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I found this comment, by Richard Berger on SeekingAlpha, compelling: > STOP! and think about what this author has revealed. Even IF Tether is NOT running a fra

I found this comment, by Richard Berger on SeekingAlpha, compelling: > STOP! and think about what this author has revealed. Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. So long as such a scheme emerges naturally out of the system design, the design is fatally flawed and must asymptotically compound grow to an infinite exchange rate (impossible and unsustainable by definition), or it must ultimately collapse. > Thus, the author has demonstrated a basic inherent flaw to crypto-currencies that can not be repaired other than by legal estoppel. Legal estoppel will never occur because jurisdiction is off-shored and proving a case by case would generate infinite litigation along with each estoppel creating a crash. This in itself would kill the cryptos as surely as the fatal flaw itself will. > It is meaningless to argue WHETHER the author's speculation as to Tether's actions are fraud. The ONLY question is if his identifying of the nature of the available arbitrage can exist in reality. If it can, crypto is dead. No other conclusion is available. https://seekingalpha.com/article/4129543-bitcoin-one-way-go-true#comment-76992585 https://seekingalpha.com/article/4129543-bitcoin-one-way-go-...

darawk 9y ago
There's no reason arbitrage should push up the price of Bitcoin. Tether exists to normalize arb opportunities between exchanges. That's what it was created for. There is indeed a real question as to whether or not Bitfinex has issued more Tether than it has in reserve, or whether or not they will actually pay people out for their Tether tokens. But there is no 'arbitrage feedback loop' driving the price rise.
- notthemessiah 9y ago
  > Tether exists to normalize arb opportunities between exchanges. That's what it was created for. What things are created for and how they actually behave often diverge.
  - darawk 9y ago
    Sure. Not claiming it can't have secondary effects. But there's no argument been presented that establishes that it does.
    - mannykannot 9y ago
      Does not the claim, that Tether is not actually backed by dollars, also double as an argument that it would be difficult for it to behave as intended? - i.e. to the extent that the former may be correct, the latter is likely?
      - darawk 9y ago
        Claiming that it doesn't behave as intended is not equivalent to claiming that it pumps the price of Bitcoin.
  - otp124 9y ago
    Wasn’t it _actually_ created to allow export of funds after the parent exchange was banned by the US and Taiwanese banking systems?
- jayd16 9y ago
  I'm no expert but mulling it over.... If Tether is big enough that the price of BTC is effected by it, such that investors feel they can cash out and that is part of their risk calculation, then a tank in Tether would also cause a drop in BTC. If Tether is backed by loans and not hard cold cash that's a risk and effects the value. If someone is able to buy Tether on credit, and the credit is actually backed by BTC then there could be a loop. I'm not sure about the likelihood of this but if Bitfinex is overleveraged somehow then anything is possible. At least I think that was the argument.
  - panarky 9y ago
    If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether. Conceivably, a crisis with Tether could affect confidence in the entire cryptocurrency ecosystem, which would put downward pressure on the Bitcoin exchange rate. It's not clear which of these factors would dominate, so it's not clear what would happen to exchange rates. But currently Tethers trade 1:1 for USD on multiple exchanges, so markets aren't showing evidence of lost confidence.
    - tobltobs 9y ago
      > If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether. That might be the outcome, however: - If there would be the slightest bit of panic btc transactions would be congested for days. - If people would loose money by Tether their btc margin positions would be getting closed. - Because they loose faith in one crypto they would by another?
      - mplewis 9y ago
        If Tether is garbage, the only way to get your money out is by converting Tether to something worth real money. We saw this in Mt. Gox. When USD withdrawals failed and people suspected Mt. Gox was insolvent, the only way to get money out was to buy BTC and withdraw that. The Mt. Gox exchange rate inflated because everyone knew dollar balances on Mt. Gox were worthless. If Bitfinex is insolvent and Tether fails, we'll probably see panic selling across the market as people start fearing Bitcoin is a giant tulip scam.
- exelius 9y ago
  It only works that way if you trust Tether and the exchanges. Given how shadowy the big ones are, I'm not sure that's a good idea. It appears this kind of arbitrage is designed to push up the price of BTC -- as long as the price keeps going up, people aren't going to withdraw. Once we start to see a sell-off though, the exchanges will stop being able to pay in USD pretty quickly. My thought is that every time Tether/Bitfinex sees a sell-off happening (which, being an exchange, they can) they issue a bunch of new Tether, push the price higher, and take the money of some more suckers entering the market by selling BTC. If true, this is basically just a ponzi scheme. Without evidence to the contrary, this is the safest assumption at least. I cashed out a few days ago regardless; but I do think there's a big crash coming. I don't think cryptocurrency is inherently bad, just that Bitcoin is all hype.
  - hossbeast 9y ago
    If you don't mind my asking, how long had you held for?
    - exelius 9y ago
      About 4.5 years? Bought some on Coinbase when I saw them at SXSW a few years back then promptly forgot about it. Pretty sure I'm gonna be one of the few "casuals" who manages to take any money away from BTC when this is all said and done...
  - darawk 9y ago
    Yes, but there is no evidence that that is happening. Bitcoin has a $200B market cap. There is only approximately 800 million usd worth of Tether on the market. It's easy to make up stories about what might be happening, but just because it's possible something is happening doesn't mean that it is.
    - seehafer 9y ago
      You are underestimating the extent to which a finite $200M injection can make it seem like the price is skyrocketing for exogenous factors and therefore yield real money coming in. Classic pump and dump strategy.
alexpetralia 9y ago
I'm not sure I follow.. There is no BTC-USD tether? USDT is tethered to USD.
- busterc 9y ago
  For better context, here's the related article he was commenting on: https://news.ycombinator.com/item?id=15852750 https://news.ycombinator.com/item?id=15852750
- tcoppi 9y ago
  There doesn't need to be an official BTC-USD tether, BTCUSD on bitfinex is exactly that in practice and in fact.
  - dwaltrip 9y ago
    BTCUSD floats freely, based off the latest trade. It's not pegged.
  - alexpetralia 9y ago
    That's not a tether though, that's an exchange rate. A tether is like a fixed (pegged) exchange rate[1], where there is an arbitrage opportunity. But that's not BTC-USD. [1] https://en.wikipedia.org/wiki/Fixed_exchange-rate_system https://en.wikipedia.org/wiki/Fixed_exchange-rate_system
pentae 9y ago
I can't wrap my head around this. Who is silly enough to sell bitcoins for 'worthless' Tether?
- Canada 9y ago
  People without USD accounts. To them selling for USD is just getting them a promise of USD which they're never going to cash out anyway.
- Zarath 9y ago
  People who want a liquid USD tethered asset on many exchanges and aren't needlessly paranoid over absurd conspiracy theories that have yet to present a single ounce of real evidence.
  - ric2b 9y ago
    Bitfinex is also lacking in evidence when it comes to showing that Tethers are backed by USD.
    - um_ya 9y ago
      How would they prove it? Twitter a picture of the bank balance?
      - ncallaway 9y ago
        At the very least, inform the public about which banking institutions they are currently using ever since Wells Fargo dropped out. Contracting a reputable firm to conduct an in-depth audit and publicly releasing the results would also be a useful step.
        FireBeyond 9y ago
        And not refuse to name banks without an NDA signed and in place...
csomar 9y ago
That author is plain wrong and shows deep ignorance about bitcoin and the crypto-market. An unsustainable price of bitcoin will lead to the collapse of other exchanges since people cashing out on these exchanges requires enormous amount of real money. This will create a situation where the price of bitcoin in Bitfinex is higher than other exchanges by a big gap. This is not the case, actually the opposite is true: Bitstamp, Gdax, and Gemini prices where higher for substantial durations in the last few weeks. You can only artificially pump the price to an unsustainable high for a very short period of time (2013/mtgox) or have this market restricted (no withdrawals/deposits, etc...). However, this is not the case. You can withdraw/deposit to bitfinex and their coldwallet shows 1.6bn usd worth of bitcoins. TL;DR: The author fits the "butt-hurt" category, refuses to accept the reality and tries to find non-real argument for his hypothetical flash crash. Disclosure: I currently hold no Bitcoin but some bitcoin cash positions. I also think the market is in a bubble. But a bubble with real people dollars flowing in.
- mgbmtl 9y ago
  Naive question: when an exchange sells, I assume they can decline to buy if they don't have a buyer or too much inventory? For example, if suddenly everyone wants to sell BTC, the price would drop, at which point the exchange could buy the BTC at a much lower price, or not buy at all? (unless they commit fraud, massively purchase BTC without having the actual money to back it, then not be able to wire money out of our accounts?)
  - csomar 9y ago
    The exchange doesn't sell/buy. It just connects the buyers/sellers. There are brokers that do that but you can't call them an exchange. I also think regulation prevent exchanges from trading on their own exchange to avoid front-running and since they have lots of information about the users/deposits/etc...
    - sp821543 9y ago
      From coinbase TOS: You acknowledge that the quoted Buy Price Conversion Rate may not be the same as the Sell Price Conversion Rate at any given time, and that Coinbase may add a margin or “spread” to the quoted Conversion Rate.
nebulous1 9y ago
> Causality is difficult to prove, but based on the correlation between the supply of Tether and Bitcoin and Tether Limited operating model, I am highly confident that the issuance of unbacked Tether is driving the insane rise of Bitcoin in USD. Is this a parody?
at-fates-hands 9y ago
Is it speculative to think Tether has the means to forcibly make Bitcoin collapse? Am I reading that right?
aaavl2821 9y ago
can you explain this like you would to a five year old?
- paulie_a 9y ago
  I really hope this was an intentional quote from the movie Margin call
heptathorp 9y ago
Can anyone explain how this "arbitraged feedback loop" allegedly works? Arbitrage causes prices to converge, not spiral up or down.
- goialoq 9y ago
  Tether artificially inflates the price of tether to $1. It's "tethered"
  - heptathorp 9y ago
    The claim is this phenomenon exists even without printing unbacked tethers. > Even IF Tether is NOT running a fraud
acchow 9y ago
Ok, now I question the validity of everything I've ever read on Seeking Alpha.
- otp124 9y ago
  Don’t they pay per article you write? Is there any vetting? I once tried to write an article for Motley Fool (for ~$50) and they kicked it back to me and said I didn’t have enough stock tickers in the article. It seemed that only spelling and referencing a bunch of stock tickers are what they care about (probably due to SEO). In the end, I didnt re-submit my article because I didn’t want my name on it.
runeks 9y ago
> Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. This purported mechanism needs a more thorough explanation from the author before it can seriously considered. How, exactly, does this arbitrage opportunity work?
- hammock 9y ago
  Tether price is 80cents. Person trades bitcoin for tether. Person redeems tether for $1, profiting 20cents. Tether issues more (fraudulent, not backed) currency. Repeat.
  - heptathorp 9y ago
    If someone sells bitcoin for tether (because they want to redeem the tether and collect 20 cent profit) the price of bitcoin goes down, not up.
  - runeks 9y ago
    Which markets confuse tethers with USD? They are clearly two different assets. The former is a private currency, issued by a company and redeemable in USD, while the latter is the USD that the former IOU is denominated in. I see how this would affect the price of bitcoins in tethers, but not how it would affect the price of bitcoins in USD (unless the market, as a whole, conflates the two). Also, where do these alleged arbitrageurs redeem their tethers? As I understand it, the corporation that issues tethers was cut off from doing international wire transfers, thus rendering tethers irredeemable.
monochromatic 9y ago
I don’t think I quite follow the reasoning here.

darawk 9y ago

There's no reason arbitrage should push up the price of Bitcoin. Tether exists to normalize arb opportunities between exchanges. That's what it was created for. There is indeed a real question as to whether or not Bitfinex has issued more Tether than it has in reserve, or whether or not they will actually pay people out for their Tether tokens. But there is no 'arbitrage feedback loop' driving the price rise.

notthemessiah 9y ago
> Tether exists to normalize arb opportunities between exchanges. That's what it was created for. What things are created for and how they actually behave often diverge.
- darawk 9y ago
  Sure. Not claiming it can't have secondary effects. But there's no argument been presented that establishes that it does.
  - mannykannot 9y ago
    Does not the claim, that Tether is not actually backed by dollars, also double as an argument that it would be difficult for it to behave as intended? - i.e. to the extent that the former may be correct, the latter is likely?
    - darawk 9y ago
      Claiming that it doesn't behave as intended is not equivalent to claiming that it pumps the price of Bitcoin.
- otp124 9y ago
  Wasn’t it _actually_ created to allow export of funds after the parent exchange was banned by the US and Taiwanese banking systems?
jayd16 9y ago
I'm no expert but mulling it over.... If Tether is big enough that the price of BTC is effected by it, such that investors feel they can cash out and that is part of their risk calculation, then a tank in Tether would also cause a drop in BTC. If Tether is backed by loans and not hard cold cash that's a risk and effects the value. If someone is able to buy Tether on credit, and the credit is actually backed by BTC then there could be a loop. I'm not sure about the likelihood of this but if Bitfinex is overleveraged somehow then anything is possible. At least I think that was the argument.
- panarky 9y ago
  If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether. Conceivably, a crisis with Tether could affect confidence in the entire cryptocurrency ecosystem, which would put downward pressure on the Bitcoin exchange rate. It's not clear which of these factors would dominate, so it's not clear what would happen to exchange rates. But currently Tethers trade 1:1 for USD on multiple exchanges, so markets aren't showing evidence of lost confidence.
  - tobltobs 9y ago
    > If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether. That might be the outcome, however: - If there would be the slightest bit of panic btc transactions would be congested for days. - If people would loose money by Tether their btc margin positions would be getting closed. - Because they loose faith in one crypto they would by another?
    - mplewis 9y ago
      If Tether is garbage, the only way to get your money out is by converting Tether to something worth real money. We saw this in Mt. Gox. When USD withdrawals failed and people suspected Mt. Gox was insolvent, the only way to get money out was to buy BTC and withdraw that. The Mt. Gox exchange rate inflated because everyone knew dollar balances on Mt. Gox were worthless. If Bitfinex is insolvent and Tether fails, we'll probably see panic selling across the market as people start fearing Bitcoin is a giant tulip scam.
exelius 9y ago
It only works that way if you trust Tether and the exchanges. Given how shadowy the big ones are, I'm not sure that's a good idea. It appears this kind of arbitrage is designed to push up the price of BTC -- as long as the price keeps going up, people aren't going to withdraw. Once we start to see a sell-off though, the exchanges will stop being able to pay in USD pretty quickly. My thought is that every time Tether/Bitfinex sees a sell-off happening (which, being an exchange, they can) they issue a bunch of new Tether, push the price higher, and take the money of some more suckers entering the market by selling BTC. If true, this is basically just a ponzi scheme. Without evidence to the contrary, this is the safest assumption at least. I cashed out a few days ago regardless; but I do think there's a big crash coming. I don't think cryptocurrency is inherently bad, just that Bitcoin is all hype.
- hossbeast 9y ago
  If you don't mind my asking, how long had you held for?
  - exelius 9y ago
    About 4.5 years? Bought some on Coinbase when I saw them at SXSW a few years back then promptly forgot about it. Pretty sure I'm gonna be one of the few "casuals" who manages to take any money away from BTC when this is all said and done...
- darawk 9y ago
  Yes, but there is no evidence that that is happening. Bitcoin has a $200B market cap. There is only approximately 800 million usd worth of Tether on the market. It's easy to make up stories about what might be happening, but just because it's possible something is happening doesn't mean that it is.
  - seehafer 9y ago
    You are underestimating the extent to which a finite $200M injection can make it seem like the price is skyrocketing for exogenous factors and therefore yield real money coming in. Classic pump and dump strategy.

alexpetralia 9y ago

I'm not sure I follow.. There is no BTC-USD tether? USDT is tethered to USD.

busterc 9y ago
For better context, here's the related article he was commenting on: https://news.ycombinator.com/item?id=15852750 https://news.ycombinator.com/item?id=15852750
tcoppi 9y ago
There doesn't need to be an official BTC-USD tether, BTCUSD on bitfinex is exactly that in practice and in fact.
- dwaltrip 9y ago
  BTCUSD floats freely, based off the latest trade. It's not pegged.
- alexpetralia 9y ago
  That's not a tether though, that's an exchange rate. A tether is like a fixed (pegged) exchange rate[1], where there is an arbitrage opportunity. But that's not BTC-USD. [1] https://en.wikipedia.org/wiki/Fixed_exchange-rate_system https://en.wikipedia.org/wiki/Fixed_exchange-rate_system

pentae 9y ago

I can't wrap my head around this. Who is silly enough to sell bitcoins for 'worthless' Tether?

Canada 9y ago
People without USD accounts. To them selling for USD is just getting them a promise of USD which they're never going to cash out anyway.
Zarath 9y ago
People who want a liquid USD tethered asset on many exchanges and aren't needlessly paranoid over absurd conspiracy theories that have yet to present a single ounce of real evidence.
- ric2b 9y ago
  Bitfinex is also lacking in evidence when it comes to showing that Tethers are backed by USD.
  - um_ya 9y ago
    How would they prove it? Twitter a picture of the bank balance?
    - ncallaway 9y ago
      At the very least, inform the public about which banking institutions they are currently using ever since Wells Fargo dropped out. Contracting a reputable firm to conduct an in-depth audit and publicly releasing the results would also be a useful step.
      - FireBeyond 9y ago
        And not refuse to name banks without an NDA signed and in place...

csomar 9y ago

That author is plain wrong and shows deep ignorance about bitcoin and the crypto-market. An unsustainable price of bitcoin will lead to the collapse of other exchanges since people cashing out on these exchanges requires enormous amount of real money. This will create a situation where the price of bitcoin in Bitfinex is higher than other exchanges by a big gap. This is not the case, actually the opposite is true: Bitstamp, Gdax, and Gemini prices where higher for substantial durations in the last few weeks. You can only artificially pump the price to an unsustainable high for a very short period of time (2013/mtgox) or have this market restricted (no withdrawals/deposits, etc...). However, this is not the case. You can withdraw/deposit to bitfinex and their coldwallet shows 1.6bn usd worth of bitcoins. TL;DR: The author fits the "butt-hurt" category, refuses to accept the reality and tries to find non-real argument for his hypothetical flash crash. Disclosure: I currently hold no Bitcoin but some bitcoin cash positions. I also think the market is in a bubble. But a bubble with real people dollars flowing in.

mgbmtl 9y ago
Naive question: when an exchange sells, I assume they can decline to buy if they don't have a buyer or too much inventory? For example, if suddenly everyone wants to sell BTC, the price would drop, at which point the exchange could buy the BTC at a much lower price, or not buy at all? (unless they commit fraud, massively purchase BTC without having the actual money to back it, then not be able to wire money out of our accounts?)
- csomar 9y ago
  The exchange doesn't sell/buy. It just connects the buyers/sellers. There are brokers that do that but you can't call them an exchange. I also think regulation prevent exchanges from trading on their own exchange to avoid front-running and since they have lots of information about the users/deposits/etc...
  - sp821543 9y ago
    From coinbase TOS: You acknowledge that the quoted Buy Price Conversion Rate may not be the same as the Sell Price Conversion Rate at any given time, and that Coinbase may add a margin or “spread” to the quoted Conversion Rate.

nebulous1 9y ago

> Causality is difficult to prove, but based on the correlation between the supply of Tether and Bitcoin and Tether Limited operating model, I am highly confident that the issuance of unbacked Tether is driving the insane rise of Bitcoin in USD. Is this a parody?

at-fates-hands 9y ago

Is it speculative to think Tether has the means to forcibly make Bitcoin collapse? Am I reading that right?

aaavl2821 9y ago

can you explain this like you would to a five year old?

paulie_a 9y ago
I really hope this was an intentional quote from the movie Margin call

heptathorp 9y ago

Can anyone explain how this "arbitraged feedback loop" allegedly works? Arbitrage causes prices to converge, not spiral up or down.

goialoq 9y ago
Tether artificially inflates the price of tether to $1. It's "tethered"
- heptathorp 9y ago
  The claim is this phenomenon exists even without printing unbacked tethers. > Even IF Tether is NOT running a fraud

acchow 9y ago

Ok, now I question the validity of everything I've ever read on Seeking Alpha.

otp124 9y ago
Don’t they pay per article you write? Is there any vetting? I once tried to write an article for Motley Fool (for ~$50) and they kicked it back to me and said I didn’t have enough stock tickers in the article. It seemed that only spelling and referencing a bunch of stock tickers are what they care about (probably due to SEO). In the end, I didnt re-submit my article because I didn’t want my name on it.

runeks 9y ago

> Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. This purported mechanism needs a more thorough explanation from the author before it can seriously considered. How, exactly, does this arbitrage opportunity work?

hammock 9y ago
Tether price is 80cents. Person trades bitcoin for tether. Person redeems tether for $1, profiting 20cents. Tether issues more (fraudulent, not backed) currency. Repeat.
- heptathorp 9y ago
  If someone sells bitcoin for tether (because they want to redeem the tether and collect 20 cent profit) the price of bitcoin goes down, not up.
- runeks 9y ago
  Which markets confuse tethers with USD? They are clearly two different assets. The former is a private currency, issued by a company and redeemable in USD, while the latter is the USD that the former IOU is denominated in. I see how this would affect the price of bitcoins in tethers, but not how it would affect the price of bitcoins in USD (unless the market, as a whole, conflates the two). Also, where do these alleged arbitrageurs redeem their tethers? As I understand it, the corporation that issues tethers was cut off from doing international wire transfers, thus rendering tethers irredeemable.

monochromatic 9y ago

I don’t think I quite follow the reasoning here.