The MASSIVE Tether Ticking Time BOMB
Tether is a cryptocurrency designed to be pegged to the USD in a 1-to-1 ratio. Doubts about whether or not this is true have been floating around for months now, but Tether mostly left the news cycle since the $30m hack back in November. However, it's back in full force now as their relationship with their auditor recently dissolved. Is this the end for Tether?
Nobody knows, and the reality is that establishing a time-line of such an event is near impossible. However, what we do know is that Tether has been increasing the rate at which they print money. Most of the crypto community is cautious about it even if they use it, suggestings its public perception isn't the highest. They've have many issues with banking - What do you think the odds are that serious individuals and businesses have increasing demand for Tether which matches the rate at which they are being created?
Even if Tether ISN'T a scam though, they have massive regulatory risk. The primary function of Tether is to bypass regulations and capital controls that exchanges face with using the real USD or other fiat currencies. As they grow larger and larger, Tether will paint a bigger and bigger target on their heads and eventually the US government or another government will likely take action against them.
However, I still suspect Tether is a scam either way as it looks and behaves like one. When Tether retailiates against the accusations made against them by Bitfinexed, they sound like children rather than professionals (a characteristic I have seen as particularly common in the crypto space). The dissolvement of their relationship with their auditor suggests the auditor found details that Tether wasn't comfortable with revealing.
If it looks like a duck, acts like a duck, walks like a duck and quacks like a duck, it's probably a duck. It is highly probable Tether is a scam and if it is well interconnected with Bitfinex as many suspect, then this poses a huge systemic and systematic risk to cryptocurrencies as a whole. Keep a close eye and be cautious. Thanks for watching / reading!
This is a perfect opportunity to bring up bitUSD from bitshares. bitUSD is 2x collateralized by BTS value backing it and is fully auditable on chain. Also, there is no central authority to go after.
Would love to see an episode where you show how to lock up BTS for bitUSD. Also, it would be great to show people how to purchase bitUSD.
Might look into making a video on 'stable' coins in future just in general given it is a popular topic.
Would be good to differentiate Tether vs Bitshares USD
Won't the deflationary properties of crypto collide with the inflation of the Fiat is is back on. Also won't the trading of the crypto affect the price. What happens when people try to pump and dump collateralized crypto curencies. Also cuz it is free float, wouldn't the price change anyway, will the price differnce be marginal, such as tether or will big pump and dumps devalue the currency below the collateral.
These are legitimate questions that the @bitshares community should take into considerations before bringing such a dangerous game into mainstream adoption. Please note, the crypto space is filled with unpredictable moments--look at what happens to SBD now!
You're saying that everybody should be sending their BTC, ETH and Ripple to bitshares.org via blocktrades etc. and change them into bit$ there after blocktrades changed those into BTS (because there's really nowhere else these bit$ could possibly go, or if they did, why wouldn't anyone have more faith in them as they now have in tether), and as these bit$s are derivatives like bitgold etc., they would have to bind an extra $1.75 of their real dollars to buy one of them, and that to send their real dollars to bitshares, they should NOT be sending tether from the centralized exchange where they are trading now, because tether cannot be trusted ?
And that there is no central authority 'to go after.' You see, as there is no way to get fiat to bishares.org directly, it makes no sense complaining about the necessary intermediaries, as the authorities are controlling people at the other end, where they live, via their banks and the centralized exchanges, as long as you guys don't manage to dream up a way to get the money into a decentralized one, possibly without using a bank or a credit card... this is all rather delusional, even while lots of Chinamen're now dodging frontier guards at Hong Kong wearing body stockings filled with cash.
The way the crypto market is creating its own FUD, it will definitely end up in the hands of central authorities for the simple reason that the way the little boys behave, everybody will be calling for the big boys, to make sure their funds are safe, as the impression that the entire market is a Ponzi made by folks who just dream up virtual products, may be be intensifying rapidly and ruin the entire concept of crypto.
Proposing that customers change one of their hard-earned dollars into 2.75 virtual ones, and to spread that idea, might just topple the vat. That's humanity's tragedy (uh no - lets just call it a burlesque drama) that it keeps complaining about a lack of freedoms, when we're really a bunch of insane, adolescent primates who are using every opportunity in the sandpit to steal each others' shovels the instant big daddy happens to look in a different direction. It's either no trust or too much... ;)
Don't put words into my mouth because you don't understand the concept of collateralized assets. Get a book. Read it.
Seems you might appreciate words put into your mouth as your time is too precious to actually explain things to concerned customers - like, why they would pay $2.75 for one bit$, just to have "more security."
Upvoting your own posts is of course quite in the style of steemit, where egalitarian whales rule with highly convincing "steem power."
You're proving my arguments in such a concise manner that potential customers will hopefully now better understand the risks involved, though they'll certainly keep asking themselves what the actual benefits are supposed to be - as the salesmen prefer to not mention the subject.
Texas authorities have just taken the first step to inhibit the growth of Arise Bank, a bitshares partner. I've been watching bitshares since I started being interested in crypto, and I've seen this coming up.
It's complicated, they are not just letting us put our money on decentralized exchanges anonymously. Too good to be true.
Speaking of salesmen, well I have been a salesman once in a while, and I know how salespersons behave. They tend to dodge those critical inquiries whom the potential customers are throwing at them when the product they are trying to sell doesn't support the customer's needs. It is called diversionary tactics, by shifting the direction of the sales pitch into something fancy feature that the customer won't even need after all.
P. S.
I only use BTS to move my funds from exchange to another exchange to save me from withdrawal and high transaction fee. But when Doge is available, I always prefer Doge because it has more inherent liquidity among all utility coins.
Seriously go read what collateralized asset are before saying stupid stuff., you are embarasing yourself. AriseBank was not a bitshares partner. They wanted to use Bitshares for their tech.
The Tether/Bitfinex affair demonstrates the lunacy of the cryptocurrency libertarian revolutionaries' fantasy of their technology fueled utopia of non-government. No sane polity will allow for usurpation of coinage and capital controls by two-bit hacks "minting" digital garbage.
As you eloquently point-out, the central authorities merely need to control the access points to and from the crypto-market by enforcing AML regulations that already govern banks and financial institutions. When no banks will deal with cryptocurrency exchanges, the entire scheme will collapse. That the central authorities of major polities have allowed for the growth of cryptocurrency market, thus far, assures near-future central control and regulation over the cryptocurrency market. It will be beneficial to all involved, when central authorities properly regulate cryptocurrencies paving the way for major financial institutions to enter. Then, and only then, will mainstream adoption finally occur. Decentralization is a garbage pipe dream of teenagers for a by-gone era that have not existed for ten-thousand years.
I don't necessarily have to agree with this observation. Do not underestimate the power of peer-to-peer exchange as demonstrated by LocalBitcoins.
If the government goes full retard on AML/KYC implementation, then it opens the door for people to resist and go all in to the black market where exchange is done via remittance centers, e-currency like Perfect Money and MTO services.
The harder to buy, the price soars to the moon! Crypto will then become more valuable store of value than ever.
When cryptocurrency to fiat conversion is essentially severed by banking interests and governing regulatory agencies, then cyrptocurrencies effectively become worthless baubles. Cryptocurrency is not like heroin or cocaine that has end-use value. It is merely an exchange medium that requires an end-point conversion to fiat. What sane mercantile institution will accept cryptocurrencies for their wares, when there exists no financial institution for fiat conversion?
For cryptocurrencies to have any value, it requires banking cartel support and government assent for fiat convertibility. Can "peer to peer" transactions support millions or billions of USD worth of transaction orders? Peer to peer is a fad, not some revolutionary exchange medium that will replace the current financial institutions.
bitUSD can be purchased for very close to a dollar. The margin requirements only apply to “creating” bitUSD.
For example; yesterday I put 1200 bts up for collateral and borrowed 300 bitUSD, then I bought 300$ worth of bts and immediately put in a slightly higher sell order, and 1 hr later, I closed every thing out and now I have 1230 bts. I’m new to Bitshares and wanted to see for myself how it works.
Have used bit.USD with great success in the past. Though I am now no longer as adverse to using USD since if you are playing by the rules you are paying taxes on every trade.
How can the goverment react to those trades? I mean what are the possibilites? Wouldn't they tax them us as usual trades?
They do tax crypto trades as usual trades (non-crypto), as of 2018.. sort of. Non-crypto trades involve USD for U.S citizen (typically). Meaning when you sell something you are taxed on it. Now whenever you make a crypto-crypto trade you owe taxes on gains. So even trading in and out of bitcoin you owe.
Before 2018 the allure of tether was that you were only taxed on crypto fiat trades.
And what BTS is valued in?
Correct, in US dollars. Therefore "bitUSD 2x collateralization by BTS value" is a meaningless expression because once the dollar value of bitUSD evaporates it won't matter how many times something is backed by zero.
And there's something else. Markets always deal with perceptions as suppose to real stuff. Therefore if you create a currency which is a stealth representation of the USD then you committing a grave sin of the unauthorised USD printing and no authority in the world will tolerate its currency counterfeiting.
Hopefully something like this gets adopted widely before tether goes down, I doubt it though. There might be a rush from exchanges to adopt some sort of replacement after the crash leading to some making suboptimal choices.(AKA not tested/questionable origins)
It's unfit to be a replacement.
Or graduate from Fiat peg already and stay in crypto. The whole crypto gotta work to be actual currency, that's the real with and what we want this to be ultimate, is it not?
While I like the idea of Bitshares economic ecosystem, the question is: what will happen to your BitUSD when the BTS price dives like a starving peregrine falcon?
Stan Larimer was interviewed by the badcrypto podcast last month and he mentions that Tether is not backed by anything unlike the real US dollar-backed version used in the bitshares.
I think you meant to say bitUSD, where each $1 is backed by at least $1.75 worth of BTS
Yeah, we need to get the word out!
Thanks for this report. I always thought Tether was supposed to be a stable coin. I didn't realize it was such a scam.
I could not agree more with your assessment of Tether as a ticking time bomb.
I would love to know the real reason the Friedman/Tether relationship ended. The way I see it, there are two likely reasons: 1) The auditors were asking too many questions (i.e. it was likely they were going to uncover the scam) and Tether called it off OR 2) The auditors discovered the fraud and didn't want to issue an opinion so they ended the audit.
I lean more towards option 2. If I were Friedman I wouldn't want to be associated with a negative event in the crypto space. Especially when it sets a precedent for future audits of companies in the crypto space. No company will want to hire the auditors that both destroys a crypto asset and, most likely, brings down one of the biggest crypto exchanges.
I am a CPA and auditor at one of the big global accounting firms. I have seen this same type of activity happen a few times in the past (not to me personally, but to some of my colleagues). It usually results when the auditor finds a problem and the client refuses to acknowledge it's a problem. Instead of getting involved in the scandal and opening the door for legal exposure, the auditor declines to issue an opinion and severs the relationship with the client. If Friedman issues a negative audit report and Tether disagrees, they could (and probably would) sue Friedman for various reasons, even if they are hiding a scandal or fraud. Frankly, Tether is just a ticking time bomb, and it is in Friedman's best interest to distance themselves from the blast as much as possible.
There is also a possibility that the auditor simply did not want to risk its reputation because the case is highly charged and auditing is difficult and such auditing of crypto currency has never been done before.
That is a good and valid point.
Tether somewhat reminds of WorldCom...
I agree ,i bet the auditors most likely were looking at inflated or false numbers ...and asked "what is this?"
As anyone whos works at a legitimate financial company knows...reputation is huge .
Tether has always been a bit shady in regards to what they have falsely represented.
(In a criminal aspect, its brilliant because too many investors in this space...don't take the time to actually read up the white paper. They just dump cash into what's "hot")
This would be the ideal market for anyone who follows PT Barnum's famous quote
"There's a sucker born every minute"
Great comment btw.
Since Tether will likely do everything in their power to make sure a third party does not expose them, how do you think it will play out? Unless regulators step in and demand a legitimate audit, the only way I see the bubble popping is if a large number of USDT holders try to cash out for USD. Can you even do that directly through Tether? Are there any exchanges that offer a USDT-USD pairing?
You can use Kraken for exchanging USDT-USD
Personally, it took me a little while to realize USDT ≠ USD. It is used in exchanges as if it was the same.
I've always been leery of tether but didn't realize until now that Poloniex and binance quote their Bitcoin prices in Tether. Also, this is the number that is picked up by coinmarketcap
See thats the problem i believe.
An exchange might have liability issues based on that.
ALOT of people think its USD.
Kinda scary when you think how many have their positions based on this aspect.
Thanks for your insights. I'm not sure which is the case, but I'm excited to find out. The only part I am sure about is something is afoul - my spidey sense is tingling!
Thanks for that insigth. :)
I know you said you don't know what will happen when Tether collapses however I would like your opinion of the following scenarios and how you would rank them in terms of probability. I'm going to focus the options around Bitcoin.
a. Bitcoin remains stable as $2 billion has evaporated from the ecosystem which results in much lower liquidity, this results in a trading halt as no one selling Bitcoin on the USDT exchanges (which is most the volume). Essentially no major change to the crypto market.
b. Bitcoin prices go up due to high buy pressure as more people will try to unload their Tether bags they will drive the price of Bitcoin upward, once Tether crashes Bitcoin could be trading at 100k+ USDT. This could create a new floor/support for Bitcoin well above the ATH. I don't really see why there would be reason to sell Bitcoin if Tether crashed, I would personally just hold my Bitcoin. This would also mean this has achieved the ultimate goal of Tether/Finex (as speculated by Bitfinex'ed), artificially inflating the price of Bitcoin.
c. Bitcoin crashes with tether as Bitfinex will likely go down with Tether, causing massive FUD within the market with Mt Gox 2.0. People panic sell in the Fiat exchanges causing the "Bubble Pop" as they feel the price of Bitcoin was artificially inflated. This is obviously the most un-ideal situation.
There are endless variations to the above scenarios. Would like to hear opinions from the other readers too.
My ranking would be
b. BTC increases - 50%
c. Bubble Pops - 40%
a. Nothing really happens - 10%
Bonus question. As you mentioned many exchanges have USDT pairs to bypass regulation, if Tether was to exit scam what is the worst case scenario? Let's use Binance or Bittrex as the example, would this implode their exchange? or would exchanges result in BAU regardless what happens. Can't really play this one out in my head.
Apologies if someone has already said this....
So to summarise, we all suspect that there is a giant money printing machine sitting at the heart of cryptocurrency, printing fake dollars (USDT), which are then used to purchase bitcoin etc, thus artificially keeping crypto prices high.
Therefore those holding tethers may find that they own a coin with no value and the crypto market crashes due to this plus the fake QE printing press is turned off, which no longer supports current price levels. Oh and Bitfinex goes out of business too, which means anyone holding coins on that exchange could potentially lose all of them.
It sounds like those holding tether will likely lose everything and those holding crypto will see the value of their holdings fall off a cliff?
The last time something like this happened the bear market lasted two years? This sounds like a cataclysm waiting to happen....
Then following this disaster, governments around the world regulate the hell out of the market so their citizens cannot be swept up in a similar fraud again...?
P.S. I am guessing that everyone noticed that they just printed another $600M dollars worth of tethers yesterday (28th Jan)? Thus increasing the supple of tethers by roughly 37%??
Btw, will you do a video on dividends within crypto? I mean I've been able to figure out how to sell most of my bitcoin cash, bitcoin gold, and some of these other alts like stellar lumens that give you there free coins if you just have bitcoin. I literally made around 24% from these airdrops and hard forks in 2017. Why would I remove myself from that even if price drops and the bubble does pop?
Well, the Past Market drops was about 90%.
There is a nice resistance Line at about 1.800$ for Bitcoin.
I wouldn't recommend to ride this Bear. ;)
Who cares, if it gets back up again? I probably will die and still have the same amount of BTC than today... :-)
I don't think so.
The next Pump will hopefully be without Bitcoin. It's simply outdated and up to 55$ TX-Fees ... WTF!
The Market will be better of with Ethereum, Litecoin and IOTA on Top.
Agreed, I will hate to seen BTC go but we do have to face reality. Even if they improve scalability & low fees, this will be at the expense of decentralization. No thanks, BTC
I send today Bitcoin and I paid around 50c for the transaction. The spam got cleared of the mempool and you dont need to pay 55$ for TX, you can of course, but you dont have too. And those things will be sorted out.
Oh ok - didn't know that - Thanks
I only used Litecoin since a few month.
I always use this (https://bitcoinfees.earn.com/) to calculate optimal fee.
Yes, I'd like to talk about income-based investing in cryptocurrencies in future (forks, airdrops, masternodes, etc.). Part of the great part about investing in dividend stocks is that even if bubble pops, certain amount of profit is locked-in unless you are reinvesting (which, ironically is the recommended choice in stocks but may be less so in crypto given risk).
Very interesting. Richard Heart made a similar point in a recent video, that Bitcoin's real strength is the ability to collect 'dividends' from other projects that Fork of BTC- such as BCash, Bitcoin Gold, Zcash, etc. Collecting Airdrops such as Byteball is also another benefit.
Neo kinda gives a dividend when you hold it, mining gas coin. So far it's worked. Idk how dividends would work because crypto is much different than traditional div paying stocks.
Awesome! I really love your video! I think you did another one on Tether in the past. I really love your delivery and information.
@teamsteem I agree! This is a great video showing the problems of Tether!
By the way, I was wondering if you got the chance to see the latest post were I mentioned you and made a graphic chart were you are also showcased:
https://steemit.com/steemit/@gold84/the-invisible-forces-of-steem-lukestokes-blocktrades-timcliff-elear-teamsteem-ned-developers-an-autonomous-decentralized
Looking forward to your thoughts on this!
Regards, @gold84
Got a laugh out of this, thanks for posting it.