Bitfinex, Tether and the crytocurrency markets

in #vincentb7 years ago

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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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?

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

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

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

Gonna be interesting to see what happens!

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!

Now you are the first ;)

Thank you friend! Just followed you :)

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

very helpful - thank you

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

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

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).

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.

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.

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)

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.

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

reasonable