Tether gets cleared of wrong doing (mostly) and markets hardly react...

in tether •  last month

When tether was first ACCUSED of wrong doing, markets tanked by over 20%.

Today, tether was mostly cleared and there is maybe a 1% bounce.

Funny how things work huh?

Flashback to January of 2018, Bitcoin had already peaked but was on its way back up again at the end of January when the news broke that the CFTC had subpoenaed Bitfinex and Tether.

The price reaction can been on this chart here:

(Source: https://medium.com/@super.crypto1/4th-dimension-bitcoin-manipulation-cartel-can-it-be-burnt-no-way-c53de65c166a)

The fallout:

Using the prices at Bitfinex, which were quite a bit higher than seen at most US based exchanges, we can see that bitcoin was back up near $17k when the news broke.

Over the next several days the price dropped all the way down to $13k, and over the next few weeks, it dropped all the way down to $9k following the "tether news".

That gives us more than a 40% drop in just a few weeks following that revelation.

While the entire drop cannot be blamed on the "tether news", it likely was one of the main driving forces behind the sell off as people started to lose all confidence in the space.

This kind of fear and uncertainty has dogged the crypto markets for the better part of 5 months ever since.

Tether and Bitfinex fully in the clear?

After 5 months of uncertainty we finally got some much need clarity from Bitfinex and Tether.

Today, tether and bitfinex announced that a law firm co-founded by former FBI director Louis Freeh had confirmed that tether's bank accounts held more than the $2.55 billion in cash needed to back the tether's issued.

(Source: https://www.owler.com/company/freehsporkinsullivan)

There was no official audit done, but the law firm has had access to tether's books for weeks now and chose to do their report on an undisclosed day so that tether could not game the results.

According to tether they have had trouble getting a full scale audit done because no large auditing firm will take on the risks due to a lack of regulatory clarity on what is considered best practice for crypto exchanges.

More from the official release can be found here:

https://www.bloomberg.com/news/articles/2018-06-20/tether-hired-former-fbi-director-s-law-firm-to-vet-finances

https://www.newsbtc.com/2018/06/20/report-tether-does-have-enough-dollar-reserves-to-back-all-usdt-in-circulation/

Not quite fully in the clear:

Although this report is a huge step in the right direction, it doesn't show whether tether had USD backing in the correct amounts a few months ago or late last year when most of the manipulation supposedly took place.

Which is likely why the market is not responding more favorably to this news.

However, this revelation is significant in the fact that all the tethers currently floating around out there are fully backed at this point, which should take away much of the systemic risk posed from them not being backed at all.

Overall, this is very good news though not quite as good as a full scale audit would have been.

Though, it sounds like a full scale audit will not be something that can be expected for some time, due mostly to things out of tether's and bitfinex's control, at least according to them.

Stay informed my friends.

Image Source:

https://www.justcryptonews.com/342/tether-effect-study-shows-tether-issuance-might-be-manipulating-bitcoin-price

Follow me: @jrcornel

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Great analysis! 👍😁👍

Not only was this not an audit, the law firm couldn't even state that the information provided to them was accurate.

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Yes it was stated multiple times it was not an audit. However, the fact there is $2.5 billion in the bank as of now is better than nothing.

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However, the fact there is $2.5 billion in the bank as of now is better than nothing.

It's not entirely clear that this has been established. We don't have the name of the bank and thus their reputation is not at stake, while the lawyer statement makes it clear they don't know if the info provided was reliable.

Aside from that, nothing was mentioned in the report about the nature of the reserves. Having a fractional reserve bank account somewhere for example would not be the same as having full reserves.

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It looks like they very clearly gave the dollar amounts, doesn't look like fractional reserves to me. You are reaching now.

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When your bank gives you your dollar balance, that's a fractional reserve. They don't actually hold all the money. Full reserve banks are quite rare.

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Ok, so your contention is that because the money is in a bank account, they don't actually have the money because the bank likely has invested that money out to earn a higher rate of return than they are currently paying?

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Yes. Or at least that's a likelihood. It's different when you're talking about amounts like $2.5 billion that is actually enough to affect some banks operationally.

Tether specifically claims to have full reserves, which is not the same as a fractional reserve bank account.

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Though since the banks are unnamed you can't say for sure that they don't?!

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I remember reading your stuff a while back actually now that I think about it. You were the one saying that this tether issue was basically going to collapse the markets and you were going to sell off all your bitcoin because of it. That makes sense now why you seem to so badly want this to be worse than it likely is.

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We could also say that if you're invested in crypto, you want to believe the situation is better than it is, and are willing to accept lower quality evidence as a result.

Selling Bitcoin back then hasn't turned out too badly given the last few months $19k -> $6k They haven't gone bankrupt which is some positive evidence, but then My. Gox was insolvent for about a year before it collapsed.

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That is true, it has been a very good play, thus far. We will see how it looks in the long run, if you don't get back in at some point.

We just have to ride these good and bad news for our advantages, it is a wild world in cryptos, must do research and stay informed so that we won't get wrecked with our finances. @jcornel

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I agree. Crypto is highly volatile, so one must be flexible to make the most out of it.

My suspicion is that money was taken from EOS, through ETH, and so, viola, they had the money in the bank.

And, the above is far from a clean bill of health. It stinks of a coverup. And so, as expected, the markets made no move.

Further, the markets weren't waiting for this news. People who thought they couldn't trust Tether were already out. Those staying in didn't have their mood altered.

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Short positions are rather high right now, news like this often causes short covering rallies, at the least.

It is not surprising. People always have a far easier time reacting to bad news than to good news.

Until there is official news. I won't hold a lot in tether. It all seems phony as fuck. In all the time there is still no official release of an audit (to my knowledge), this just spells bad stuff.

Like I said in my post, this report isn't going to do anything to satisfy the Tether critics.

There are a hundred ways to game cash balances that a team of lawyers who are not accountants wouldn't pick up on.

FWIW, I don't think the law firm would bother to lie about their findings. I just think they aren't auditors so their conclusions aren't that reliable.

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While that is true, the fact that they have $2.5 billion in cash in bank accounts is better than nothing, which doesn't seem to be what some critics are saying. Even if they got that money in less than legit ways, that money is there now, and the fear of some form of systemic risk stemming from billions of unbacked tethers floating around now goes away.

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Tether will be boom and it has good future for tether coin holders and traders.