Any rational person can see that Tether poses an existential risk to the crypto economy - but the market is highly irrational. There was an interview with tether's CTO and GC the other day that was an absolute car crash[0] and should be sounding deafening warning bells for anyone invested in crypto, but instead we see the BTC price shoot up by 15% in the days since it aired. It is utter madness.
In the ending days of Mt Gox's meltdown, prices went up up up for quite a few digital assets, until they didn't.
Basically the shady exchanges are insolvent and they stop cashing out real money, so peoples' only chance to cash out is to buy crypto and transfer it out, driving up crypto pricing on the insolvent exchanges, that greedy people try to arbitrage.
BTC shot up (by about 250%) the last time Tether was nearly shut down as well, as the NY AG was investigating them from Apr - Jun 2019.
It makes sense when you consider that the population holding cryptocurrencies generally considers the USD worthless (you see that in some of the other posts here). USD are not an option. If Tether goes under, the next most stable reserve currency of the crypto economy is Bitcoin, so money flies out of Tether and into Bitcoin, pumping the price up.
According to this article [1], about 70% of the current buy pressure on BTC comes from USDT. If tether value collapses, that tether won't be able to afford any BTC, so it won't matter where it flies to. And 70% of the buy pressure on BTC will disappear.
it is because binance got transferred a whole bunch of tether and also created a whole bunch of its own stablecoin right before that huge spike last night.
>it is because binance got transferred a whole bunch of tether and also created a whole bunch of its own stablecoin right before that huge spike last night.
What you are describing is just people moving money to an exchange and buying with leverage, not fraud. Price moves up when large buyers step in with FOMO.
If I were holding any Tether, articles like this would probably push me to buy btc or eth with it, then transfer it out of exchange reach. I would, then, consider moving it back to USD only when the dust settle.
From that point of view, it's easy to imagine why a tether collapse would temporarily push crypto prices up - not down.
I’d not be surprised at an opposite effect because what will Tether holders “run to” in case of a bank run? With every crisis people will gain trust in Bitcoin not the reverse. Tether holders will bid up Bitcoin as it is something they can custody themselves.
People said the same thing about Mt. Gox. Tether only represents 4% of the market cap in crypto. About the same fraction of the US stock market represented by Amazon.
It's not about "market cap", which is a myth in the crypto space anyway: I made 1 billion of my proprietary tokens, and sold .001 to myself in another wallet for $1. Therefore my token's market cap is $1 trillion. I'm sure banks will let me buy a hundred million dollar mansion now since my net worth is verfiably gigantic.
It's about cash "equivalent" in flow and out flow that tether/stable coins make up. Currently they're responsible for over 80% of this volume[0], which mean virtually no "real money" exists in the crypto space, it's just imaginary "totally-backed-bux" and wash trading.
Volume is not synonymous with flows. For example ~50% of US equity market volume is HFT. Yet this trading has virtually no impact on the large-scale direction of the market. That's because they don't accumulate sizable positions. Most of the volume is very high turnover, so there's no large aggregate impact.
Similarly, most of crypto volume is Tether, because Tether is used to arbitrage between exchanges. Tether is a way to transfer money significantly faster than the fiat banking system. Particularly for exchanges in segmented banking markets. It's much cheaper/faster to get USDT from Coinbase to ByBit than it is to send an ACH wire.
It's much cheaper/faster to use USDT because if you are the "in crowd" you don't have to actually pay and back it, and if you own/print it, you can wash trade to infinity with it.
The point is that the amount of money that supposedly exists in the crypto ecosystem (which is, at best zero sum, but really negative sum in most cases) is as imaginary as tether's backing.
It certainly would, as currently USDT is used as collateral throughout the system, but I don't think Tether would just 'go down'. Regulators aren't stupid and the worst case imo is that there is a time period where people are told to redeem tether to USD or other stablecoins such as USDC/DAI. The space has been through worse things and always recovered, I do hope Tether is properly investigated so that we can have confidence in them or remove them from the space and use other stablecoins.
If Tether has no actual cash in its kitty and its price on open exchanges plummets to zero, how exactly are "people" going to redeem it for USD? Tether is entirely unregulated, there's no FDIC insurance or equivalent backing it.
Yeah, if you move fictional dollars in the form of USDT to USDC then you are just shifting the imaginary amount around, it doesn't change the fact $61B is rendered worthless.
And that’s actually been happening. For week’s usdc’s biggest trading pair has been usdt. So some people are dumping usdt on usdc holders at 1:1 ratios.
Why anyone holding usdc would exchange one for a usdt at par is a question I don’t have an answer to, but it’s happening en masse.
DAI is backed by USDC, and USDC is a competing stablecoin. Why would a competing stablecoin want to use their own reserves to redeem USDT for you? I don't mean to be antagonistic here, but there is no safe and steady off ramp for holders of USDT if it is found to be a scam. The value of USDT will collapse, and anyone holding it will have to take a 100% loss. The only way to remedy that would be in the form of some sort of bailout from some other entity, but I don't know how or why that would happen.
I do agree that crypto has been through some issues in the past and has recovered, and I'm sure in the long run it will recover from a Tether collapse as well. In the short term the market will take a significant hit, and many of the exchanges that deal heavily in USDT could collapse because of a lack of liquidity.
Yeah I definitely don't disagree with you. The backing can change over time, and I linked to a tool that programmatically checks the backing of DAI so that's what I quoted.
In Tether's case they are backed by almost no USD and mostly short term loans to undisclosed entities... I do not think Tether is legit, and USDC is questionable as well. Without third party auditing it's hard to trust any of this stuff.
My original response was trying to highlight how DAI is mostly made up of USDC (at this time), and USDC is a direct competitor to USDT. So in what world would it make sense for USDC to bail out USDT in the event USDT is revealed as a total fraud.
