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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.

by 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.

by darawk 9y ago

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.