Begining of the end of Tether… Finally
Most of the blockchain / bitcoin old timers have been waiting it seems ‘forever’ for the Bitfinex / Tether that is a Ponzi to finally crash. The Bitfinex exchange is (in my opinion) shady and co-owned by the makers of the coin ‘tether’ which is supposedly backed by USD one to one. They ‘create tether’ out of thin air – like the Federal Reserve does USD.
But they are not a government and are being investigated formally. Tether has acted as a ‘stable coin’ so people can get in and out of crypto without having to purchase actual USD as most exchanges don’t deal directly with USD for legal reasons. During times of extreme volatility – there is a rush for demand for tether, more get magically created and dumped into the market to maintain the peg to the dollar.
An overabundance of these units has been blamed on the dramatic rise of Bitcoin and other cryptos themselves as units created flock to purchase the cryptos. So, if they aren’t being backed, the prices in the cryptos could be in this way faked by being backed by a ‘phantom’ coin. Amateur sleuths have been on the case and watching and reporting this for almost two years and made the research very public for those in the crypto community.
How could the authorities also not noticed this as they closely watch the crypto community. My theory is that they knew that a sudden ‘take down’ of tether could wreck the fledgling crypto asset class. In the meantime, the important function that tether was created is to act as a USD stable coin to allow traders a safe place to park funds and hopefully bring more order to the asset class. So now there are several other stable coins performing the same function. These include Trust Token or “TrueUSD” and USD Coin which is partially backed by Circle Finance and Coinbase – which have deep pockets with funding from Goldman Sachs, and other deep pocket banks. And DAI, being used paired with a basket of currencies and existing on the Ethereum network.
Is it possible that the authorities waited until the newer stable coins had grown in strength and acceptance through the majority of bigger exchanges to take off the heat when they started to clamp down on the tether situation? But would the government authorities go to such measures to protect the crypto market? Some people still falsely believe that the government is just ready to pounce on the whole affair and stamp it out…right? Uh… no. In 2013, when they caught the dark market “Silk Road” and confiscated over 140,000 bitcoin. Great, that much less in society to deal with…right? No, they took great care to auction them off in manageable quantities in closed private auctions so they wouldn’t hit the market and send it into a nosedive. The US Feds were actually protecting the market some still believed they wanted stamped out.
That set precedence in 2013/14. There have been many telegraphing maneuvers since then including much oversite by the CFTC with guidance issued for the public as well as IRS, FinCen, SEC, FBI guidance all meant to protect the market. It isn’t surprising that they would hold off with clamping down on the folks creating tether until replacements could be mature enough to take the load.
The market did dip in response. But is already recovering and for all the hand-wringing the crypto community has been doing waiting for this to finally be over, the momentum in crypto prices that have climbed for all of 2019 just seems to shake this off and keep on keeping on.
To me, that is the most bullish sign I’ve seen in two years. Just a hiccup on most people’s radar, a blip you would see on the chart that isn’t distinguishable from all the other choppiness in the charts that is par for the course in crypto markets.
With the collapse of the Bitconnect Ponzi, and now the Tether Ponzi starting to wind down, I don’t know of any other obvious Ponzi schemes in the asset class although there are likely some I don’t know of as this is a new asset class and it would be weird for there NOT to be snake oil salesmen to be found in this wild west. For those smart enough to dollar cost average purchases in this new asset class, these are very good times.
It will be interesting to see how bitcoin trades once the Tether influence is removed.
One possibility is that the relief from the Ponzi overhang will lead to a rally, just as you say. (woohoo!)
The other is that Bitcoin’s current price has actually been propped up by a bunch of printed money (kinda like the stock market!), and that bitcoin takes another leg down once that prop is removed. And that effect could feed on itself, leading to a fair amount of selling in the near term.
I think a price drop following a Tether implosion is more likely than a rally in the near term, but that’s just me.
Regardless, I agree that removing a ponzi element is a good thing for the space regardless of what the short-to-medium term effect is on price.
We still don’t know how bitcoin does in a recession. That’s the big open question for me.
I’m really curious to the (Overdue) recession. I’m not sure bitcoin is mature enough to handle a serious downturn yet. Perhaps the next one in 10ish more years. Still very early with the ETFs, and major players making it into their regular investment options. Fidelity is just now getting it ramped up as an option for their regular fund options and E-trade is just now making it available. An alternative hedge – but is still tiny compared to the rest.
Where will people duck for cover?
Now with a new checkbox on the list of options for these Financial Officers – the people in upper management that are actually in charge of the diverisfying options for portfolios – and looking for one that is a non-correlated option, just a dot of market capitalization…
But it’s new and different and hasn’t been an option on their checklist until now. They are starting to hear about it on the CNBS, FOX business etc. A lot on Bloomberg. No “Real” Wall Steet firms would ever lower theirselves to use this Tether garbage that only the amatures needed to use. Hmm. Maybe they throw in 1 percent of their books in a time of market panic and see how it does? Multiply this with others doing the same thing and say one percent of a trillion dollars flows in as a new thing they want exposure?
If 10 trillion is sloshing around in world markets and just 1 percent flow into this new thing – Bitcoin price doubles. Say just ten percent of the portfolio financial decision makers throw a dart at putting one percent into the crypto asset class, it is so small that it would give it a giant boost. Then in the next quarterly reports, this line-item for their crypto has a gain of 100% while all the others are flat or loosing, it’s not out of the realm of possiblity the peer pressure given to those that haven’t yet added that option will be too much and they will start chasing returns and it acts as a multiplying affect?
What are the odds?
So this particular line was frowned on when I was flogging one particular company way back when:
If 10 trillion is sloshing around in world markets and just 1 percent flow into this new thing – Bitcoin price doubles.
That’s the “if 10% percent of the market goes into my product” business plan fallacy. Nobody with two functioning brain cells would ever fall for such a thing. You get kicked out of the VC meeting if you try that particular trick. 🙂
Seriously. It doesn’t fly at all. You have to have an actual reason why people will buy your product. Pretending that money falls like rain equally on all products and, through the law of probability, 10% of the money will fall on your product – well its just silly. Each individual in the marketplace makes their decision carefully – they don’t have infinite money. As a result, money isn’t like rain. People have to see value before they allocate cash, so you need to make some kind of value case, not a probability case.
A recession will happen at some point. And then we will know how bitcoin performs.
My guess is, as with all recessions, money will tend to flow away from risk, and toward the places that help people pay down debt, buy food, and make their rent payments.