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Because its exactly equivalent to selling Tether for USD, which we know they do. There are arguments that they couldnt have liquidated so much BTC, but I don't

by rmrm 9y ago

Because its exactly equivalent to selling Tether for USD, which we know they do. There are arguments that they couldnt have liquidated so much BTC, but I don't see any specific argument that leads on to assume that they wouldnt have. Unless one puts fraud as the entire goal. Which can't be discounted, but its just not obvious, to me.

rhino369 9y ago
It's somewhat equvalent but more complicated and more expensive (Transaction costs at each step). It also has one huge downside, which accounts for why you wouldn't do it. You'd be flooding the market Tethers nobody is asking for, which risks crashing the value of Tethers. They could buy back the tethers for dollars to stablize the price, but that would make the whole transaction useless. There is also volitity risk. In a falling market they might lose money.
- rmrm 9y ago
  True on volatility and transactions, I shouldnt have said exactly. But volatility speaks to why you would want to exit BTC as quickly as possible, if trying to avoid. One could argue it should net out to nothing over time. I dont see it as flooding the market with anything, the Tethers are created in effect by people exiting cryptos into Tether on all these exchanges that only deal with Tether rather than USD (potentially!). Lets step back to Tether creation. There are zero out there. Someone gives Tether $10 million for 10 million USDT. Those matriculate out in the universe, and are being exchanged back and forth for cryptos. Someone somewhere always holds those 10 million Tether. The price of cryptos rises and rises. Now all of a sudden the demand for USDT has increased, as people who exit crypto on those exchanges need more units than before, rather than 8500 USDT per BTC its 20000 USDT per BTC. No one has given Tether anymore USD directly for USDT. What would happen in this scenario is the price of USDT would rise. One way, not the only way, but one way for Tether to bring the price back under control, would be to buy BTC for USDT, issuing new shares, to bring the price back down. Which at $1 means equillibrium. Is that how things work, I certainly dont know. But that mechanism is one way it could work. And it could explain why USDT are created on down days. Its the demand of people getting out of BTC driving it. Now they could totally take that money and spend it on hookers and yachts for all I know...but thats at the end of the chain.
  - Nursie 9y ago
    Right, so in the situation you describe, they no longer have a dollar backing the issue of new tether, in fact they have conjured them up from nowhere and used them to buy cryptocurrency. So while the original 10 million in tether is backed by USD, the new stuff isn't. And the mass printing has conveniently propped up the BTC price as well!

by rmrm 9y ago

rhino369 9y ago

It's somewhat equvalent but more complicated and more expensive (Transaction costs at each step). It also has one huge downside, which accounts for why you wouldn't do it. You'd be flooding the market Tethers nobody is asking for, which risks crashing the value of Tethers. They could buy back the tethers for dollars to stablize the price, but that would make the whole transaction useless. There is also volitity risk. In a falling market they might lose money.

rmrm 9y ago
True on volatility and transactions, I shouldnt have said exactly. But volatility speaks to why you would want to exit BTC as quickly as possible, if trying to avoid. One could argue it should net out to nothing over time. I dont see it as flooding the market with anything, the Tethers are created in effect by people exiting cryptos into Tether on all these exchanges that only deal with Tether rather than USD (potentially!). Lets step back to Tether creation. There are zero out there. Someone gives Tether $10 million for 10 million USDT. Those matriculate out in the universe, and are being exchanged back and forth for cryptos. Someone somewhere always holds those 10 million Tether. The price of cryptos rises and rises. Now all of a sudden the demand for USDT has increased, as people who exit crypto on those exchanges need more units than before, rather than 8500 USDT per BTC its 20000 USDT per BTC. No one has given Tether anymore USD directly for USDT. What would happen in this scenario is the price of USDT would rise. One way, not the only way, but one way for Tether to bring the price back under control, would be to buy BTC for USDT, issuing new shares, to bring the price back down. Which at $1 means equillibrium. Is that how things work, I certainly dont know. But that mechanism is one way it could work. And it could explain why USDT are created on down days. Its the demand of people getting out of BTC driving it. Now they could totally take that money and spend it on hookers and yachts for all I know...but thats at the end of the chain.
- Nursie 9y ago
  Right, so in the situation you describe, they no longer have a dollar backing the issue of new tether, in fact they have conjured them up from nowhere and used them to buy cryptocurrency. So while the original 10 million in tether is backed by USD, the new stuff isn't. And the mass printing has conveniently propped up the BTC price as well!