It could also backfire if it's perceived as preferential treatment of Silicon Valley.
> This cryptocurrency scheme...what's are cryptocurrencies?
"Remember that fake computer money used to buy hard drugs and order assasinations on the Dark Web? Those ones. Also, they're currently being used to scam people by megadollars. And I'm about to bust some of them."
Maybe not Shkreli-level in media applause, but close enough, I think.
Probably bigger tbh. Suspect the guys behind Tether have printed themselves a lot more money than Shkreli was ever worth, and people will have vague recollections of the existence of a cryptocurrency Wild West long after they've forgotten why that securities fraudster who also dabbled in pharmeceuticals companies was so unpopular.
I’m. It sure that I agree. There has been so much blatant scamming and corruption in the cryptouspace that it’s almost certainly in need of some regulatory fire and brimstone. It’s also, however self-inflicted, exploded into the popular consciousness. The SEC would probably also prefer, as prosecutors do, nearly certain victory. The nature of blockchains makes them exceptionally strong evidence, and paper trails.
In particular the state can’t really afford to let money laundering on this scale continue.
> it’s almost certainly in need of some regulatory fire and brimstone
Sure, but it pains me to see American securities regulators’ already-strapped budgets going after, almost alone, an international problem. Regulatory focus has an opportunity cost. More attention to cryptocurrencies means less to everything else.
> the state can’t really afford to let money laundering on this scale continue
The Treasury and Secret Service are the principal enforcers of U.S. anti-money laundering law. This action is being brought by the CFTC.
In any case, there is lower hanging fruit (in terms of ease of prosecuting, volume of funds laundered, and politics vulnerability) than cryptocurrency-facilitated money laundering which, by its nature, leaves a convenient and immutable public record in fact wake.
> Sure, but it pains me to see American securities regulators’ already-strapped budgets going after, almost alone, an international problem. Regulatory focus has an opportunity cost. More attention to cryptocurrencies means less to everything else.
True, but cryptocurrencies - especially now, with ICOs - move such absurd amount of money that they do become a big problem. And it probably won't take much effort from SEC to make the whole charade collapse everywhere, so it might be a pretty good investment of time after all.
Why unattractive - all the the SEC oversight actions we've seen under the current adminstration/Congress indicates it's going to be all in on Wall Street deregulation - it's a lot of Goldman Sachs' former employees at the sprinkled throughout the administration (this part is probably not a lot different from what Clinton would have done, tbh). The cryptocurrency surge is mostly out of Wall Street by design which makes it a relatively harmless enforcement action (to entrenched interests on Wall Street).
> The Albanian Civil War, also known as the Albanian rebellion, Albanian unrest or the Pyramid crisis, was a period of civil disorder in Albania in 1997, sparked by Ponzi scheme failures. The government was toppled and more than 2,000 people were killed. It is considered to be either a rebellion, a civil war, or a rebellion that escalated into a civil war.
Until now, Bitcoin is not considered a systemic risk[1], which simply means that /when/ it will crash it won't drag the whole world economy down with it.
Lots of people will get burned pretty badly though. Like the saying goes, freezing feet and burning head makes for a good average temperature.
No. Go do some reading on all the charities and hospitals that were hit very hard by the Madoff ponzi scheme imploding. They had to give up millions that their invested-with-Madoff-and-Madoff-feeder-funds rich donors had promised them, donations they had been relying on and been planning their budgets around. Worse still, in a ponzi scheme there can be clawbacks of money you “made” before and already spent, not just loss of the existing money that goes poof.
EDIT: Or, if you’re a sports fan, consider the impact on the New York Mets and their budget over the last decade.
> Ponzi schemes also only harm those who inflict it on themselves
Ponzi schemers lie to their investors. (Madoff purported to run a reputable shop.) It’s harder to argue, to the broader public, that someone buying Tether with Bitcoin could reasonably think they made a legitimate investment.
If USDT is not 1:1 backed by USD, so does Tether. If Tether and Bitfinex are different faces of the same group, and Bitfinex treats USDT and USD equivalently on their exchange relying on Tether’s backing claim as justification, so does Bitfinex.
A lot of exchanges don't give you the choice and just give you Tether when you sell Bitcoin. What are the odds that a lot of people don't know the difference between USDT and USD?
When I first started some time last year, I wasn't sure what "USDT" was but I didn't care terribly because a) it's easier to calculate things mentally versus the BTC worth of a coin which looks like .000003456 which is a nightmare to picture; b) I trusted the exchange.
So yeah, I'd absolutely smack the exchanges for passively perpetuating a fraud which has been talked about for months now.
Think it's probably easier to argue to the public that this thing which the company said was a convenient digital way of converting other digital assets to dollars but lied about the dollars suckered innocent people than most bog-standard "we've found a totally legitimate way of earning 100% weekly returns but we're really struggling to get the finance for it so we'll even pay your referral bonuses on top for promoting it" Ponzi scams.
There are plenty of examples of cryptocurrency related scams that present themselves as a legitimate investment.
Aside from that, I think an argument could be made that bitcoin itself is a form of pyramid scheme. I'm not sure if I 100% agree with that, but I understand the line of reasoning.
I'm glad regulators are looking into this and asking these questions.
How long until USDT is delisted from most other exchanges? I wonder which is the larger risk, USDT coming unpegged, or just straight out being delisted from nearly all exchanges?
Delisting is probably the best case scenario imo. If the dung hits the fan with Tether while many exchanges are based on it, it could be a very bad thing for the entire cryptocurrency market. I could definitely see that scenario causing a massive "bank run" where many people try to pull their money out at the same time and several major exchanges go insolvent, resulting in mtgox style loss of confidence in cryptocurrency in general.
Delisting would hopefully signal that "we know there's sketchy stuff happening there, so we are working around it and finding solutions." And it would insulate the exhanges from huge price swings on every USDT/* trading pair.
As per my other comment above, I find it infuriating that they didn't delist Tether months ago. The printing of Tether, so to speak, is absolutely a spiraling problem. There is a qualitative easing inflationary quality to the entire crypto marketplace so long as it is allowed. It's a huge disappointment that that thing wasn't yanked late 2017 from all half-respectable exchanges.
On the buy side, it's for avoiding using a bank account and the associated know-your-customer and anti-money-laundering laws. If you send and receive dollars, there are reporting requirements that you have to legally follow.
Tethers are car wash tokens, not dollars, so various organizations are willing to let you do whatever with them. The obvious incentive on the sell side is that you can print literally billions of car wash tokens and buy other cryptocurrencies with them.
How is not having to deal with fiat currency an advantage for traders?
They still need to do cost-basis accounting for taxes, and this just shifts their risk of <exchange I use stealing all my USD and the police will never get it back> to <USDT will pop and collapse into worthlessness>.
I understand how this benefits exchanges (Because they can claim they don't need to follow KYC), but how does it benefit their users?
They'll also eventually need to convert USDT into USD - which they can withdraw. If you have an exchange that you can withdraw USD from, why are you even keeping your balance in USDT? Just trade on that exchange...
It's like if the NYSE only allowed you to cash out in scrip. I understand how this benefits them, but how does it benefit me?
It's still slow and tedious to move USD between exchanges, and likely raises a lot of flags with your bank.
Being able to move USD between banks as fast and frictionlessly as you can move crypto makes it easier to take advantage of price differences on different exchanges. The tethers themselves are also tradeable with people who may or may not pay taxes or trade on KYC-compliant exchanges.
Token transfers are much faster than wires/ACH and have less regulatory overhead. It benefits you to sell your bitcoins for USDT on one exchange and send the tether to another one. This is much faster and cheaper than selling for real USD and wiring the money to the second exchange.
Or hypothetically you could pay for stuff that's priced in dollars without the friction and fees of the traditional banking system. I don't think anybody actually does that though.
It's a way of combine the advantages of cryptocurrency - speed, fees, lack of regulation - with the stability of fiat currencies.
Not very stable if the issuer is insolvent though.
> Token transfers are much faster than wires/ACH and have less regulatory overhead. It benefits you to sell your bitcoins for USDT on one exchange and send the tether to another one. This is much faster and cheaper than selling for real USD and wiring the money to the second exchange.
Why wire money from one exchange to another? Is it to trade instruments that are available on one but not the other? Is it because your exchange does not have fiat withdrawals? Is it to take advantage of pricing arbitrage, because one of the two exchanges does not allow fiat withdrawals (How will you cash out, then, without paying a premium, that will eat your arbitrage?)
If so, why not just wire the bitcoins? Or Eth, or litecoin, or whatever? Why introduce conversion to USD or USDT as an intermediate step?
Tether seems to be solving a non-problem - or at least, it's not solving it in a way where its alleged USD peg provides any value. Use litecoin, or bch, or dogecoin, or whatever.
For Sweden at least crypto to crypto trades are taxable. But I know this is different for different countries, for example Denmark doesn't tax your gains at all.
You can "dodge taxes" with any cryptocurrency, if that's your goal. What Tether offers primarily is a safeguard against crypto-world volatility without having to deal with FIAT exchanges randomly holding your money for weeks or months at a time, of which you can find many horror stories on Reddit (even for people with KYC verification in place).
I believe "stablecoins" will be needed in the cryptoworld, especially if the goal is still ultimately to have crypto coins used a "currency". But I'm not sure there's any reason why they need to be "pegged to the dollar" or any FIAT currency. It just needs to be relatively stable, perhaps in relation to the total market cap of cryptocurrencies at any given point in time.
The more I read about USDT, more it looks like money laundering. These guys take your USD and issue you equivalent tokens you can trade with. As long as a lot of people don't try to encash their tokens everything will be fine.
Also note that if holding USD is the only problem this is supposed to solve, why not just hold USD? Except if you want to bypass your local laws. I buy USDT in country A. Trade BTC for it, then sell BTC for USD in another exchange in country B. This is the only utility and this itself seems illegal.
> These guys take your USD and issue you equivalent tokens you can trade with.
Nope. That's how it was until about a year ago, when all their banking accounts were closed (probably due to the issue you describe).
For the past year, they just randomly printed millions of "US-Backed" tokens, and people trade them as if they were actually backed by dollars, even though they are not the result (since a year ago) of any USD deposits, and even though you can exchange them for actual USD. It's bizarre.
Most cryptoexchanges don't actually support cryto<>fiat transfers, so USDT offers a substitute in situations where you don't want to "cash out" (per se) but want to hold some of your balance in something that is supposed to be equivalent to fiat.
I'm not saying that there's nothing worth investigating in the Crypto space, but I wish the SEC spent half the time it spends chasing down shady ICOs looking into fraud at Goldman Sachs and other Wall St. banks. You know, the institutions that whose scale dwarfs crypto and actually has enormous economic repercussions?
Banks likely comply with regulations 99.9% of the time (doesn't mean the regulations work well enough though). They have teams of lawyers and have worked with the SEC for years.
Contrast that with crypto where fraud is commonplace, and people constantly flaunt regulations, claim they aren't securities or banks so regulations don't apply, etc. Crypto is a new ballgame and the SEC is trying to figure out how to regulate it appropriately so of course there's a lot of activity there.
There are no indications that the SEC spends remotely near half the time they spend investing big banks/the traditional financial sector on crypto currencies. I’d be shocked if even 10% of sec resources were devoted to cryptocurrencies.
I just watched Netflix's Dirty Money episode on HSBC. If you want to throw up in your mouth a little check it out and see how the Obama admin bent over backward to make sure they got a slap on the wrist for knowingly and purposefully laundering terror and drug cartel money for about a decade. Too big to jail is apparently very real.
Point: USDT is used as a holding point for people wanting to stay in crypto but not be subject to price movement of other coins. This could be used to not trigger a taxable event (even though recently, crypto to crypto transactions were deemed taxable by the IRS). When buying crypto in general, it's much easier/faster to start a transfer from another crypto as opposed to having to move fiat into the "cryptoverse".
Question: Why does it matter if Tether is backed at 1:1 ratio with USD? I understand that the people behind Tether have explicity said that each USDT is backed by $1 USD. Why are the legal implications of non-backed USDT different than other cryptocurrencies whose values are based on the market? Is it simiply because Tether has claimed USDT is backed?
1. If there are no USD backing, why would its value stick to $1?
2. Correct, the claims are a problem. They claim backing and audits and these may constitute fraud
3. If they just print them out of nowhere they are basically printing hundreds of millions of dollars for themselves. If they aren't backed, do you think they could hold value in these circumstances?
4. These magic unbacked tokens are probably a large part of BTC price rises in recent months, and look like extra demand in the marketplace, massively distorting the BTC and altcoin markets.
The ability to trade it in for actual currency is important. Even though their TOS says they aren't required to give you USD for tether they actually did at some point. (some say still do)
>Tether has yet to verify that it holds $2.3 billion in reserve
This will be interesting to see. I wonder how long until we'll know.
I saw an interesting data analysis here on HN a while back showing a correlation, and hypothesizing a causation between the rise of Tether and the price of BTC.
So, to those who are skeptical of Tether...you know that you can convert Tether 1:1 for USD by depositing it at Bitfinex, right? They'll then wire you that USD to any Taiwanese bank account[1] (the only banks that haven't frozen their wires). AFAIK, there are no reports from Taiwanese account holders of trouble with these wires.
"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...
Furthermore, residents of certain U.S. states are not permitted to be customers of Tether; are not permitted to cause Tethers to be issued or redeemed; and, are not permitted to hold Tether Tokens. Beginning on January 1, 2018, Tether Tokens will no longer be issued to U.S. Persons."
So if you hold Tether Tokens but are not a "customer", you have no claim to be paid. I suppose Tether customers (whoever they may be) might be willing to pay you dollars for your coins, but there's no reason for them to give you 1:1, for sure.
This is only true if there really is a USD for every USDT out there in the market. If it turns out to be a fake, the whole thing comes crashing down and becomes unpegged as soon as growth stops, i.e. as soon as we run out of "greater fools" to keep supplying sufficient inflow of USD for everyone that's trying to cash out.
Indeed nobody has provided proof. However, Bitfinex claims to issue Taiwanese domestic wires unimpeded. I assume that, if that weren't the case, we'd be hearing from Taiwanese Bitfinex customers about it.
You didn't mention the $50K minimum, which obviously weeds out most people who would want to claim USDT->USD:
For the time being, we will only process requests above $50,000 in size. We believe that by the time we are able to get to the smaller withdrawals, other, less cumbersome
That only applies to the special withdrawal provision for US customers. Taiwanese domestic wires of all sizes have been flowing unimpeded this whole time.
> Taiwanese domestic wires of all sizes have been flowing unimpeded this whole time.
Your only knowledge of this is based on "surely we'd hear of people complaining on English language forums if they weren't able to".
And at the very least, if you do wish to do anything, you are required to maintain at least $10,000 USD (not USDT) and wait for up to 12 weeks for verification.
How does that equate to a relatively proficient level of English?
At least a cursory search of English fluency says that if there are complaints (or compliments) on Bitfinex, most users are certainly not going to be posting them on English-language forums.
Unless a significant portion of the tether are converted to real dollars it wouldn't prove much. I'm sure bitfinex/tether are not completely broke and can afford to pay a few million of dollars easily. The only way we'll know for sure if they have the money is if somebody manages to get hold of their real financial info or if there's a bank run and they end up having to redeem a significant portion of the USDT they've emitted.
As far as I understand the current conditions for retrieving the real dollars from tether/bitfinex are dissuasive enough that most people won't bother doing that, so they just need to have enough liquidity to pay the small portion that will.
I know that they offer it. And I know that I don't hear anyone complaining about them not honoring it, so I assume it works. I suppose it's theoretically possible they just offer it and nobody has even tried to take advantage of it, but that seems somewhat implausible to me.
I'm not going to bat for them. I'm explaining the way i've reasoned about the situation. If you disagree with my reasoning, feel free to explain why. Here's the chain:
1. Bitfinex claims to offer wires to Taiwanese accounts.
2. Bitfinex does redeem Tether 1:1 for USD (nominally, within your Bitfinex account).
3. Bitfinex claims to wire that redeemed USD to any Taiwanese account without delay or haircut.
Now, given that, the price of Tether out to trade at 1:1 with USD. Which, for the most part, it does. If there were lots of Taiwanese customers unable to realize those wires, i'd expect we would hear some complaining from them. But we don't. Therefore it is my presumption that those wires are proceeding uninhibited.
If you have an alternative explanation of the facts, i'm happy to listen to it.
I'm buying this reasoning as evidence towards the hypothesis that they indeed redeem some amounts of USD.
All the other things I've read so far suggests this will turn into a game of musical chairs - some amount of people who make the wire orders first will get redeemed, and the rest will be out of luck.
Even IF ( a big IF) your explanation is true, it is of little help to most of people holding USDT.
So in the best case scenario to redeem USDT for USD:
1. You have to have a Taiwanese bank account.
2. You have to gain verified status at Bitfinex's discretion.
3. You have to have a balance over 50k USDT.
Bitfinex/Tether backers know that it is near impossible to trigger a serious run on their USD balances with such rules.
Thus it logically follows, they have very little incentive to actually keep 2.3B in USD EVEN if they received 2.3B in USD.
I can buy the explanation that originally Tether planned to have 1:1 USD for each USDT.
However the massive regular printing of Tether really strains the 1:1 claim.
Yes. But that is likely a way of trying to skirt money laundering laws by saying technically it's not equivalent to USD. The fact of the matter is that they do redeem it 1:1, and have this whole time.
You seem to be binarizing a non-binary thing. If they are financially insolvent that is objectively worse than if they have routed around some banking laws. The probability of repayment on one is much greater than the other.
They just updated the article that the subpoena was actually sent on December 6th. So this is already technically old news. Just more FUD being thrown around by news outlets that should know better.
“Old news” is news that merely reiterate facts that were already widely known.
News that makes new revelations that were not generally known about events in even the distant past is still new news, and last December isn't the distant past, anyway.
Honestly just a curious question. (I'm not looking for snarky answers to the effect of "world police".)