Bitfinex, Tether and the crytocurrency markets

in vincentb •  last year 

tether.jpg

So today it came up the news about the US Commodity Futures Trading Commission (CFTC) sending subpoenas to Tether and Bitfinex (and this happened back on december 6, 2017), the company that issues an USD pegged cryptocurrency and one of the biggest crypto exchanges (by volume) in the world, to question them about the reserves that back USDT value.

Although neither of these companies says explicitly in any of their web pages, it has been known for awhile that these two organizations are asociated and even share the same guy as CEO of both.

So the question here is why do US authorities want to investigate theses firms, why does it affect the crytocurrency markets so badly and what could be the consequences of this?

First, we should know what Tether (USDT) is and what role does it play in crypto markets.

USD Tether is a crytocurrency issued after an USD reserve that backs it's value in a 1 on 1 basis, so that each USDT coin has a 1 US dollar value.

The coin itself fulfills two roles: it serves as a refuge value in a volatile market and also gives exchanges a way to offer investors and traders a way of "cashing out" of crypto without using actual fiat currency, which would held them accountable for having to comply a whole new legal framework for handling peoples "real money".

There has been a rumour in the last few months that Tether might not have all the US dollars in reserve to back all the USDT coins in circulation. Recently came to light that Tether (the company) and the audit firm that was about to certify in some way those reserves had dissolved their relationship, which sparked new rumours. It is believed that these circumstances are what brought the US authorities attention.

So why is all of this affecting bitcoin and the rest crytocurrencies value if the only coin affected by the news is USDT? I've heard (and I believe there is some truth to this) that people should be selling their USDT to buy any other crypto, which should spark their prices up and no down. But you can't deny that the presence of USDT on many of the biggest exchanges in the world has helped to create enough liquidity to drive prices up and (to some people at least) has given them some sense of safety from a possible market crash (I think this is wrong but that's a whole different story).

So for many people (again, not me) to think in the possible demise of this coin makes them think that maybe the risk (of investing in crypto) is not worth it, and this is what crashed the whole market today.

What could be the "real" consequences of this investigation? Well, I think it depends of what is found. If Tether actually holds less US dollars than what they claim to, that would probably mean tha end of USDT and an even bigger hit to the market. But what if Tether actually does hold in their bank accounts more US dollars than USDT coins there are in circulation? That would mean that everything is right and that we would see a healthy USDT coin and crypto market right away, right?

Not so fast. That's a possibility of course (hopefully what it will end up happening). But there is a third possibility that could be just as bad (if not worse) than the first one.

What if Tether was a Bitconnect kind of a scam. What if the people behind Tether invested like 10 million dollars to start (put that in the bank), then issued the first 10 million USDT with wich it bought 10 million USD worth of bitcoin and sold these for 10 million USD (if price was higher at this point, they could even hold the BTC an get the money anyway) just to put that money in the bank and use it to issue new USDT coins. How many times could you repeat that to "create" new money. Am I crazy or is this possible.

Scary thoughts ( a little paranoid maybe, maybe not)

What do you think?

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  ·  last year (edited)

There is a much better alternative than TETHER....bitUSD and bitCNY that is backed at least 2X with BTS collateral ! And it works for years (eternity in cryptospace)
And the most important thing you trade them in a decentralized DEX environment and not on the risky centralized exchanges !!!

https://wallet.bitshares.org/#/market/USD_BTS
https://wallet.bitshares.org/#/market/CNY_BTS

PS Did I mentioned that everything is audited from the blockchain?

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  ·  last year (edited)

i had no idea of it.thank you very much this extremely useful details.it will be really helpful for me.

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  ·  last year (edited)

@liondani BTS for president! Θα το καταλάβουν κάποια στιγμή!

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Thanks for the info I definitely plan on researching and posting about these.

Gonna be interesting to see what happens!

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The techchat team will definitely be keeping everyone up to speed on all the news! It's a wild time right now - every time I wake up there is a big headline on the news.

i like the way you think. Just gave you a follow and upvoted.
For a new Steemian, can you help me out? How do you have 42 upvotes with only 46 views on this post at the time of this comment. I'm struggling to get exposure on my posts. Any help would be much appreciate!

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Now you are the first ;)

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Thank you friend! Just followed you :)

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Use the promote option that appears at the bottom of each article (costs 1 SBD). Besides, there are upvote and resteem bots that can help you to expose your posts to a much bigger audience. See @hottopic for example. Look at steembottracker.com for more information

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very helpful - thank you

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The promote option doesn't do anything, you would just be wasting your SBD.

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It puts your post up in the "promoted" page. It gives your post a little more exposition

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But if no one votes for it then it goes to the bottom of the page...no real promotion. It's really a bad idea for someone with no following to burn their money in that way.

Most users are not aware that the promoted page was created to burn SBD back when the ratio of SBD to Steem was dangerously high. At present it serves no useful purpose.

Edit: I must correct myself, the more money you use to promote your post the higher it shows in promoted page. So if you are willing to pay to get exposure it might help you (as long as users actually view the posts in that page).

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Now you are the first ;)

I really think this is being made into a bigger deal than it needs to be. This Subpoena was issue way back at the beginning of december, why would it just be effecting the markets now, outside of the fact that its just being reported and people are panicing?
I’m not saying i think Tether’s operation is sqeuaky clean, but this subpoena could easily be a routine matter. And even if it isn’t i do not personally believe the end of tether would actually have long term effects on crypto markets.

For starters, you are correct. Bitfinex and Tether do share the same CEO - according to a person familiar with the matter.

To those that are in the dark as to what's going on... Tether's coins have become a popular substitute for dollars on cyrptocurrency exchanges worldwide. There are about $2.3 billion of the tokens outstanding as of Tuesday and Tether has to have $2.3 billion backed by the U.S. dollar in case everyone on the Tether market wants to cash out. This is similar to how casinos are required to have cash at hand in case everyone in the casino wins the jackpot... very unlikely, but it can happen.

According to Bloomberg: A document on Tether’s website, compiled by accounting firm Friedman LLP, shows it had $443 million and 1,590 euros ($1,970) in bank accounts as of Sept. 15. Tether tokens were valued at $420 million that day, according to Coinmarketcap.com. Tether hasn’t identified the banks where that money was held, and their names were blacked out in the document.

I hope this clears up any confusion!

I think they could be doing that, but they could also not. The problem is: I have to trust them and I've learned the hard way to only trust in code!

for starters, what authority does the US Commodity Futures Trading Commission have over Tether and Bitfinex?

very little.

There seems to be enough smoke around tether to suggest something is amiss - but it is a completely seperate currency to bitcoin - and whilst it's crash might create a bit of initial FUD and bring the prices down somewhat, it doesn't change any of the fundamentals behind bitcoin, or any other cryptocurrency for that matter.

I would argue against it creating liquidity in bitcoin, because if USDT wasn't around people would find another safe haven, whether that be fiat, or one of the other 1400 cryptocurrencies.

in the end of the day USD is a currency that has depreciated against bitcoin for 9 years, so it's hardly a safe haven, even if many interpret it to be so.

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I agree, but trading is all about market perception and trader psychology if they get scared they will run, initiating a panic sell. I think main media got the recept and is working perfectly for them. Looks like an elections campaign to me.

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I think Tether is a way around for exchanges to handle USD without actually having to carry with the legal obligations that come with it. I agree with you, this SHOULD NOT affect bitcoin and the rest of crypto but it does. Too many people invest in crypto not as a new (better) way of holding value but just as quick way to make some of what they perceive as "real" money, so the fear of not having a quick way out (as Tether is supposed to be) makes crypto way less attractive to them. Markets are more about psychology than they are about real facts

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This is going to affect the exchanges that use tether - Bitfinex, Bittrex and Poloniex.

But the big Korean exchanges will be unaffected as they mainly trade against the won. Ditto with the big American exchanges that trade against the dollar (Gemini, GDAX, etc)

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Bittrex already announced the introduction of USD trading pairs. So I guess they are getting ready to ditch USDT if necessary

So for many people (again, not me) to think in the possible demise of this coin makes them think that maybe the risk (of investing in crypto) is not worth it, and this is what crashed the whole market today.

In such, market should climb high rather than crash. Because people don't believe in USDT, so they will sold their USDT, which would make BTC, ETH, etc, .. price up.

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You are right. Yo are thinking logically. Markets do not

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reasonable

this negative reports from the coin community is really weighing the coin market down,tether is a large coin by market cap and its demise will take the coin market deep into the red, their has been one scandal after another in the coin market and this gives the alt coin market a bad rep

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Totally agree, these FUDs are killing this market recently . I guess it would be a coordinated efforts by other regulated financial institutions . I had listed few other reasons too here
https://steemit.com/btc/@coinhelp/reasons-for-crypto-bear-market-jan-2018-why-bitcoin-is-down

  ·  last year (edited)

we're questioning the solvency of Tether,
in short this means that they will need a dollar for every tether there is.
I know that they don't have it and I know that's terrible, I don't use it myself.

but my point is if you see Tether as a scam because of its solvency so is the Dollar, the Euro and the Pound.
I don't know if you know but all those currencies aren't solvent, if everybody withdraws his money from the banks the world will crash and will destroy itself and I’m not kidding.
There is not nearly enough money for the money that we have, pretty fucked up hé.
In the old days we backed our currencies with gold in our banks but that’s just a joke if you tell me.

It’s wrong I know but we still use banks even when a lot of people know this, so as long as not everybody sell’s his Tether it will be alright.
Tether will only crash if we want it to.
so I don't think that will happen, so many people are using it.
It’s your own choice if you get involved in Tether.

forget the FUD and think for yourself!!!!

Thanks for reading

Tether's valuation could crash to zero, but the fact that big players have yet to shift positions significantly is encouraging.

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Really weird that the FED and Banks can issue loans with a fraction of actual USD but the CFTC which has no regulatory authority over this space wants to create FUD. Sounds to me like the banksters are a little pissed they missed last years Bull run. First they come after Coinbase on the usernames and tax forms going out and now this thing with Tether. Sounds to me like the FED is a little butt hurt. I m buying all the way down. I am not a financial adviser but thats what I am going to do. By the way fantastic article and explanation as to what is happening.
![logosteem.png]

()

Frank @democratsonly

Being paranoid even a little is healthy! I would rather that Tether was removed from the crypto space. I know that sounds cynical but concerns were raised much earlier during the last year. I remember reading about those concerns as far back as August. Be very interested in how this all plays out?

Bitcoin continue to fall from this news, but ETH is being so resilient.. and idea why? ETH could take #1 at this rate.

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I would like to write about that on the next few days. Good idea my friend

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Thanks for your post. I think it is 100% IRL big media move to go full speed on crypto community FUD.
Leaked informations usually are released in real time, not 2 months later.

Seems like a few stories, as well as the crash, have kept people from buying into cryptos. And then the people who made money sold it. Scary thing is, nobody knows.

The entire crypto market is overvalued by any reasonable measure, the question is whether the value catches up to the price -- in which case, the sky's limit -- or whether the price drops to match the value, which is pure potential. Nobody knows.

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Vvp6C.jpg

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I'm not sure USDT or Bitfinex specifically make much difference, just the total weight of news and gossip -- of which, USDT and Bitfinex are part of it, along with China, South Korea, bitcoin parodies on US talk shows, etc...

very good post keep posting more really nice post
keep up the work
cheers

I really hope USDT isnt a scam, crypto markets already have enough bad rep

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very useful post, upvote posts @annchifahrani once. 🙏🙏🙏

This seems to be unseemingly interesting

Wow.. I wonder what will happen next? Thanks for sharing this informative post.

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Interesting point about tether, doubt you can double spend crypto though.

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Don't know ,
We have to wait and see what happen.
Fingers crossed.

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The FUD about tether doe kinda rubbing off on BTC

the vincentb effect
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That sounds very logical...

@johanalejo Tether is a useful tool, but it isn't an integral part of the crypto market. It could easily be replaced with something much better. Why do people even think a stable coin needs to be backed with USD? Isn't crypto better than USD, except for the volatility? Someone should create a coin that automatically adjusts the supply based on demand, establishing stability and a set value of 1. IF market cap = circulating supply THEN value = 1. The problem with tether is that it isn't decentralized. Its managed by a corporation. Who trusts corporations? The beauty of crypto is that it can exist without a central power! I wrote a little more about this concept in a commentary yesterday. Check it out and tell me what you think.

How long do we have to wait? I'm really interested to know what kind of timeframe this will take to come to light... wondering if I should cash some of my btc out now before the storm which surely comes.

Definitely need to be wary. A few big youtubers have been signalling their followers to be sceptical. Time will tell but definitely mitigate your risk.

how much do you think steem will be worth at the end of the year ?

Does tether behave like a insurance for crypto currencies asset class? @johanalejo

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Thanks for the well written post. I wasn't following the news today so getting caught up on things now. The nature of the crypto markets is a double edged sword. The lack of oversight reduces resistance for growth and legitimate experimentation but also leaves a lot of uncertainty in peoples minds.

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  ·  last year (edited)

Might one also point out the daily price movement of BTC didn't start to show substantial downward volatility (in this last bull run) until immediately after the subpoena was issued right after the first week of December?

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