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My theory on tether is their goal is to absorb as much downward (selling) pressure as possible on the BTC/USD market and encourage only upward movement of BTC (

by meritt 9y ago

My theory on tether is their goal is to absorb as much downward (selling) pressure as possible on the BTC/USD market and encourage only upward movement of BTC (equally applies to any other crypto) 1) Someone who wants to sell $1M USD of BTC may be happy to take $1M USDT instead for legal/tax purposes. This transaction would have zero impact on the BTC/USD price. 2) Tether receives $1M worth of BTC they can slowly disperse back into the market via their own exchange (since Bitfinex owns Tether) in a controlled manner that doesn't push the price down. 3) With USD in hand they can either put it into their reserves (assuming we trust them) or they could also use the cash to further eliminate any selling pressure on the exchange (with a large buy order "wall") or even generate upward pressure. 4) BTC price becomes stable or only moves upward and attracts more outside money and speculation. Repeat the cycle.

ghostbrainalpha 9y ago
Thank you for this great explanation. I'm finally getting it.
krrrh 9y ago
This is a great analysis, but I’m stuck on this point. > 1) Someone who wants to sell $1M USD of BTC may be happy to take $1M USDT instead for legal/tax purposes. Can you clarify that you mean for the purpose of tax evasion as opposed to tax avoidance? IANATL but it seems very unlikely that the IRS or any tax jusrisdiction that I’m aware of, would consider a trade into USDT a like-kind transaction [1]. It would still trigger capital gains. If lots of people really are operating under a different belief then this is going to get really messy. If there’s a crypto-correction, non-HODLers could be left with tax liabilities they can’t cover. [1] https://en.m.wikipedia.org/wiki/Like-kind_exchange https://en.m.wikipedia.org/wiki/Like-kind_exchange
- meritt 9y ago
  I've specifically seen folks discussing converting to tether now (on the fear that BTC will fall) and waiting til 2018 to redeem due to pending tax cuts. So this would be an avoidance strategy. I have no idea on the legal specifics or whether or not Tether/Bitfinex are going to be providing reporting to governmental agencies (like Coinbase+IRS are doing). The discussions I've seen often cite Tether as a way to capture profits in USD and holding off on the "real" USD conversion at a later place or time (taxes or restrictive outflows like China's $50k USD/yr limit). Basically viewing it as a way to operate in USD without creating a banking paper trail. If conversion to USDT causes a legally taxable event that's going to remove a significant portion of the proposed use-cases for tether. > If lots of people really are operating under a different belief then this is going to get really messy. I think "really messy" is a given at this point. I was in Starbucks a few days ago and overhead a non-tech savvy man say: "I need to figure out how to buy some of that bitcoin so I can get rich but all the websites I've found are crooks!"
spookthesunset 9y ago
The beauty of all of this is Bitfinex, and most other exchanges for that matter, are all black boxes. No audits, no regulations, nothing. To my knowledge all the trading on their platform happens off-chain, only going "on chain" when somebody deposits or withdraws their crypto coins. The only visibility we have is what goes into and out of any known wallet. These exchanges could be pulling all kinds of shenanigans including outright making shit up. What is stopping them from buying / selling more bitcoin then they actually have? If an exchange wanted to pocket some real cash, just sell some bitcoin they don't have. How about just creating fake buy / sell orders to drum up some excitement? Or better, just do real trades back and forth between yourself. Once you add Tether into the mix and abstract away real cash inputs and outputs things get even more exciting. An exchange could start buying bitcoin with unbacked USDT to jack up / stabilize the BTC price--works great so long as everybody doesn't all try to convert their USDT to real cash dollars. Since they are all completely unaudited, exchanges could be pulling this stuff all the time. Tether makes this 10x more exciting though.
sjg007 9y ago
Isn’t selling btc for another crypto currency a taxable event?
- meritt 9y ago
  Most likely in 2017 and the pending 2018 changes make it definitely taxable as both the House/Senate versions restrict IRS-1031 to real estate only. Based on all the discussions around tether, I don't think many cryptocurrency gamblers are currently aware (or care) of tax implications.
ufo 9y ago
> Someone who wants to sell $1M USD of BTC may be happy to take $1M USDT instead for legal/tax purposes. This sounds extremely foolish. Why would anyone intentionally wish to hold such a large amount of a token that all evidence points towards being actually worthless? (Tethers can only be used to purchase cryptocoins in Bitfinex, which is most likely insolvent -- it is not possible to redeem them for USD). > 4) BTC price becomes stable or only moves upward and attracts more outside money and speculation. Repeat the cycle. I think this is the most likely explanation for Bitfinex's behavior. They know that there will inevitably be a bank run when Bitcoin's prices show a sign of going down and that will unravel the scam they have been running so at this point the only thing they can do is continue to push up the price at all costs.
- 659087 9y ago
  > This sounds extremely foolish. Why would anyone intentionally wish to hold such a large amount of a token that all evidence points towards being actually worthless Yep. Which makes the "institutional investors are handing Bitfinex hundreds of millions of real dollars in exchange for Tether" claims people are pushing even more ridiculous.

by meritt 9y ago

ghostbrainalpha 9y ago

Thank you for this great explanation. I'm finally getting it.

krrrh 9y ago

This is a great analysis, but I’m stuck on this point. > 1) Someone who wants to sell $1M USD of BTC may be happy to take $1M USDT instead for legal/tax purposes. Can you clarify that you mean for the purpose of tax evasion as opposed to tax avoidance? IANATL but it seems very unlikely that the IRS or any tax jusrisdiction that I’m aware of, would consider a trade into USDT a like-kind transaction [1]. It would still trigger capital gains. If lots of people really are operating under a different belief then this is going to get really messy. If there’s a crypto-correction, non-HODLers could be left with tax liabilities they can’t cover. [1] https://en.m.wikipedia.org/wiki/Like-kind_exchange https://en.m.wikipedia.org/wiki/Like-kind_exchange

meritt 9y ago
I've specifically seen folks discussing converting to tether now (on the fear that BTC will fall) and waiting til 2018 to redeem due to pending tax cuts. So this would be an avoidance strategy. I have no idea on the legal specifics or whether or not Tether/Bitfinex are going to be providing reporting to governmental agencies (like Coinbase+IRS are doing). The discussions I've seen often cite Tether as a way to capture profits in USD and holding off on the "real" USD conversion at a later place or time (taxes or restrictive outflows like China's $50k USD/yr limit). Basically viewing it as a way to operate in USD without creating a banking paper trail. If conversion to USDT causes a legally taxable event that's going to remove a significant portion of the proposed use-cases for tether. > If lots of people really are operating under a different belief then this is going to get really messy. I think "really messy" is a given at this point. I was in Starbucks a few days ago and overhead a non-tech savvy man say: "I need to figure out how to buy some of that bitcoin so I can get rich but all the websites I've found are crooks!"

spookthesunset 9y ago

The beauty of all of this is Bitfinex, and most other exchanges for that matter, are all black boxes. No audits, no regulations, nothing. To my knowledge all the trading on their platform happens off-chain, only going "on chain" when somebody deposits or withdraws their crypto coins. The only visibility we have is what goes into and out of any known wallet. These exchanges could be pulling all kinds of shenanigans including outright making shit up. What is stopping them from buying / selling more bitcoin then they actually have? If an exchange wanted to pocket some real cash, just sell some bitcoin they don't have. How about just creating fake buy / sell orders to drum up some excitement? Or better, just do real trades back and forth between yourself. Once you add Tether into the mix and abstract away real cash inputs and outputs things get even more exciting. An exchange could start buying bitcoin with unbacked USDT to jack up / stabilize the BTC price--works great so long as everybody doesn't all try to convert their USDT to real cash dollars. Since they are all completely unaudited, exchanges could be pulling this stuff all the time. Tether makes this 10x more exciting though.

sjg007 9y ago

Isn’t selling btc for another crypto currency a taxable event?

meritt 9y ago
Most likely in 2017 and the pending 2018 changes make it definitely taxable as both the House/Senate versions restrict IRS-1031 to real estate only. Based on all the discussions around tether, I don't think many cryptocurrency gamblers are currently aware (or care) of tax implications.

ufo 9y ago

> Someone who wants to sell $1M USD of BTC may be happy to take $1M USDT instead for legal/tax purposes. This sounds extremely foolish. Why would anyone intentionally wish to hold such a large amount of a token that all evidence points towards being actually worthless? (Tethers can only be used to purchase cryptocoins in Bitfinex, which is most likely insolvent -- it is not possible to redeem them for USD). > 4) BTC price becomes stable or only moves upward and attracts more outside money and speculation. Repeat the cycle. I think this is the most likely explanation for Bitfinex's behavior. They know that there will inevitably be a bank run when Bitcoin's prices show a sign of going down and that will unravel the scam they have been running so at this point the only thing they can do is continue to push up the price at all costs.

659087 9y ago
> This sounds extremely foolish. Why would anyone intentionally wish to hold such a large amount of a token that all evidence points towards being actually worthless Yep. Which makes the "institutional investors are handing Bitfinex hundreds of millions of real dollars in exchange for Tether" claims people are pushing even more ridiculous.