Is the entire Tether market the next Mt Gox sized(or bigger) Crypto Scam?
I wrote an article about this a few months ago as bitcoin futures were announced for a reliable way to short the bitcoin market, and a conspiracy called operation dragonslayer was making rounds on the internet. A major part of this proposed collapse of bitcoin was massive amounts of fraudulently made Tether coins. Now it seems these ideas are hitting mainstream media as article are popping up in mass media outlets like Bloomberg and Wired.
https://www.wired.com/story/why-tethers-collapse-would-be-bad-for-cryptocurrencies/
What is Tether
The goal of tether was to create a digital currency where one unit of the coin would be tied to $1 US Dollar that was held in reserve with custodian banks. Giving the coin stability at at around 1 dollar each as it was backed by that one dollar by its creators Bitfinex, a Taiwan exchange that does $1.9 billion USD volume on average. Meaning if Bitfinex is fraudulent about tether they may be fraudulent with $1.9 billion dollars of trade daily as well!
How or why are they fraudulent
The auditing company that had a relationship with Bitfinex to track tether's reserves was Friedman LLP. As of Monday this firm and Bitfinex has officially severed their ties. Furthermore as of today Bitfinex received a subpoena for audit information from the US Commodity and Futures Commission. When asked for a statement, their spokesperson simply replied,
"We routinely receive legal process from law enforcement agents and regulators conducting investigations. It is our policy not to comment on any such requests."
Not inspiring much faith.
Furthermore, well before any of this, last year Wells Fargo and the Bank of Taiwan ceased doing business with Bitfinex as their main banks to facilitate the transfer of money into Taiwan.
So now their is no audit trail, and no known bank trail for money to move around the world into Bitfinex's accounts. All the while Tether's market has been booming with new Tether entering the market, in a way that has increased as bitcoin prices dropped, an opportune time to buy bitcoin. With Bitfinex being the only power that can create new Tether as money is deposited, but no audit trail or bank to track money being deposited, the theory that Tether is being fraudulently created has a much larger likelihood to be true than any of the markets currently have priced in.
Does this really effect all markets or just Tether?
Since the creation of Tether has coincided with opportune times to buy bitcoin, logic would say fraudulently created Tether is being made to be sold for USD to buy bitcoin or traded directly for bitcoin, resulting in a bitcoin price recovery and an inflated bitcoin price by nothing but thin air. Making the typical zero sum game of investing, more of a negative sum game where there is more to be lost then gained, more bitcoin to be sold then bought back. The money used to buy bitcoin up to the price and demand it is at today could partially not be real, and not be there to buy it back up at a lower price. So it is clear that a Tether collapse could spill over into the bitcoin market. Since every coin has a btc related market, a crash in bitcoin would likely end up as a crash in other coins as well, as anyone who has been watching the crypto markets the last few weeks very well knows.
Are All Cryptocurrencies Doomed?
The last few weeks have also shown a few gems that aren't as susceptible to this bticoin relationship, namely Steem and Ether, both have only dropped modestly or remained stable while markets everywhere else were crashing several to dozens of percent a day.
Nothing is proven yet, but in my opinion it doesn't look good, and with Ether and Steem being a seemingly safer place for your money that is still exposed to the upside of the cryptocurrency markets, but muted to the downside, it would be reasonable to increase your allocations to these coins going forward.
- Before acting on any information you read online, do your own research, ask and get answers to your own questions, and then and only then make up your own decisions and opinions. These are my ideas and I am sharing them to get feedback and scrutiny to improve those ideas for myself, as you should do with your own ideas for investments.