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RE: The fear around the Tether situation is overblown, and here's why: - by @voiceofreason
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.
You say this, and you act like I'm the one reaching. You don't think exchanges are legally liable for their guarantees? Then what's the value in such a guarantee in the first place? There was no "up till now" clause in their statements.
You don't think national courts will see these exchanges as under their jurisdiction if they have customers in those countries?
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?
Bitcoin is not a $500 billion market. The market cap of the whole space is $420 billion currently, but there is far less money in the space than that. $1 million moves the cap far more than $1 million, because of the low liquidity and high volatility that comes with a lack of actual commerce.
The vast majority of exchange assets are held in the crypto that they hold on behalf of their customers and the crypto they hold for liquidity. How many exchanges do you think are actually holding double reserves, where they hold both the crypto and an equivalent amount in fiat assets? In the song of the history of Bitcoin, exchanges going insolvent and everyone losing all their money is the repeating chorus.
Yes, I held a significant amount of EOS which I sold entirely due to the connection to Bitfinex and Tether.