I've never held any coin but why can't it be true? The money is imaginary anyway and while you can talk about backing dollars with tanks and bomb at the end of the day is there are believers there is a market snd one market can outlive another. Saving depositors in regular banking is pure belief as well.
If a bank makes a loan to somebody else, the value of that loan is recorded as an asset. Customer deposits at a bank are recorded as liabilities. Even when banks loan out money to other people, they are careful to make sure that their assets exceed liabilities--and not by a small amount, but by something like 10%.
Now, not all loans are repaid, and when that happens, the bank will take a write-off of that asset, reducing its assets. In a bad financial crisis, this might hit something 5, 6, 7% of their total assets--but remember that they started with 110% assets over liabilities, so they're still left with more assets over liabilities.
The thing with Tether is that if you look at Tether's claimed accounts, their assets-to-liabilities ratio is 100.2%. When that ratio dips below 100%, you are insolvent. If I recall my math correctly, a 5% drop in the price of Bitcoin would make Tether literally insolvent.
You might argue that all the financial shenanigans are ultimately illusory, but the fact remains that the person crowing about the unreality of finance is the one that is tapdancing on an oil-soaked rope while juggling flamethrowers. And huffing ClF₃ at the same time, perhaps--they're unwilling to tell us.
Yes...but. People say this like it's a guarantee that insolvency won't catch up to them before the public panics, i.e. a bank run.
I don't believe that's correct. Insolvency seems strictly worse than being solvent.
As a depositor, if I don't see anyone else participating in a bank run, assuming the institution is solvent, then I have no reason to.
But if I know they are insolvent, even if nobody else in the world does yet, I have an incentive to immediately start a bank run, unless, say, there are bankruptcy proceedings right away that freeze everything.
It's the difference between musical chairs with one chair removed vs not.
Read OP's point, he/she claimed that a 5% drop in the price of Bitcoin would make Tether literally insolvent, that did not happen when BTC went from 60K to 30K
Insolvent doesn't mean that the company folds up shop immediately. As the person you're replying to points out, it is possible (if unethical) to lie about being insolvent.
And, as the other reply to my comment pointed out, there's a decent likelihood that Tether is actually already insolvent and is doing creative accounting to get the numbers to appear to come out to solvency. 100.2%--especially when a significant amount is in as volatile an asset as cryptocurrencies during an upswing--seems too precisely close to 100% to me to not involve some amount of shenanigans.
Read MY point, please prove (or show any evidence) that it did not happen.
You are claiming something that there is literally NO EVIDENCE of, while vast piles of available evidence points to the very opposite. Tether is, has been, and will continue to be insolvent. The only question is when people will notice.
I don't believe in Tether, but on the other hand, my logic that insolvency should lead to immediate destruction means...I should believe they are solvent.
I mean, that's basically it. Everything points to insolvency, but if it was, it would be history. Therefore, it must not be.
Anyone who "notices" should make it all fall apart instantly.
And loud mouth short sellers have certainly been wrong before.
> Anyone who "notices" should make it all fall apart instantly.
This is the flaw in your logic. How would you make it all fall apart? You have to force Tether to make good on more of its liabilities than it can make good on, but very probably, most of the people to whom Tether is liable are themselves drinking from Tether's money-printing trough, and it's not in their self-interests to pull the rug out.
To make Tether fall apart, you probably need to force an outflow of most of not only its hard currency reserves, but that of everyone else feeding at its trough. That is not an insignificant amount of money, and exactly how much is literally the $1M question.
If they are insolvent, then not everybody can get their money back, which means that you should take your money out immediately no matter what you expect other people to do. It follows that you can expect everyone rational to do the same. It's not that anyone chooses to "make" it fall apart, it's that everyone who finds out their secret should independently participate in making it do so and that reinforces itself.
This contrasts with a bank run on a solvent institution, where you only need to rush to get your money if you think other people will too and they will fail due to lack of short term liquidity.
> my logic that insolvency should lead to immediate destruction
But it doesn't. And it shouldn't.
Businesses can and do survive insolvency (sometimes without the public ever knowing!). Insolvency just means that either liabilities are greater than assets, or cash flow does not meet expenditures. Either one can be a temporary situation which can be solved with things like bridge loans. (Or bankruptcy proceedings!)
More nefariously, in the case of Tether, so long as they don't see redemptions exceeding their assets, they can continue to hide the fact that they are insolvent indefinitely.
You are equating liquidity with solvency, it seems to me.
People don't seem to want to admit insolvency is inherently worse than illiquidity.
It may be empirically true that entities can hide insolvency.
But it doesn't seem logical for anyone who knows they are insolvent to ignore it.
If they are solvent, sure, ignore the possibility of a bank run. Why should it start?
But if they are insolvent, then someone will lose their money, and you and everyone else who finds out should want to not be last in line, which should make it collapse almost instantly, provided that the information leaks to any number of people.
It seems sometimes like a lot of things are sort of like Wile E Coyote not falling until he looks down. Something can be widely known, but not believed until some catalyst makes it impossible to deny or rationalize or BS.
Still, learning that something is insolvent ought not to follow that pattern too much, because again, it doesn't matter if everyone else in the world is ignoring the problem, if you are certain it exists, you need to act.
I could be leaping to conclusions, as I'm not an accountant, but isn't that the phrase that distinguishes it from temporary liquidity problems?
Anyway, if people sometimes use insolvency to include illiquidity, that's not helpful in a discussion distinguishing short term problems from long term problems. Maybe it varies with context.
If you don't believe it does, and insist that insolvency includes illiquidity, then the appropriate thing is to find (teach me) a better word, that serves the purpose of excluding it.
> Saving depositors in regular banking is pure belief as well.
Not in the same way. FDIC insurance goes back more than 90 years. Its value has been proven through major financial crises. It is pretty transparent about what it does, and it's accountable to the public. There is also arms-length regulatory verification between banks and their various regulators to make sure that they aren't taking on too much risk.
Tether, on the other hand is intentionally opaque, run by a small number of people, has mysterious relationships with other players, and has been caught lying about their backing. It has never been tested by a serious crisis. And of course there's no real regulation, so you basically have to take the word of people who have demonstrated they're not trustworthy.
>Saving depositors in regular banking is pure belief as well.
What matters, I believe, is that they have the assets to back the liabilities. 100% plus a safety margin. As far as I know, a regular bank or credit union meets that criteria and Tether does not.
Haven't you ever watched "It's a Wonderful Life"? Where the guy in an effort to stop a bank run, explains that the deposits are tied up in the homes and businesses of the people of the community?
That stuff isn't imaginary, it's just that people are panicking and forgot that it's all connected.
Why can't what be true? Do you truly think that Monopoly money is as valuable as real money backed by all the money, power, influence, and force of a major world government?
