How is Tether used to buy Bitcoin

Brendan Burgess

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Yahoo Finance said:
Famed economist Nouriel Roubini says ...

Roubini noted that there’s academic research to suggest that “this pseudo stable coin Tether has been created by fiat” and is “used literally to manipulate the price of Bitcoin.”

Can anyone explain how this works in practice?

The theory is that behind every Tether there is $1. I don't think that anyone believes this.

So they issue a billion dollars of Tether and use it to buy Bitcoin and push up the price.

But someone who sells their Bitcoin presumably doesn't want Tether, they want real dollars.

Or, are the transactions completely artificial? They open an account with an exchange and lodge Tether in it. Then they open another account with Bitcoin. And swap them at inflated prices?

Brendan
 

Duke of Marmalade

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Good questions Boss, I hope you get answers.
I read up on Tether on Wiki. This does not pass the smell test. If Roubini et al were to make these allegations against Bank of America or Citibank they would be sued to high heaven and I am sure Tether have access to clever lawyers.
The fascinating point revealed by Roubini is that Tether's market cap increased from $4bn to $20bn last year. Now as I understand it Tether was introduced to facilitate folk who like US dollars but wanted them in crypto form. Now part of the narrative of the manipulators has been the potential debasement of fiat as a result of Covid, but why would that cause a surge in demand for Tether?
So listening to Professor Roubini who can doubt that bitcoin is worthless. The problem with shorting it is that you are trying to second guess the manipulators. How greedy are they? Are they near the point of dumping or will they pump it up to $50? I feel that once the music stops we will have one heck of a crash in the price. The hyperbolic bubble is not good for bitcoin's long term sustainability.

The other interesting point of that interview was when the interviewer put it to him that Central Banks adopting digital was an endorsement of crypto. Prof Roubini fairly rubbished that one but the telling point is that the interviewer had fallen for the false hype, because crypto land is replete with false hype and narrative.
 
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WolfeTone

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My understanding is that the allegations, and investigation, of bitcoin price manipulation with tether refer to the 2017 spike in price and subsequent crash in price.
The investigation into this alleged price manipulation is, according to Roubini, near completion and he expects legal proceedings of some sort.
It appears to me that Roubini is pointing to an allegation of price manipulation in 2017 (investigation in 2018) as evidence of price manipulation today in 2020/21.
As I've mentioned earlier, Roubini is not saying anything new that he hasn't been saying over the last decade.

I had a look at Tether and from what I can make of it it's hard to see from my perspective to what extent Tether has, or is, manipulating the bitcoin price - admittedly I would be a novice in these matters.
Tether has a mkt cap of $20bn and purports to be pegged to the $ 1:1, being a "stable coin".
The allegation appears to be that under audit Tether Ltd has failed to satisfy regulatory authorities that there is $20bn (or $4bn back in 2017) to substantiate its 1:1 peg with the dollar.
So assuming, at an extreme level, tether has zero capital and has bought $20bn worth of bitcoin, this is the fraud. This is form of front-running? Pump and dump?

The play at hand would be, using Tether (backed by nothing) to buy BTC and pump up the price and as the price starts to increase to then sell the BTC for actual $?

I'm not sure to what extent this is actually affecting the overall long-term price of BTC as the fraudulent activity requires both a significant buy to pump up prices, and a significant sell to exploit the dollar profit, resulting in a drop in prices.
Where do 'whales' fit into all of this? Who is co-ordinating the price manipulation?
Bitcoin is going for over a decade now and has a makt cap of $500bn...if there is price manipulation the extent of that manipulation is hard to gauge, but the larger the makt cap then the harder to manipulate, imo.
You would need money-printing-out-of-thin-air type resources of central banks or sovereign states to affect the price in the manner it is rising now, imo.
Are central banks or sovereign states buying bitcoin?
 
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Duke of Marmalade

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Strong suspicion Tether manipulated btc in 2017. That required $4bn to increase btc mkt cap from $18bn to $350bn. If that is proven can there be any doubt that an increase of $16bn in Tether in 2021 caused the increase in mkt cap of btc from $200bn to $500bn? Perhaps the whales see the writing on the wall and are having their last fling, though I agree with @WolfeTone that it is hard to envisage collaboration amongst the thieves.
Whatever way you slice it, how can anybody make sense of a 50% increase in btc over the last 2 months? What has changed? A vaccine? theo I know it is against AAM rules to give investment advice but cash in your btc NOW.
 
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WolfeTone

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That required $4bn to increase btc mkt cap from $18bn to $200bn

This is where maybe my naivety is coming to the fore. How would a $4bn worth of purchases result in mktcap from $18bn to $200bn? Are we talking about $4bn of quick purchases to trigger a FOMO frenzy? Is that how it works?
 

DazedInPontoon

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Personally I wouldn't touch tether or trust that it's fully backed until I saw conclusive proof that it was. But I also think that assigning all of bitcoin's value to tether shenanigans makes no sense. It just looks like working backwards from having your mind made up and trying to convince yourself tether is the secret key that explains it all.

Three points to consider:
- Bitcoin had a value for years before tether existed, and when it had way worse infrastructure, on-ramps and orders of magnitude less users.
- Coinbase now has 35 million customers, and does not deal in tether.
- Saylor and MicroStrategy alone bought over $1b worth of bitcoin in the last 6 months. Nothing to do with tether, and that's just one guy and his company.
 

Brendan Burgess

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The play at hand would be, using Tether (backed by nothing) to buy BTC and pump up the price and as the price starts to increase to then sell the BTC for actual $?

But in practice, how do you use Tether to buy Bitcoin?

Or do all the exchanges just accept Tether as valid?

If that were the case, they could have bought $20 billion worth of BTC and the exchanges have useless Tether

Brendan
 

DazedInPontoon

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Or do all the exchanges just accept Tether as valid?

No, some do, some don't.

If that were the case, they could have bought $20 billion worth of BTC and the exchanges have useless Tether
No, exchanges merely match buyers and sellers, the same as if you sell shares on degiro you are not selling it *to* degiro. If some customer bought $20m of bitcoin with tether, then some other customer(s) sold them $20m for tether, and now hold that tether.
 

Duke of Marmalade

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This is where maybe my naivety is coming to the fore. How would a $4bn worth of purchases result in mktcap from $18bn to $200bn? Are we talking about $4bn of quick purchases to trigger a FOMO frenzy? Is that how it works?
Actually it was from $18bn to $350bn, earlier post corrected.
Two reasons. The first is that the price is set at the margin between buyers and sellers. $16bn of buyers is a lot even if the market cap is a multiple of this. For example, I would guess the Irish housing market to have a value of about €300bn (1m houses at €300k each). Annual sales run at about €7bn. If someone came looking to spend €16bn, prices would go through the roof (see what I dun there?). Admittedly a much greater proportion of the bitcoin stock is actively for sale. The second reason is the contagion or momentum effect, FOMO if you like.
 

WolfeTone

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But in practice, how do you use Tether to buy Bitcoin?

Not sure, I can't find an exchange that seems to accept it. I did come across one site that facilitates users to deal directly amongst themselve. A type of ebay for crypto if you like. All sort of fringe stuff by the look of it.

Roubini has promised that law enforcement will act in the coming months against tether and the manipulators. The details of that enforcement should give a greater insight into the extent of price manipulation.
 

Brendan Burgess

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Hi Duke

That is a great article. I had not realised the extent to which Tether is being accused of fraudulently pumping Bitcoin - I thought it was just an idea of Roubini.

But these two comments summarise it well:

“I really don’t know how far the insanity can go. The crypto market is 100% irrational, sustained entirely by ignorance and misinformation,” he said. “How can anyone make predictions about that?”

David Golumbia: The insanity will continue—unless it stops

Brendan
 

tecate

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It just looks like working backwards from having your mind made up and trying to convince yourself tether is the secret key that explains it all.
It certainly seems that way to me.

That is a great article.
What article? You mean Amy's blog post?:D And I guess it's 'great' in that having worked your way back, this helps to explain the world? I'm familiar with all of their 'work'. They all suffer from exactly the same issue as is going on right here. They're looking for an angle to take decentralised crypto down. They'll talk about Tether/Bitfinex today - and tomorrow it will be something else. Having watched Roubini's interview, you think he sounds like he has a modicum of objectivity? Take a look at his twitter feed - the guy is obsessed.

Imagine that Tether has been around (in one form or another) since 2014 and yet, these guys are making a meal of it only now. The crypto community has had concerns with regard to Tether for years. It's nothing new. Ironically, they're not necessarily the very same concerns. The fact is that as it's centralised, it represents a risk by virtue of that centralisation. Having any sort of dependency on a centralised entity flies in the face of what decentralised crypto is all about. The irony is that whilst it could be a bad actor, there is no clear evidence that it has acted in bad faith for the most part.

There are academic studies that suggest market manipulation but what you guys or any of those 'esteemed' critics have failed to mention is that there are also academic studies that have emerged with the polar opposite finding. But hey, why should we bother to mention that?
On the occasions that it has erred to date, that has come about as a direct result of the actions of the international banking system (leaving them shut out - high and dry on a number of occasions) and US authorities (locking them out of their own funds). Having said that, I don't like crypto having any sort of dependence on a centralised entity. Tether has been a concern for me for a long time. There's no doubt but that certain bodies within the US want to take them down and one way or another, they will be taken down.

However, the market has grown and the dependency that the sector once had on Tether has long since passed. The use of stablecoins exploded in 2020. Whilst Tether remains the largest used, the stablecoin sector is broadening. There are a raft of other stablecoins available for use now. We had more news on that earlier today when the OCC issued yet another crypto-positive interpretive letter in which it sets out that Banks can now issue stablecoins and host nodes to support such networks.
In terms of daily transaction volumes, Paypal and Grayscale account for multiple times that of Tether. So if Tether/Bitfinex is seen as an attack vector by someone in a powerful position, sure it will let some air out of the tyres but bitcoin and crypto are bigger than that. What doesn't kill it makes it ever more resilient.
 
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Brendan Burgess

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Can someone please explain how Tether works in practice. Forget for the moment whether it's the cause of the bubble or just another anti-Bitcoin conspiracy theory.

If I have one Bitcoin worth $40,000 and I go onto an exchange, I presume I can sell it today and get $40,000 cash into my bank account? Will I get that cash into my bank account today? Or how long does it take?

If I have one Bitcoin to sell, why would I exchange it for Tether instead of dollars?

And the most fundamental question of all, what is the point of Tether? If I have $40,000 in my AIB current account, why would I exchange that for 40,000 Tethers?

I can understand that someone with $40,000 in their AIB current account might buy 1 Bitcoin because they expect that they can sell it for $1m cash later this year. But Tether is tethered to the dollar, so it can never be worth more than $1.

Has Tether any use at all?

Brendan
 

Brendan Burgess

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I read this but am only a bit more informed.

What is Tether used for?
The primary purpose of Tether is to provide liquidity and a hedge against market volatility. The tokens are pegged to a fiat, which means there should be no loss of value or volatility as with other tokens.

This also makes the stablecoin less risky than typical cryptocurrencies. Its relevance as an alternative to fiat is a big advantage that cannot be overemphasized cherished by traders and investors. For many investors, Tether provides an avenue to park their investments when the market is bearish, especially in countries where converting from cryptocurrencies to fiat is a hassle.


So, if you have Bitcoin and you think that it might drop temporarily on its way to $1m , you exchange it for USDT. And then when it starts to go back up again, you buy BTC with your USDT.

Seems ridiculously risky to me. You have to believe that the guys behind Tether Ltd actually have the real dollars in their bank account. Not only are they not audited, but they won't even tell journalists which bank account the dollars are in.

Brendan
 

DazedInPontoon

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I've never used tether and would not trust it, but I think I can provide some answers
If I have one Bitcoin worth $40,000 and I go onto an exchange, I presume I can sell it today and get $40,000 cash into my bank account?
Well more precisely you would typically sell on an exchange and then have a balance of EUR/USD/Tether/whatever on the exchange. You could then indeed issue a withdrawal of the fiat.

Will I get that cash into my bank account today? Or how long does it take?
Oh well now you're into the murky waters of legacy banking, it will depend on what country you are in, what country the exchange is in, is it a weekend etc, right?

If I have one Bitcoin to sell, why would I exchange it for Tether instead of dollars?
One reason would be that you can move it quickly between exchanges 24/7 regardless of geographical location. This is very important for market makers doing arbitrage.

Another might be that you want to transfer money to an exchange that does not accept your fiat of choice.

And the most fundamental question of all, what is the point of Tether?
In summary because usage of fiat is restricted by limitations of legacy banking.
 

Brendan Burgess

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A bit more here


As USDT issuance got into the billions, these claims came under heavy scrutiny. In March 2019, the company changed the backing of USDT to include loans to affiliate companies.

So they are not backed by dollars but by loans denominated in dollars.

Exit strategy
Market volatility is a major concern in the crypto sector. When the bears start to take over the market, investors only have a few options to consider. They can sell their holding and convert them back into fiat. This process is time-consuming and involves the most fees possible. Or they can ride the bear market out and take the losses. Tether adds a third option to the equation. Convert to Tether and avoid the fees and volatility.
 

Brendan Burgess

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Thanks Dazed

I presume you live and work in Ireland? Mayo perhaps?

If you decide today Friday at 12 noon to sell your Bitcoin for cash, when will the US$ arrive in your bank account?

I assume by the way, that if you sell them now, you will get $41,256 for it, even if it takes a day or two to get into cash.



Brendan
 

DazedInPontoon

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I would not trust my money (USD or bitcoin) to Bitfinex.

I have used Kraken, I checked if Kraken supports Tether and it seems they do, but I've never used it.

I have sold bitcoin on Kraken. When I sell, I sell to euro and therefore have a euro balance afterwards. When I withdraw from the euro balance it's a normal SEPA payment from their bank account to mine (typically has taken a day or so I think). USD or Tether are never involved. I could presumably sell for Tether instead of euro on Kraken if I wanted to though.
 
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