With Tether its basically the same situation, just more convoluted. Rather than counterfeiting dollars, they are rapidly printing USDT that the community, apparently on faith alone, believes are redeemable for $1 per Tether. Curiously Tethers have only been created, never destroyed, which would indicate that none have been redeemed back to USD. Many other (complicit) exchanges are also accepting these "tethered dollars" - the "USD" volume at exchanges like Bitfinex, Poloniex, Binance, Huobi, Bittrex, OkEX, etc is actually USDT based.
The endgame is the same as the simplified example with counterfeit dollars. The only thing keeping it going is the rising cryptocurrency price, which is keeping people hoarding coins instead of selling back to USD. This is also why the rate of tether issuance has been increasing - they need to keep the price high so people continue to hold. Eventually the selling pressure will increase (on the few exchanges that actually handle real USD), and as people attempt to convert their crypto holdings to real dollars the fraud will become readily apparent.
There will be huge distortions as the price of Bitcoin and Ethereum rockets on Bitfinex and other Tether exchanges as people try to get their money out, and simultaneously craters on GDAX & Gemeni as they try to get back in to fiat. In the end the massively decreased GDAX/Gemeni prices will be the only ones that matter since all faith will have been lost in the former tether-based exchanges.
If you're reading this, you have been warned.
The few exchanges that offer USD to crypto and back are probably pretty safe, but if the entire ecosystem crashes, it stands to reason that's not going to stand up for long.
I'm not sure you can compare those numbers like that. If somebody used $450M to buy bitcoin, the market cap would likely rise much much more than $450M.
For example, if I look at the GDAX order book right now, I see that the bitcoin price could be pushed up $200 by buying less than $3M worth of bitcoin. That corresponds to increasing the market cap by $3.2 billion.
To put things in context, the MtGox heist was worth about 1/20 of the market. However, back then Bitcoin was pretty much the only cryptocurrency and it was still just a technological curiosity. If Bitcoin could be "hacked" at this level, then people didn't really have a choice than think that maybe this technology isn't all that great, and may actually disappear.
I don't think the market would crash for 2 years straight again if $40 billion in cryptocurrency were stolen tomorrow. It would take a LOT to take down the whole market for good.
Even if you had events such as world's governments uniting to ban all cryptocurrency exchanges, which is highly unlikely (see Belarus announcing to make crypto tax-free today), it would still make crash the market for 2-3 years, until people figure out how to get around those regulations with decentralized exchanges.
Look at the order book on GDAX. How much bitcoin do you need to buy/sell to increase/decrease the market cap by 1 billion dollars? MUCH less than 1 billion dollars worth...
Also, Belarus? It ranks as one of the most corrupt countries in the world. Not exactly the first shining example that comes to mind of a leader in financial regulation.
Thus Tethers represent 14% of the market. If MtGox crash was due to a 5% heist, this 14% scam will wipe out Bitcoin and establish Ethereum as the new king.
PS: What's the story behind your username?
$450M is a lot of money. Why do you assume that tether is lying about this?
If tether aren't actually backed by anything, isn't that just about the worst ponzi scheme imaginable? Like some sort of reverse ponzi scheme, actually? They give you "fake" tethers, and you get to buy "real" bitcoins with them.
Right now its almost like tether is like the central bank of crypto, constantly bailing out the market during downturns and pumping the price up. They've really upped their printing the past few days due to the massive downturn.
This is the pattern we will see moving forward. Robot Cache is adopting it, and we'll see more. It'll be easy to put money into crypto, move crypto around and trade crypto. But to get money back out as real physical money will always be a hard problem, and I predict it will come down to a distributed effort by the banks. I'll walk into my branch and they'll transfer X USDT to they're account from mine and hand me physical dollars.
For tether to maintain a 1:1 ratio of 1 USDT to 1 USD, they have to have a backing of $450M from some company or bank that has USD to give them. As of now, they have no US based banks even doing transfers with them, let alone working with them on being solvent.
Tether promised to be open to auditing, and none of the latest issuings have been audited as having actual backing currency.
I've been following https://twitter.com/bitfinexed
Who is on the other side of that transaction? ie, who is accepting $450M in tether for their BTC?
They've been booted from Wells Fargo, and other banks have refused to do business with them.
They say they have a new bank, but refuse to name it. When a reporter asked, they said they'd require an NDA to even name where they are storing their funds.
Sounds like an organization that isn't exactly trying to build trust.
Answered this in another thread that includes citation from their own site: https://news.ycombinator.com/item?id=16141938
Summary of Tether for the uninformed:
1. Their terms state that they owe you nothing in exchange for Tethers you hold
2. This effectively means Tether is backed by nothing. The 1:1 peg with USD is a total farce
Tether must and does at all times reserve the right to refuse to issue or redeem Tether Tokens...
No Representations & Warranties by Tether: Tether makes no representations, warranties, or guarantees to you of any kind. The Site and the Services are offered strictly on an as-is, where-is basis and, without limiting the generality of the foregoing, are offered without any representation as to merchantability or fitness for any particular purpose.
What this means:
Tether can print 1 billion Tethers, buy up 1 billion Bitcoin, and then cash out into dollars. In other words, they have engineered a way to more or less counterfeit U.S. dollars by counterfeiting cryptocurrency.
I hope they go down hard.
short answer is YES, people getting into cryptocurrencies really are that clueless. take for example that the vast majority who opened new accounts at coinbase didn't realize that you could buy fractional shares of bitcoin and therefore assumed since they couldn't afford bitcoin at 1BTC at around $15k they opted for altcoins
https://www.reddit.com/r/Bitcoin/comments/7femm2/many_people...
I have bad news for you... YES. Check http://supercoolawesomemoney.com/
As long as the demand for USDT soars, it works! They can keep the price pegged by creating more USDT. If the demand shrinks they can buy some back. If the demand shinks enough, they go belly up and all is worthless.
Actually not too different than fiat currency. Only they have the demand for it locked by laws/ treaties/ wars/ etc. Tether is not that big.
> What if the crypto community is simply too stupid to ever let the bubble burst?
> Like. Literally nobody has ever been able to trade their tethers back into dollars, and they've been around for over a year at this point. How the fuck do people have imaginary money and simply not want to get real money from it, not even once, in over a year?
> Maybe the buttcoiners were right, and we are witnessing the birth of something completely new here: The market that was too dumb to even realise that it should crash.
In the limit, either the concept is fundamentally flawed or it will inductively work after many iterations and rollovers to new models/coins/etc. But if it's flawed that could be a long time before the market collectively throws its hands up and says "there is no hope for this ever working" and drives the price to literally zero -- I mean, what would the catalyst be? In short term periods, market momentum can drive sentiment, but in longer periods there needs to be some kind of pure capitulation event that causes the market to resolve that crypto is doomed. Your guess is as good as mine as to what that is -- the long term trend seems to be that the last generation of holders cash out, causing a price drop, and new optimists pile in, driving the price higher than previous highs, sometimes in the form of new systems like ether or ICOs. It's hard to imagine what will break this cycle. Maybe the crypto engineering community tries a bunch of stuff and "these X problems cannot be solved in less than Y" years enters the crypto engineering zeiguist?
Fun times...
During the last month of MtGox it was common to see $2,000 price gap between Gox and US exchanges. I have a feeling history is going to repeat itself very soon.
"Can I redeem my Tether for them?"
"No."
"Can I get some proof?"
"No."
"Uhm..yeah..hmm..ehhhhh"
It's not so completely new. There was this old Warner Bros. cartoon trope about characters floating in defiance of the law of gravity, because they, "never studied law." (Though, perhaps Wile E. Coyote running halfway across the rift before he realizes he should fall might be more apt.)
That would explain why Tether is so desperate to prop up the price and avoid withdrawals.
First, understand that Tether and Bitfinex are the same people. Bitfinex has hundreds of millions of dollars in their accounts. It is likely that most or all of the Tether is bought directly by Bitfinex in order to satisfy Tether withdrawal requests. The money comes from USD deposits to Bitfinex.
When people want to convert Tether to USD, rather than redeeming from Tether.to directly, they send Tether back to Bitfinex, which credits it to their USD balance at a 1:1 rate. The USD can then be withdrawn as a wire transfer. Crucially, this process does not require that Tether be redeemed, because Bitfinex maintains a large balance of both USD and Tether. As long as Tether demand keeps increasing, Bitfinex can simply sit on the Tether they receive until it's time to hand it out to someone else doing a Tether withdrawal.
The only situation in which Tether would ever be redeemed is if there was a bank run on Bitfinex. As Bitfinex's USD reserves fell they would need to redeem the Tether that they hold for USD. So far, Bitfinex has not faced this situation and so no Tether has ever been redeemed.
So, I've described a way in which Tether could be relatively legitimate. Is that actually what's going on? Nobody knows except the management of Bitfinex. Personally, I don't trust them. The incentives for fraud are astronomical, and even if it's been entirely legit up to this point it's unlikely to remain so forever.
And do you really believe 450m was transferred to Bitfinex in the last 3-4 days?
As for Bitfinex USD withdrawal it was banned for a long time and restored in November. Given that all withdrawals/wires take time we need to wait and see if there are issues reported for Bitfinex withdrawals before reaching a conclusion about smoothness of the process.
> Nobody knows except the management of Bitfinex.
The management of Bitfinex, who as you say, are the management of Tether still claim, hand on heart, that there is no relation or interaction between the two.
https://www.delawareinc.com/blog/change-your-companys-number...
Meanwhile this bank is supposedly receiving upwards of $100MM/day in deposits for this account and blissfully unaware...
One born every minute.
* Tether purchases are "temporarily disabled" for regular customers. https://wallet.tether.to/app/#!/signup
* Tether claims that these large purchases are being made by nameless "institutional investors" but didn't name who those investors would be.
* Why would large institutional investors be stupid enough to purchase billions of dollars of useless cryptotokens from a shady company anyway?
Beginning on January 1, 2018, Tether Tokens will no longer be issued to U.S. Persons.
So these USDT are being issued to non-U.S. Persons. How does that work? A non-U.S. Person wires funds in their local currency to tether who applies the current exchange rate for that currency to USD then issues an equivalent number of USDT? Why would anyone do that instead of just purchasing the tether for their own currency?
This doesn't excuse them from previous transactions they've already made.. Which means likely they didn't start printing Tether until after 1st of Jan. It's likely they have loans out for the amount stuck in escrow since Taiwan froze their wire's in April.
This is the heist of the century. They're 5% of the way to ENRON level shenanigans.
[1] https://medium.com/@bitfinexed/spoiler-alert-the-institution...
