The fear around the Tether situation is overblown, and here's why: - by @voiceofreason
The fear around Tether seemed somewhat justified at first.
A quazi security supposedly backed by the dollar supporting bitcoin prices by being printed at will seemed like some potentially very bad news just waiting to tank the cryptocurrency markets.
Even if it was "only" a $2 billion market compared to a $500 billion market.
Tether had wormed it's way onto many exchanges, specifically those that didn't have fiat on/off ramps.
It made the perfect dollar substitute for traders and investors to hide out in.
Why so much fear?
The fact that it had made its way onto so many exchanges and was being so frequently used across many different exchanges only stoked those fears.
Fears of contagion.
There was also the fear that the exchange most involved with Tether, Bitfinex, might become insolvent and it is one of the biggest crypto exchanges in the world.
Given all that, I think this one tweet put out by the Upbit exchange pretty much sums up why the Tether situation is not nearly as big of a deal as many people think:
(Source: https://twitter.com/CryptoOfKorea/status/961087459093307393)
That's right, Upbit announced that they will cover any losses that could come up due to the Tether situation.
So, even if Tether blows up, and every single Tether is fraudulent, Upbit announced that they will cover any and all losses due to Tether!
That is huge news and sets a great precedent going forward.
Upbit is able to do this because of how insanely profitable they and other cryptocurrency exchanges have been this year.
If other exchanges follow their lead, it would basically make this Tether situation meaningless, whether there was wrong doing or not.
It would have almost no effect on the cryptocurrency markets because everything would be backed.
Which means, if more exchanges make announcements like this, any sell off that was related to Tether will probably reverse itself in the coming days.
When people were worried about bank solvency In 2008, the Irish government guaranteed all deposits to assuage the public. In retrospect this only made the situation worse when some of the banks did collapse.
Upbit guaranteeing Tether potentially makes them and by extension their customers much more at risk from Tether than if they had not made such a guarantee.
They see that they clearly have enough cash on hand to cover any losses that a Tether implosion might bring, how does that make their customers MORE at risk than if they didn't make that declaration and just let their customers take the hit?
Because the only customers at risk before where those who held Tether (which is a small amount for the exchange). Now there is the risk that the whole exchange goes down by Tether holders taking advantage of the guarantee by UpBit, transfering to them once or shortly before the collapse is in progress.
So because of this guarantee, you think that Tether holders are going to transfer all of their Tether over to Upbit because they are fearful of a collapse? If they are that fearful, wouldn't they just buy btc or some other coin with that money?
Because the guarantee is 1USD for 1USDT. The price at that point may not be, or the liquidity may not be enough to get a large amount out at 1 USD
Don't you think they would decide not to honor new transfers that come in AFTER things are collapsing, before they would allow their exchange to become insolvent?
That's not how guarantees work. I'm sure they might try to argue that in court, but no I don't think that would have any impact.
Who is gonna hold them to it? These exchanges are not regulated. In whatever court they happen to be sued in, they could argue that they are liable for every tether on their exchange at the time of the guarantee. All that aside, if they had $2 billion, which they very possibly do, they could still cover every tether in existence. I mean you are reaching pretty far to try and come up with the most extreme possibility that makes this situation dire.
By the way, the primary holders of Tether are exchanges themselves. Did you know that? They use tether to arbitrage amongst themselves and help close price discrepancies on different exchanges.
Yes, that is a major reason to be concerned. If exchanges are the main holders of USDT, then potentially the largest Bitcoin exchanges are all insolvent.
You are talking about a $2 billion dollar liability max, spread over all the exchanges, in a $500 billion dollar market. Plus, most of these exchanges did over $1 billion in revenue last year alone. Look at the numbers, even in the worst case scenario where every tether is backed by nothing there is no way "the largest bitcoin exchanges are all insolvent". It's simply not big enough.
This is ignoring the multiplier effect, whereby most of their solvency is in illiquid assets the value of which is affected by the existence of Tether itself. The maximum liability is currently $2.3 billion, but how much assets will be available to cover that in a collapse is unknown.
The liability of the Tether USD's themselves is $2.3 billion but the potential losses to the whole Bitcoin ecosystem are vastly, vastly larger.
Again, another straw man argument. How do you know most of their solvency is in illiquid assets? It's uncertain where those earning are/went.
And again we are talking about one exchange in a $500 billion dollar market where there is a very good possibility at least some of those tethers are backed, if not most!
Apart from all that, if this is your true belief are you selling everything to get out of the way of a potentially market crippling event?
I completely agree, I've written several articles touching on this subject
true
Seriously, the fear among everybody don't see to stop very soon. But everything will be backed at the long run.
fantastic!
Lets hope all Exchanges can make this same commitment.
That’s good news last thing we need is something like that to happen. It’d set us back for sure.
Simple fear mongering towards the sudden spike in people entering the market. The governments know that blockchain is here to stay and they like the lower prices and believe me they are stocking up.
This is a beautiful post.
This looks very assuring too. What a relief @brightideas
UpBit’s stance on Tether is announced:
"We are aware that there are various suspicions re… twitter.com/i/web/status/9…
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