The whole point of Tether, the “stablecoin” suspected of having been used to manipulate the prices of bitcoin and other cryptocurrencies, is that it is a digital version of the dollar. The idea is that Tether is easier to move around than real dollars, and it can be used instead of the greenback on crypto exchanges that don’t have access to real, central-bank-issued money, to get in and out of trading positions quickly.
And Tether is used a lot. In fact, it is the second-most heavily traded cryptocurrency in the market, according to Coinmarketcap, after bitcoin.
That’s why people are starting to get jittery about the fact that since the start of October, Tether has been breaking the buck. It’s not the first time Tether has failed to hold onto its dollar peg. But this time, its discount to the dollar looks a little more sustained, and has been widening.
Take a look at this price chart, showing the average price of Tether across various exchanges since the start of the year (screenshot from Coinmarketcap):
It started falling more precipitously over the weekend, and on Monday slid to an average price of just above $0.94, according to Coinmarketcap, dipping to as low as $0.90 on the Kraken exchange, according to Bloomberg.
Over on Twitter, people have been freaking out. There’s been lots of talk of Tether “dying”, and bank runs:
Tether, the cryptocurrency which is theoretically backed 1:1 by USD held in a bank account and available on demand, is currently in the early stages of a bank run.
Bizarrely, also, there was a tweet on Saturday night from Zhao Chenpeng, CEO of Binance, the biggest exchange globally and one that doesn’t allow access to fiat so does a huge amount of volume in — and makes a huge amount of money from — Tether, with a screenshot of its price along with the comment: “Regulated stable coin, lol”.
Many questions have been raised over whether Tether has the dollars in its bank account that it says it has, and which give the tokens their value. But until now, the market has largely bought into the company’s assurances that it — and its sister company Bitfinex — is solvent.
But it seems like the market is starting to question that, as liquidity worries grow amid reports of yet more banking problems for Bitfinex.
As Tether tumbled, the average prices of bitcoin and other cryptocurrencies rose across the board as calculated by aggregators like Coinmarketcap and Cryptocompare, largely as a result of the fact that on crypto-to-crypto exchanges, prices are derived from Tether (so as that fell, other cryptos went up). But also because on those crypto-only exchanges, the only option anyone holding Tether had to sell in exchange for was those well-known safety assets: other cryptocurrencies.
Some crypto evangelists seemed to be suggesting that this was a good thing for the industry (Phillip Nunn is a self-professed “blockchain evangelist”; Arianna Simpson was “into crypto before it was cool”):
Tether is an hilarious ponzi-scheme, as MB readers were informed long ago by a reader:
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…the presence of USD “Tether” that can be found on many online exchanges. This is product has enabled many online exchanges to evade the US Banking laws by not actually dealing or handling US currency. Tether is effectively a crypto currency, supposedly backed on a one for one basis in USD… supposedly, but there has been no proper audit to date.
Initially, I did not understand the connection between the two, or what it signified. The real issue is that from a rather convoluted process Tether emerged from the Bitfinex hack, and BOTH entities, Bitfinex and Tether, are controlled by related parties, parties who you wouldn’t leave your wallet lying in front of.
But the real red flag here is BOTH Bitfinex AND Tether have lost access to all USD bank accounts and haven’t provided any details of other bank accounts – how are they getting their money?
Based in HK if there is actually money flowing into Tether, then there is a high likelihood that it is being funded by the Chinese Halawi system of blackmarket banking.
At the start of 2017 there was only $6m in Tether, by the time Bitfinex finally lost access to the US banking system it had grown to $60m – since then it has grown exponentially tracking the rise in BTC price to over $600m. With a further $30m going in on Sunday – what Bank transmits money on a Sunday!!
A blogger and twitter user has been documenting all of these details, and has shown that whenever BTC is under threat of a serious correction, flows of Tether into the BTC surge.
This lack of any meaningful correction is something that I have noticed myself and have grown increasingly uneasy over – a meaningful correction has never come. IMHO Bitfinex are only able to survive, and they have survived for 7mths without access to any form of banking, by ensuring that the BTC price continues to rise and on any inflows from the Chinese Halawi.
There may be some money trickling in from that source, but from my experience of the markets and previous events in the cryptocurrency world, it is highly like that real surge behind BTC price and the issuance of Tether, is that there is a massive fraud going on.
In my opinion Bitfinex, Tether and their owners (who are of VERY dubious character… you wouldn’t leave your wallet in front of them if you were drinking with them went to the dunny) are effectively running a private QE operation, providing market liquidity in the form of USD Tether every time a major sell off threatens. They are effectively electronically counterfeiting USD which ensures BTC never falls and continues to attract new money into the ponzi.
The start of BTC’s tremendous run up pretty much coincides with the moment Bitfinex and Tether lost access to their bank accounts.
If you remember the cause behind MtGox’s collapse was a similar fraud, what is not so well know are some of the details, including the fact that ppl trading coins on MtGox were not actually trading BTC, but rather Gox Coin, while their BTC were supposedly safely in the vault.
Through shear stupidity Gox also carried out their own form of inadvertent quantitative easing – they simply minted Gox coin on the assumption that BTC had been transferred to their cold wallet – MtGox systems were so bad no reconciliations were ever done.
But MtGox’s QE was effectively internal, Bitfinex and Tether‘s QE is on a far, far more massive scale. Tether has bleed out across numerous online exchanges that have popped up in order to avoid use Banking regulations, it has infested the system and in the liquidity constrained market has helped blow a 120 billion dollar bubble, built around a fraud.
Most of what I’ve just written is the source of one blogger @Bitfinexed. So perhaps it may be a story of revenge, maybe he was part of Bitfinex’s legitimate users who were made to wear a haircut… except that there are so many red flags that point to a fraud, the massive increase in Tether despite no access to USD banking, the timing of the Tether flows, the fact that there have never been any draw downs in Tether, only increases, the time that Tether started growing exponentially relative to Bitfinex losing its bank accounts, the dubious character of those running the exchange.
This is the real clincher as to how precarious the whole situation is – effectively EVERY crypto asset not on a main exchange with hard currency values itself against USDT, Tether. How much USDT would I have to sell in order to effect a 50% reduction of USDT and therefore every crypto asset?
The one exchange that actually has a pairing of Tether that you can exchange for real USD is Kraken – it would only take $250k to wipe out the value of Tether. It has become the proverbial pin upon which is balanced one of the biggest ponzis the world has ever seen.
I’m a big believer of crypto currency and have spruiked its potential, while hazarding caution. But I am desperately liquidating and transferring ALL my crypto to the handful of legitimate exchanges.
When the shit hits the fan and the fraud is uncovered EVERYONE on these online exchanges will be trapped in crypto – no one will be able to hedge into USDTether as it will be worthless or suspended – there will be no liquidity. Everyone locked in those rooms will die – people will likely suicide over this.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
