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Worries Grow That the Price of Bitcoin Is Being Propped Up

291 points by ganlad 9y ago

cgyulay 9y ago
Genuine question: whether or not Tether is fraudulent, how much can a currency with a market cap of ~$2B affect the greater ecosystem, or even just Bitcoin with a purported market cap of ~$150B? Obviously a scandal of this magnitude in a major cryptocurrency is bad for the whole environment for a host of reasons...but if Tether is really just a ~$2B fabricated cash injection, how much could it really prop up BTC?
- coolspot 9y ago
  Tether does not have $2b market cap. They claim having $2b usd funds inflow. If I sell one of my hair for $1, you could say my head has $50,000 market cap, but no one actually paid/received these $50,000.
- tim333 9y ago
  It's hard to say because so much depends on investor psychology. But if they act to prop things up on the dips it looks like it just goes up and then other dumb speculators like me pile in. Some academics studied manipulation at MtGox and "the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months." Not sure how much actual cash was involved there but "bitcoins (BTC) valued at $188 million were fraudulently acquired."
superkuh 9y ago
First they ignore you, then they laugh at you, then they fight you, then you win.
- fancyfacebook 9y ago
  What a meaningless platitude, I'm sure it's the sort of thing was repeated in the 1930s a lot. This is the reason organizations exist to regulate things around trade, otherwise you can get shady exchanges quoting bogus prices with zero accountability. Lots of people are going to get scammed before this gets better.
  - lloyd-christmas 9y ago
    > This is the reason organizations exist to regulate things around trade It's worth noting that every industry suffers from fraud. In the insurance industry, it's estimated that 10% of expenditure is fraud-related. 5% of americans were victims of identity theft last year. Loads of people/businesses have been and will be scammed in well regulated industries, while having no indication that it will ever decrease. I don't really know enough about bitcoin to comment on how prevalent it is (I sincerely doubt most people do), but I do know it isn't special in that regard.
- ceejayoz 9y ago
  I'm sure this quote gets spread around a lot at the lower floors of ponzi/MLM schemes.
- joosters 9y ago
  First they ignore you, then they laugh at you, then they keep laughing, then they start choking on their laughter, and then they go and catch their breath. Then they start laughing even more.
- kahnpro 9y ago
  Or, in reality: First they ignore you, then they laugh at you, then they fight you, then you lose.
- Jach 9y ago
  As Carl Sagan put it, "The fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright brothers. But they also laughed at Bozo the Clown."
  - dragonwriter 9y ago
    Columbus really belongs with Bozo and not Fulton and Wright. His plan was ridiculed because it was ridiculous for reasons which were had been clear since before the rise, much less fall, of Rome, could not reasonably have worked, and did not work. He happened to stumble into something unrelated in the course of his crazy plan (which is the only reason anyone on the expedition survived), which lots of people who weren't him recognized as something new and valuable independently of the goal Columbus had both insanely set out and, even more insanely, insisted after the fact and to his death that he had succeeded in.
    - JoeAltmaier 9y ago
      Ok but it's possible he had a Chinese map from an earlier expedition, and while he misinterpreted where he was going, he was pretty sure that he was going somewhere.
berbec 9y ago
In other news, water determined to be wet.
JohnJamesRambo 9y ago
If you haven't already, I recommend getting out of Bitcoin and into Ethereum immediately. There is a transfer of dominance rapidly happening. Market Cap Bitcoin $158,149,902,894 Ethereum $106,632,442,880
- ceejayoz 9y ago
  What mechanisms in Ethereum protect it from this sort of market manipulation?
  - buttcoinslol 9y ago
    None whatsoever.
- duiker101 9y ago
  what is in your opinion the reason why bitcoin is failing? For the way I see it, it's because it lacks real world applications and value. I know Ethereum has it's own contracts etc... but I don't see how it really solves the base problem. Who's going to use this currency and why? Are the contracts enough to keep it afloat forever? From what i've heard they are not without issues.
  - scardine 9y ago
    I don't think Ethereum contracts are much better compared to what we already have - make a mistake in a contract you will end up arguing with humans in a conference room anyway.
  - yellow_postit 9y ago
    Neither solve real world problems for folks in developed countries. In developing countries maybe there's a utility play but that's been getting undercut by the crazy fees and speculation.
- scardine 9y ago
  Does Ethereum has any immunity from pump-and-dump and other market manipulation schemes compared to Bitcoin or your comment has nothing to do with the subject?
1123581321 9y ago
What’s the difference between legitimate technical trading and propping up a market? Is it just volume?
- inputcoffee 9y ago
  My understanding from the article is that the problem isn't that the price was propped but that they created fake tether to do so. By fake, I don't mean the tether wasn't real, but that it was not tied to dollars. So they claimed tether was tied to dollars but they produced a lot of it to buy up Bitcoin and the fear is that they didn't wait for dollars to come in but just made the tether out of... well, ether ... and used that to prop up bitcoin which they converted into actual wealth.
  - mertd 9y ago
    That's the allegation, or people legitimately bought tether. It's not clear which is true. Hence the investigation.
- Nursie 9y ago
  In the case of tether it appears to be "Issuing yourself a load of fake money to do it with"
- maxerickson 9y ago
  Fraud. Market participants are relying on the exchange to give them correct information about trades and to only issue orders that are backed by real assets. If the exchange puts in orders that aren't backed by assets, they eventually will not be able to close out all accounts (because there aren't real assets to do that with).
  - vim_wannabe 9y ago
    What if an internet service provider sells Internet subscriptions that are not backed by real bandwidth. If enough customers want to stream video the ISP will not be able to provide enough bandwidth for them. Would you call that fraud?
jandrese 9y ago
“It’s a signal to the market of what those who have scrutinized the situation already believe: There is a problem here,” said Jill Carlson, a former trader at Goldman Sachs who now consults with a variety of virtual currency companies. “The dissolution of a relationship between an auditor and a company is very rarely a good sign that the company is behaving in accordance with market best practices.” When you're getting dunked on by Goldman Sachs for being unethical, you know you have a problem.
- serg_chernata 9y ago
  I agree with your sentiment but come on. It's not like there are instances where GS would say "this seems slightly unethical, but so are we". You're implying they ever admit wrongdoing.
  - Waterluvian 9y ago
    Respectfully, it's a comment in jest not deserving of such logical scrutiny.
    - JustSomeNobody 9y ago
      Respectfully, HN simply does not do jest very well. Edit: See what I mean?
      - nothrabannosir 9y ago
        No, you’re getting downvoted because your comment adds nothing to the conversation. You’re saying the same as your parent comment, and that one is not being downvoted, so clearly it’s not the message that people disagree with.
- ForRealsies 9y ago
  That or they're jealous.
  - 9y ago
thisisit 9y ago
Discussed earlier: https://news.ycombinator.com/item?id=16279300 https://news.ycombinator.com/item?id=16279300
Nursie 9y ago
It looks, on the surface, to be a sort of massive fraud on the issuance of tether, which also propped up the price of Bitcoin and a lot of other coins, as a couple of billion in fake liquidity was pumped into the market. It's too early to tell what the exact story is, but it's certainly the case that the tether company's promises that they get frequent, professional audits are an out-and-out lie. I, personally, don't believe they have billions of dollars in the bank to back up their tokens, either. Various authorities are starting to take interest, as are more mainstream media sources (like the NY Times). I think if Tether and Bitfinex are above board, now is the time to release a statement and some pretty compelling evidence.
kadenshep 9y ago
Bitcoin: Revenge of the Beanie Babies
rebuilder 9y ago
Watch for a premium on the BTCUSD rate on Bitfinex. That'll be the market believing there's a significant risk of insolvency. I'm surprised there's no premium yet.
- amluto 9y ago
  If Bitfinex or its sister company is engaging in outright fraud, I see no reason to believe its market data.
  - rebuilder 9y ago
    How would they fake the price while allowing trades and BTC withdrawals?
    - cma 9y ago
      https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
      - rebuilder 9y ago
        I remember mt. gox very well. They started having withdrawal delays, and then halted withdrawals of BTC as well as USD altogether, precisely because keeping withdrawals open would have been so expensive as to be impossible. I'm saying Bitfinex has no magic way around that, either.
        cma 9y ago
        That was the end-game. They didn't have enough reserves to cover liabilities long before there were outward signs.
        rebuilder 9y ago
        That's true, but I don't recall any indication of them faking ticker data.
dlandis 9y ago
I'm curious how big the ramifications for Bitcoin will be if the majority of Tether tokens are proven to be fraudulent and Binfinex collapses (which doesn't seem that unlikely at this point).
- Cthulhu_ 9y ago
  Another MtGox in the making? They artifically bumped up the price of BTC too for a while.
- banderman 9y ago
  It's not just Bitcoin, it's every altcoin listed on that exchange, and the other two big Tether/USD exchanges (Poloniex and Bittrex).
- JonnyNova 9y ago
  A return to the mean. The same will go for alt-coins since because faith in cryptos is founded on BTC and most alt-coins are priced in BTC.
- Mahn 9y ago
  You just have to look at what happened after the MtGox collapse in 2014: Bitcoin goes back to sleep for 2 or 3 years, afterwards everyone forgets it ever happened and another rally takes place where cryptocurrencies "go mainstream". Lather, rinse and repeat until the amount of people willing to speculate on it is completely exhausted.
  - hbosch 9y ago
    I don't personally think it will be that cyclic. There is so much more invested this time around, so many more people standing to lose so much more money, such a brighter light on the cryptocurrency world now. A devastating loss (e.g. Bitfinex shuts down and freezes all transfers, Tether worthless, that type of thing) to the BTC economy would be critical to the entire future of cryptocurrency as we know it, IMO. I don't think Bitcoin has 9 lives.
    - 9y ago
granaldo 9y ago
Is Tether highly exposed only to bitcoin and not ethereum? Bitcoin price seems to be taking a heavier hit than Ether https://www.coingecko.com/en https://www.coingecko.com/en
- Nursie 9y ago
  If people start to flee the system I wouldn't imagine any of them is safe from panic, runs etc.
- cptskippy 9y ago
  I was noticing that the other day. I wonder if that's because Ethereum has contract functionality and thus as some intrinsic value to it.
  - deleted 9y ago
    [deleted]
  - duskwuff 9y ago
    On the other hand, the main application for those contracts is ICOs -- which are themselves primarily a speculative instrument. It's turtles all the way down.
- conanbatt 9y ago
  This is noticeable and a trend for quite some time. ETH might actually have some inelastic demand by the developers of tokens, so its more resistance to volatility. All crypto is taking a hit right now, but eth is gaining share.
  - geerlingguy 9y ago
    Somewhat, but it's falling now (within the past hour). Seems like it's not as divorced from Bitcoin's moves as optimists would like.
paulgb 9y ago
I find it weird that people assume this is intentional market manipulation. If they are in fact fraudulent (I think they are), being able to print money is a business model in itself; you don't need to intentionally manipulate the market (but could end up doing so accidentally)
- gt_ 9y ago
  I don't think the accusation is particularly that the market manipulation was intentional but that it was nonetheless an effect of the money printing.
- notahacker 9y ago
  Easier to pump existing BTC holdings with $2bn of imaginary-dollar backed tokens than exchange $2bn in imaginary-dollar backed tokens directly for dollars and find a bank that'll let you cash them out... And if your plan is to ultimately do the latter, you're going to have to cash out slowly and indirectly anyway, in which case why not pump the price of other assets you stand to benefit from in the mean time.
  - paulgb 9y ago
    Why pump assets if you can't cash them out?
    - notahacker 9y ago
      (1) There's more demand for swapping BTC for cash or occasionally even goods/services than USDT period, and even more so when the price of BTC goes up. Offloading $2bn USDT is hard work because it's not a speculator-friendly asset (2) They already had BTC and a belief in its future. Making it worth more, easier to exchange for cash and having more of it looks like a win all round if you don't mind committing fraud. (3) Leverage, provided the BTC price holds up for long enough to cash out. Even if you're printing fake money, you can only print as much of it as people believe you actually have. (4) BTC price rise income looks like it might be a legitimate income stream when auditors ask about it. Income from selling stuff that's supposed to be backed by a dollar for a dollar is obviously the proceeds of fraud. (5) BTC holdings can likely continue to be bought and sold even if nobody wants USDT, bank accounts connected to Bitfinex and Tether end up frozen and a rapid change of address and identity is required Money laundering is often very convoluted and usually costs money, but it's big business.
zerostar07 9y ago
why don't the other exchanges just drop their USDT pairs ?
- foepys 9y ago
  A lot of exchanges are using Tether to avoid coming in contact with USD. Most, if not all, of them have no banking access, so Tether is the only way they can pretend to trade in USD and still be safe from US banking regulations.
- pjc50 9y ago
  They're generally (but not all) exchanges that have been banned from having actual USD banking facilities and need USDT to provide something for their customers to trade against.
misja111 9y ago
"Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down." Doesn't this simply mean that when people were selling their virtual currencies, they chose to stall their money in Tether?
- cm2187 9y ago
  Perhaps I don't understand it correctly but I assumed that wouldn't result in Tether being created. A holder of Tether would exchange his Tether for BTC. Only a transaction of Tether for cash would result in Tether being created.
  - LargeWu 9y ago
    One of the claims here is that Bitfinex was somehow creating new Tether without a USD deposit. In other words, out of thin air. This Tether would then be exchanged for Bitcoin or other crypto, causing an artificial increase in demand for those coins, and causing their price to rise.
- tomtimtall 9y ago
  If you buy 100 tether for 100$ and I “sell my bitcoin for tether” by trading to you, then no new tether is created. Tether should only be issued when people buy them using new $. Their claim currently is that they have $2bil in an account backing the tether. Yet they can’t get a bank collaboration and can’t manage to get an audit. It smells fishy.
- ebbv 9y ago
  No because that would involve people buying Tether. Not Tether being printed.
- notahacker 9y ago
  If it's newly created Tether, the theory requires them to decide they don't want to hold as much cryptocurrency, then successfully convert large holdings of cryptocurrency to real USD in their own bank account, then wire that USD to Tether's Taiwanese bank account so that they could buy USDT, an asset whose sole virtue is it being slightly easier to buy cryptocurrency with (on exchanges that aren't good at or able to handle dollars). Which doesn't make sense period, never mind over the timescales discussed.
kylell 9y ago
I think 90% is true, otherwise why won't they won't agree to get audited, also investors, can you call yourself an "investors" if you give $100 and they give you 100 of something promising you they will keep your $100, while not showing any proof of it.
paganel 9y ago
> In recent months, however, many investors have been raising alarm bells about Tether. Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down. The Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and other tokens, helping push their prices back up, according to multiple analyses of data from Bitfinex. Surely this is illegal? (if confirmed true, of course)
- inputcoffee 9y ago
  That is an interesting question. Digital "currency" is unregulated so the question is which law is violated. If, in purchasing a tether, there is some underlying contract that says the tether is backed by a dollar, then you might claim a violation of the contract. You may have to look at the fine print. Who was the counter party? What were the terms? Who is on the hook for it? Is it an entity that is outside the US? However, if there isn't such a contract and someone makes the claim, you might claim there was an implied contract. This is harder. Not being a lawyer, I won't even venture to guess how this would play out. In the absence of those two, I don't know if you can claim there was a violation of the law. Edit: There is one more law you can violate, and this is the obvious one: Fraud! In the US it is fraud if: - somebody misrepresents a material fact in order to obtain action or forbearance by another person, - the other person relies upon the misrepresentation, and - the other person suffers injury as a result of the act or forbearance taken in reliance upon the misrepresentation. So now the question is where is the injury? Especially if they are able to sell of Bitcoin and actually back up the Tether? Now it might be a question of: the buyer took a risk they had not intended on taking.
  - LargeWu 9y ago
    If they say Tether is backed 1:1 by USD, and it's not (allegedly by a wide margin), then it's clearly fraud.
    - inputcoffee 9y ago
      Yes, I forgot about fraud. That's the obvious one.
beeskneecaps 9y ago
Better get in on GRLC now!
- swarnie_ 9y ago
  Is GRLC a joke/meme that just got out of hand?
  - foepys 9y ago
    Just like Dogecoin. First it was a joke, then it got serious. But wrt Garlicoin, I think the creators know exactly what they are doing and use the gullible masses to make money by exploiting "memes".
throwaway30yo 9y ago
Could be the best buying opportunity of the year. As someone involved in bitcoin since 2012, these cycles are pretty standard. It went from $1000 to around $250 iirc at one point and recovered. No reason it cant go from $20000 to $5000 and recover. It may take many years, but its not as if all crypto will die overnight. I see crypto being big in the more distant future, 15-20 years away when many of the problems are sorted out. Everyone is focused on the extreme short term.
- adrianN 9y ago
  Even if you assume that crypto will be successful in 20 years, there is no reason to believe that Bitcoin will still be around.
  - JonnyNova 9y ago
    Very much this. Bitcoin is going to have problems scaling both on and off chain. Newer technology can re-examining of proven methodologies will probably yield a better way forward.
- api 9y ago
  Bitcoin could crash and never recover, but the tech and its descendants could indeed find uses in the future. "Cryptocurrency is a massive bubble" and "cryptocurrency and the tech behind it is a major innovation in distributed systems and finance" can both be true.
- sunseb 9y ago
  Yeah crypto will be big in the future, but Bitcoin (and all the current coins actually) : not sure...
- halloij 9y ago
  Bitcoin is more like the million dollar homepage, except the homepage grows by a few pixels each day. > its not as if all crypto will die overnight. I think you'll be surprised.
- jacquesm 9y ago
JumpCrisscross 9y ago
Bitfinex/Tether follow the classic investment fraud story arc. The big frauds don't start with bad intentions. A self-proclaimed genius seeds an operation, gets traction, attracts money, hits a snag, fudges the numbers and keeps doubling down, intending to pay it back, and then (a) collapses, (b) gets caught or (c) rolls the scheme over until (a) or (b). The terminal phase is inevitable given the non-linear difficulty of scaling a fraud and their need to scale to maintain credibility. The set-up: Tether was, to a layman, a decent idea. The build-up: As creation and redemption was demonstrated, Tether attracted buyers. The snag: Tether got hacked [1] and released an IOU to affected customers [2]. Wells Fargo got spooked and froze Tether/Bitfinex [3]. The fudge: Tether has a hole to plug. They also have nowhere to put incoming U.S. dollars. Someone suggests they buy Bitcoin with the incoming dollars. The stupid figure it's a temporary measure until they find a new correspondent bank, the evil smell a scam and the lazy don't think about it. Bitcoin ascends. This move becomes very profitable. (It also increases the size of their balance sheet, which makes finding a new correspondent bank more difficult.) Doubling down: Bitcoin descends. The firm becomes, or comes close to becoming, insolvent. Tethers are issued to bring the balance sheet back into line. The stupid figure they can unwind when Bitcoin recovers; the evil and lazy agree to not think about it. The frequency and magnitude of this "support" keeps growing. The collapse: At each development, the smart and ethical decamp. That leaves everyone on board too incompetent, distracted or lazy to properly address a journalist's investigation [4]. That, in turn, attracts regulatory attention [5]. [1] https://www.theverge.com/2017/11/21/16684296/tether-cryptocurrency-stolen-30-million-hack https://www.theverge.com/2017/11/21/16684296/tether-cryptocu... [2] https://www.coindesk.com/bitfinex-disperses-unique-token-to-compensate-for-60m-theft/ https://www.coindesk.com/bitfinex-disperses-unique-token-to-... [3] https://www.coindesk.com/bitcoin-exchange-bitfinex-sues-wells-fargo-over-bank-transfer-freeze/ https://www.coindesk.com/bitcoin-exchange-bitfinex-sues-well... [4] https://www.bloomberg.com/news/articles/2017-12-05/mystery-shrouds-tether-and-its-links-to-biggest-bitcoin-exchange https://www.bloomberg.com/news/articles/2017-12-05/mystery-s... [5] https://www.bloomberg.com/news/articles/2018-01-30/crypto-exchange-bitfinex-tether-said-to-get-subpoenaed-by-cftc https://www.bloomberg.com/news/articles/2018-01-30/crypto-ex...
- Vraxx 9y ago
  Hmmm.. I think your first link is to the wrong hack. If everything were as you claim, the hack would need to precede the bank freeze in order for it to be in any way causal. I was originally writing this reply to refute your claim on that basis, but while investigating it I found that there was indeed another hack where bitcoin was stolen from bitfinex rather than Tether being stolen by Tether. Your article 2 cites the bitfinex hack as well. Furthermore, the IOU issued wasn't Tether, but rather some other token "worth" $1 called BFX. The rest of the story seems plausible, but it seems you have a mixup in your buildup and snag phases of the hypothesis (I'm not saying that it is outright wrong because of this though)
simias 9y ago
The somewhat ironic part is that one of the core concepts of Bitcoin is that you can't counterfeit it. You can mathematically prove how many coins you own, if somebody sends you 3 BTC then once it's been validated on the blockchain you know that the money is now yours, they can't have lied, it can't bounce like a cheque Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfeited, their actual value is relatively easy to influence because it's mostly unregulated. I mean think about it, if Bitfinex is lying about their dollar reserves this might be one of the simplest and most efficient scams of all time. They're literally making up money as they see fit. Hundreds of millions at a time. Just like that. Now of course maybe they're not actually crooks and they do have the money, it's kind of a schrodinger's cat scenario at the moment. Still, the fact that nobody manages to know for sure the truth of the matter shows that they could be doing it and we'd be none the wiser. People are buying and selling for million of dollars of these things, not knowing if they're trading digital dollar bills or monopoly money.
- bby 9y ago
  The probability of them being a crook is sufficiently high enough to warrant panic by the masses (or scaling down). Why would you invest in crypto when scams like this are possible? Mass exodus from the space may occur in the short/medium term. Advanced regulation in the space may permanently dissuade participants.
- FiveSquared 9y ago
  Preach brotha! Preach!
  - dang 9y ago
    You've been posting a bunch of unsubstantive comments. We actually ban accounts that do that because HN is trying for a higher quality level. Trying and failing, often, but we need to keep trying. So could you please not do that in comment threads here? https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newswelcome.html https://news.ycombinator.com/newswelcome.html
- 9y ago
sunseb 9y ago
The story of Bitcoin in a fun video: https://www.youtube.com/watch?v=KTf5j9LDObk https://www.youtube.com/watch?v=KTf5j9LDObk
mattbeckman 9y ago
My hope is that there isn't a complete crash before some of the most unique and important ideas being built on blockchain technology have a chance to come to light. It might need a 2014 reset before it happens, but there are plenty of ideas not yet able to be executed because the crypto community at large are waiting for the technology to catch up. I have a business plan in the works on a nonprofit that would benefit the world as a whole. I don't want investors or an ICO or whatever. I just want crypto to still be exciting by the time I build it, otherwise it'll be that much harder to onboard anyone who would benefit from such a system.
wastedhours 9y ago
If it becomes unprofitable to continue mining, and miners physically stop (selling gear etc...), will the change in Target just re-inflate the bubble again further down? Or have I misunderstood in difficulty/incentive structure? From here it looks like the flood of market actors with an unsustainable price have created a crash, the flakes will get out of the game (pushing the price south), and then it might begin to get more profitable again? Not sure what the outcome will be, but looks like a grass-burning point for those with skin in the game.
- roywiggins 9y ago
  If nobody wants to buy Bitcoin, it doesn't really matter what the difficulty is to the price.
  - wastedhours 9y ago
    But don't the same market forces come back into play? Shortened transaction times, "brand name" for speculative buyers, more attractive price. It'll burn a lot of people, but another one born every minute...
    - Zamicol 9y ago
      Yes. A price drop will result in hardware going offline, meaning the difficulty should drop.
jnordwick 9y ago
Here a possible explanation on what Tether is doing and the economics behind why there is such an incentive behind pump and dump BTC. I think they are running a currency board pegging USDT to USD, and then using the BTC gained to push up BTC even further. Part of the idea of a currency is a stable value, that means supply and demand need to be matched. With a fixed quantity such as all the common cryptos, when demand rises (either organic or from manipulation) there is no way to keep the value stable so the value of the currency will be constantly whipped around as demand is constantly changing. This is the general problem with floating currencies. They are difficult to keep stable. Fiat tries to solve that by putting someone in change of money creation (in the Feds case until recently this was mostly in the form of manipulating the overnight rate banks charge each other). Another way to do it is through pegging the price to something believed to have a stable value itself. Various precious metals have been used in the past, but commodity baskets are also thoght of (look at the chart of the CRB index vs gold and they are almost the same). Baskets of floating currencies have also been used but they arent nearly as stable and still rely on central bank decisions. A currency peggged to an underlying doesnt mean you need to hold all the underlying. You just need to intervene in the market when your target price rises or falls too much. This could be what Bitfixex/Tether is doing. They aren't holding dollar reserves, but they are keeping the exchange rate constant with other traders by stepping in when necessary. That's why they don't have a conversion window. If you had a crypto that was stable, pumping might not be nearly as effective since the currency you are pumping isn't going to increase in value, just more will be created to cover the demand. So now we have a situation where BTC is easily manipulated up on artificial demand pressure, but that will also cause a rise in BTC/USDT sales as there are now just more trades. This pulls the value and price of USDT up, but to keep it at 1 USD, more USDT need to be printed and sold. And this is exactly what we see. So they can sell either USDT for USD directly, or they can sell USDT/BTC. But now they have a bunch of BTC, so they can go sell that too pushing BTC even higher. The party stops when demand for USDT starts falling and the price needs to be defended. I think if we ever get a good crypto currency it will be pegged to a commodity basket or gold or something. I'm working on the idea of how to control supply algorithmically and fairly though a combination of systems and bonds.
- FiveSquared 9y ago
wslh 9y ago
The regulators were extremely slow in this case. Bitfinex is/was a major exchange and not performing a proof-of-reserves is not a red flag but a motive for immediate action.
- deleted 9y ago
  [deleted]
jorblumesea 9y ago
Crypto is learning all the hard lessons that banking has learned over the past 100 years. Ironic that a currency founded on the idea of transparency (the blockchain) is so fundamentally opaque at almost every other level.
kelvin0 9y ago
My question is: what is the value of a Bitcoin? It looks to me like a great way to transfer currency and facilitate exchange of goods, but not much more than that. So 'investing' in this digital currency itself does not make much sense to me, because intrinsically it has no 'real' value. I might be misinformed about the subject, in which case I would gladly like to be shown my error. For example, why don't I invest in Yuan or the Pound instead of Bitcoins? From my perspective the only thing driving up the price of Bitcoin is the demand for it by 'crypto-investors', which is completely artificial and they are not chasing any tangible value. Can anyone enlighten me?
- Leszek 9y ago
  What is the value of anything, really? The value of a metal brick, or a shiny stone, far exceeds any practical utility of the physical object itself. Even the value of a "real" currency is based, in broad strokes, on what you can exchange it for.
  - kelvin0 9y ago
    Water is immensely valuable. It has an intrinsic value to human life. Land to grow crops for food is also valuable for the same reason. Construction materials to build shelter/homes are definitely valuable. Some metals and minerals are important to our technology driven society. You need these raw materials to build your technological infrastructure. Bitcoin? I don't see it ...
    - ricardobeat 9y ago
      I don’t see the internet either. The value of bitcoin is its decentralisation. As long as there are people running nodes, the network is alive, regardless of what any government or entity in the planet thinks. Being global also means it’s used by people who do not have a stable money store (countries with unstable currencies), and for transfers between borders that would otherwise be impossible.
  - deleted 9y ago
    [deleted]
nopinsight 9y ago
I don’t think the price dynamics looks great for Bitcoin, even if one wishes to think of it as a long-term investment. Since a lot of, perhaps most, people buy it for speculation but the price has gone sideways for a number of reasons. If it stays sideways for a while and then it drops, some speculators will start to panic which might cause further drops. Also, some people who made handsome profits from early speculation have got out, and new money who might have less faith came in. These people are likely more sensitive to bad news. Maintaining the prices or increasing it a bit might be possible but to get it to rise stratospherically like last year is unlikely because of the amount of money required to balance with those who cash out for other coins and other investments. This is unless there is a huge change in regulatory landscape and popular mindset—-that is, Bitcoin becomes widely thought of as a good long-term store of value—which are unlikely. The analysis above is mostly about Bitcoin, although it will likely have side effects on most other cryptocurrencies as well. That is, the upside for a well diversified crypto portfolio is limited now (Feb 2018), almost certainly much less upside in percentage terms than in 2017. Although one could beat the market by picking the right horses, as in other markets. ... and the downside could be quite an abyss.
- bby 9y ago
  Who is to say the market wasn't propped up by Bitfinex/Tether bad actors last year?
JulianMorrison 9y ago
Bitcoin is a system where you can have reasonably strong trust in the ledger and absolutely no trust in any other part of the market at all. It's a demonstration in practise that pure unregulated trade in the digital equivalent of used unmarked bills leads to a broken market where literally everything is a scam, crime pays, and meaningful business cannot be transacted. Its value is being propped up beyond this technical tinkering, by poorly informed optimism, ideological dreamers and a lot of people hoping to make hay while the sun shines, sometimes by knifing you first. It is going to bust all the way down to $0 and probably get internationally banned as an attractive nuisance.
- jebeng 9y ago
  In what way is a transparent blockchain where every transaction is recorded and fully public analogous to unmarked bills?
  - JulianMorrison 9y ago
    Way to pick out a non-central point. But the answer is that cash and bitcoins are intrinsically self-authenticating but not owner-identified and do not rely upon a credit card / bank-account facility which can be shut down by authorities if it is being misused.
    - mrhappyunhappy 9y ago
      Here's a thought: if you bought Bitcoin with Fiat it is 100% identifiable to you. Please learn about blockchains before you talk.
      - leereeves 9y ago
        Your real identity isn't in the blockchain. You can only be identified if the identity of whoever you bought from is known, they know your identity, and they can be induced to share it, or if the transaction can be identified and you can be tracked from the transaction.
- 9y ago
marcandre 9y ago
I'm wondering how many people are shorting USDT on Kraken? The potential downside is having to pay interest. The upside is 100% win. With enough short position, Tether will run out of funds and the price will have to crash. Disclosure: I'm short USDT.
- bhouston 9y ago
  I have a theory that some of the market crash in December was because of selling Bitcoin (originally gotten from USDT) for USD in order to fill their reserves of backing USD. I think that USDT could be moderately sophisticated in that they could have fulfilled their coffers via market manipulation. If they were smart and brazen, I think they could have possibly pulled it off. One would have to study the market inflows and outflows. This type of pump and dump would show up in their books, so a thorough audit would find it. But it may mean that they have a lot of USD now. Thus I am unsure if USDT will technically crash.
  - marcandre 9y ago
    Interesting theory. If they indeed hold the USD, they could still run away with it. The 2.3B$ worth of Tether represents more than 75 years worth of gross profit of Bitfinex (see https://www.reddit.com/r/BitcoinMarkets/comments/68wlre/some_numbers_about_bitfinex/ https://www.reddit.com/r/BitcoinMarkets/comments/68wlre/some... ).
- ifdefdebug 9y ago
  Just tried to short sell USDT on Kraken. Response: Canceled - Insufficient Margin. This means "that the exchange's margin pool for that currency is currently used up" [1]. So this might give you an idea to start with... [1] https://support.kraken.com/hc/en-us/articles/217696017-Insufficient-Margin https://support.kraken.com/hc/en-us/articles/217696017-Insuf...
  - jandrese 9y ago
    Or basically: No remaining suckers available for this transaction.
unabridged 9y ago
How hard is it to audit tether? Can't they just point to a bank account or US treasuries that add up to the total they owe?
seppel 9y ago
I asked this before and I still don't understand it: Who is holding the Tethers? I can see that "someone" wants to artificially increase the BTC price by buying BTC using USDT. But for this scheme to work, someone needs to sell BTC for USDT (and hold the USDT!). Who would do that and why? We are talking of about 2 billion USDT that have to be somewhere.

291 points by ganlad 9y ago

Genuine question: whether or not Tether is fraudulent, how much can a currency with a market cap of ~$2B affect the greater ecosystem, or even just Bitcoin with a purported market cap of ~$150B? Obviously a scandal of this magnitude in a major cryptocurrency is bad for the whole environment for a host of reasons...but if Tether is really just a ~$2B fabricated cash injection, how much could it really prop up BTC?

coolspot 9y ago
Tether does not have $2b market cap. They claim having $2b usd funds inflow. If I sell one of my hair for $1, you could say my head has $50,000 market cap, but no one actually paid/received these $50,000.
tim333 9y ago
It's hard to say because so much depends on investor psychology. But if they act to prop things up on the dips it looks like it just goes up and then other dumb speculators like me pile in. Some academics studied manipulation at MtGox and "the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months." Not sure how much actual cash was involved there but "bitcoins (BTC) valued at $188 million were fraudulently acquired."

superkuh 9y ago

First they ignore you, then they laugh at you, then they fight you, then you win.

fancyfacebook 9y ago
What a meaningless platitude, I'm sure it's the sort of thing was repeated in the 1930s a lot. This is the reason organizations exist to regulate things around trade, otherwise you can get shady exchanges quoting bogus prices with zero accountability. Lots of people are going to get scammed before this gets better.
- lloyd-christmas 9y ago
  > This is the reason organizations exist to regulate things around trade It's worth noting that every industry suffers from fraud. In the insurance industry, it's estimated that 10% of expenditure is fraud-related. 5% of americans were victims of identity theft last year. Loads of people/businesses have been and will be scammed in well regulated industries, while having no indication that it will ever decrease. I don't really know enough about bitcoin to comment on how prevalent it is (I sincerely doubt most people do), but I do know it isn't special in that regard.
ceejayoz 9y ago
I'm sure this quote gets spread around a lot at the lower floors of ponzi/MLM schemes.
joosters 9y ago
First they ignore you, then they laugh at you, then they keep laughing, then they start choking on their laughter, and then they go and catch their breath. Then they start laughing even more.
kahnpro 9y ago
Or, in reality: First they ignore you, then they laugh at you, then they fight you, then you lose.
Jach 9y ago
As Carl Sagan put it, "The fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright brothers. But they also laughed at Bozo the Clown."
- dragonwriter 9y ago
  Columbus really belongs with Bozo and not Fulton and Wright. His plan was ridiculed because it was ridiculous for reasons which were had been clear since before the rise, much less fall, of Rome, could not reasonably have worked, and did not work. He happened to stumble into something unrelated in the course of his crazy plan (which is the only reason anyone on the expedition survived), which lots of people who weren't him recognized as something new and valuable independently of the goal Columbus had both insanely set out and, even more insanely, insisted after the fact and to his death that he had succeeded in.
  - JoeAltmaier 9y ago
    Ok but it's possible he had a Chinese map from an earlier expedition, and while he misinterpreted where he was going, he was pretty sure that he was going somewhere.

berbec 9y ago

In other news, water determined to be wet.

JohnJamesRambo 9y ago

If you haven't already, I recommend getting out of Bitcoin and into Ethereum immediately. There is a transfer of dominance rapidly happening. Market Cap Bitcoin $158,149,902,894 Ethereum $106,632,442,880

ceejayoz 9y ago
What mechanisms in Ethereum protect it from this sort of market manipulation?
- buttcoinslol 9y ago
  None whatsoever.
duiker101 9y ago
what is in your opinion the reason why bitcoin is failing? For the way I see it, it's because it lacks real world applications and value. I know Ethereum has it's own contracts etc... but I don't see how it really solves the base problem. Who's going to use this currency and why? Are the contracts enough to keep it afloat forever? From what i've heard they are not without issues.
- scardine 9y ago
  I don't think Ethereum contracts are much better compared to what we already have - make a mistake in a contract you will end up arguing with humans in a conference room anyway.
- yellow_postit 9y ago
  Neither solve real world problems for folks in developed countries. In developing countries maybe there's a utility play but that's been getting undercut by the crazy fees and speculation.
scardine 9y ago
Does Ethereum has any immunity from pump-and-dump and other market manipulation schemes compared to Bitcoin or your comment has nothing to do with the subject?

1123581321 9y ago

What’s the difference between legitimate technical trading and propping up a market? Is it just volume?

inputcoffee 9y ago
My understanding from the article is that the problem isn't that the price was propped but that they created fake tether to do so. By fake, I don't mean the tether wasn't real, but that it was not tied to dollars. So they claimed tether was tied to dollars but they produced a lot of it to buy up Bitcoin and the fear is that they didn't wait for dollars to come in but just made the tether out of... well, ether ... and used that to prop up bitcoin which they converted into actual wealth.
- mertd 9y ago
  That's the allegation, or people legitimately bought tether. It's not clear which is true. Hence the investigation.
Nursie 9y ago
In the case of tether it appears to be "Issuing yourself a load of fake money to do it with"
maxerickson 9y ago
Fraud. Market participants are relying on the exchange to give them correct information about trades and to only issue orders that are backed by real assets. If the exchange puts in orders that aren't backed by assets, they eventually will not be able to close out all accounts (because there aren't real assets to do that with).
- vim_wannabe 9y ago
  What if an internet service provider sells Internet subscriptions that are not backed by real bandwidth. If enough customers want to stream video the ISP will not be able to provide enough bandwidth for them. Would you call that fraud?

jandrese 9y ago

“It’s a signal to the market of what those who have scrutinized the situation already believe: There is a problem here,” said Jill Carlson, a former trader at Goldman Sachs who now consults with a variety of virtual currency companies. “The dissolution of a relationship between an auditor and a company is very rarely a good sign that the company is behaving in accordance with market best practices.” When you're getting dunked on by Goldman Sachs for being unethical, you know you have a problem.

serg_chernata 9y ago
I agree with your sentiment but come on. It's not like there are instances where GS would say "this seems slightly unethical, but so are we". You're implying they ever admit wrongdoing.
- Waterluvian 9y ago
  Respectfully, it's a comment in jest not deserving of such logical scrutiny.
  - JustSomeNobody 9y ago
    Respectfully, HN simply does not do jest very well. Edit: See what I mean?
    - nothrabannosir 9y ago
      No, you’re getting downvoted because your comment adds nothing to the conversation. You’re saying the same as your parent comment, and that one is not being downvoted, so clearly it’s not the message that people disagree with.
ForRealsies 9y ago
That or they're jealous.
- 9y ago

thisisit 9y ago

Discussed earlier: https://news.ycombinator.com/item?id=16279300 https://news.ycombinator.com/item?id=16279300

Nursie 9y ago

It looks, on the surface, to be a sort of massive fraud on the issuance of tether, which also propped up the price of Bitcoin and a lot of other coins, as a couple of billion in fake liquidity was pumped into the market. It's too early to tell what the exact story is, but it's certainly the case that the tether company's promises that they get frequent, professional audits are an out-and-out lie. I, personally, don't believe they have billions of dollars in the bank to back up their tokens, either. Various authorities are starting to take interest, as are more mainstream media sources (like the NY Times). I think if Tether and Bitfinex are above board, now is the time to release a statement and some pretty compelling evidence.

kadenshep 9y ago

Bitcoin: Revenge of the Beanie Babies

rebuilder 9y ago

Watch for a premium on the BTCUSD rate on Bitfinex. That'll be the market believing there's a significant risk of insolvency. I'm surprised there's no premium yet.

amluto 9y ago
If Bitfinex or its sister company is engaging in outright fraud, I see no reason to believe its market data.
- rebuilder 9y ago
  How would they fake the price while allowing trades and BTC withdrawals?
  - cma 9y ago
    https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
    - rebuilder 9y ago
      I remember mt. gox very well. They started having withdrawal delays, and then halted withdrawals of BTC as well as USD altogether, precisely because keeping withdrawals open would have been so expensive as to be impossible. I'm saying Bitfinex has no magic way around that, either.
      - cma 9y ago
        That was the end-game. They didn't have enough reserves to cover liabilities long before there were outward signs.
        rebuilder 9y ago
        That's true, but I don't recall any indication of them faking ticker data.

dlandis 9y ago

I'm curious how big the ramifications for Bitcoin will be if the majority of Tether tokens are proven to be fraudulent and Binfinex collapses (which doesn't seem that unlikely at this point).

Cthulhu_ 9y ago
Another MtGox in the making? They artifically bumped up the price of BTC too for a while.
banderman 9y ago
It's not just Bitcoin, it's every altcoin listed on that exchange, and the other two big Tether/USD exchanges (Poloniex and Bittrex).
JonnyNova 9y ago
A return to the mean. The same will go for alt-coins since because faith in cryptos is founded on BTC and most alt-coins are priced in BTC.
Mahn 9y ago
You just have to look at what happened after the MtGox collapse in 2014: Bitcoin goes back to sleep for 2 or 3 years, afterwards everyone forgets it ever happened and another rally takes place where cryptocurrencies "go mainstream". Lather, rinse and repeat until the amount of people willing to speculate on it is completely exhausted.
- hbosch 9y ago
  I don't personally think it will be that cyclic. There is so much more invested this time around, so many more people standing to lose so much more money, such a brighter light on the cryptocurrency world now. A devastating loss (e.g. Bitfinex shuts down and freezes all transfers, Tether worthless, that type of thing) to the BTC economy would be critical to the entire future of cryptocurrency as we know it, IMO. I don't think Bitcoin has 9 lives.
  - 9y ago

granaldo 9y ago

Is Tether highly exposed only to bitcoin and not ethereum? Bitcoin price seems to be taking a heavier hit than Ether https://www.coingecko.com/en https://www.coingecko.com/en

Nursie 9y ago
If people start to flee the system I wouldn't imagine any of them is safe from panic, runs etc.
cptskippy 9y ago
I was noticing that the other day. I wonder if that's because Ethereum has contract functionality and thus as some intrinsic value to it.
- deleted 9y ago
  [deleted]
- duskwuff 9y ago
  On the other hand, the main application for those contracts is ICOs -- which are themselves primarily a speculative instrument. It's turtles all the way down.
conanbatt 9y ago
This is noticeable and a trend for quite some time. ETH might actually have some inelastic demand by the developers of tokens, so its more resistance to volatility. All crypto is taking a hit right now, but eth is gaining share.
- geerlingguy 9y ago
  Somewhat, but it's falling now (within the past hour). Seems like it's not as divorced from Bitcoin's moves as optimists would like.

paulgb 9y ago

I find it weird that people assume this is intentional market manipulation. If they are in fact fraudulent (I think they are), being able to print money is a business model in itself; you don't need to intentionally manipulate the market (but could end up doing so accidentally)

gt_ 9y ago
I don't think the accusation is particularly that the market manipulation was intentional but that it was nonetheless an effect of the money printing.
notahacker 9y ago
Easier to pump existing BTC holdings with $2bn of imaginary-dollar backed tokens than exchange $2bn in imaginary-dollar backed tokens directly for dollars and find a bank that'll let you cash them out... And if your plan is to ultimately do the latter, you're going to have to cash out slowly and indirectly anyway, in which case why not pump the price of other assets you stand to benefit from in the mean time.
- paulgb 9y ago
  Why pump assets if you can't cash them out?
  - notahacker 9y ago
    (1) There's more demand for swapping BTC for cash or occasionally even goods/services than USDT period, and even more so when the price of BTC goes up. Offloading $2bn USDT is hard work because it's not a speculator-friendly asset (2) They already had BTC and a belief in its future. Making it worth more, easier to exchange for cash and having more of it looks like a win all round if you don't mind committing fraud. (3) Leverage, provided the BTC price holds up for long enough to cash out. Even if you're printing fake money, you can only print as much of it as people believe you actually have. (4) BTC price rise income looks like it might be a legitimate income stream when auditors ask about it. Income from selling stuff that's supposed to be backed by a dollar for a dollar is obviously the proceeds of fraud. (5) BTC holdings can likely continue to be bought and sold even if nobody wants USDT, bank accounts connected to Bitfinex and Tether end up frozen and a rapid change of address and identity is required Money laundering is often very convoluted and usually costs money, but it's big business.

zerostar07 9y ago

why don't the other exchanges just drop their USDT pairs ?

foepys 9y ago
A lot of exchanges are using Tether to avoid coming in contact with USD. Most, if not all, of them have no banking access, so Tether is the only way they can pretend to trade in USD and still be safe from US banking regulations.
pjc50 9y ago
They're generally (but not all) exchanges that have been banned from having actual USD banking facilities and need USDT to provide something for their customers to trade against.

misja111 9y ago

"Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down." Doesn't this simply mean that when people were selling their virtual currencies, they chose to stall their money in Tether?

cm2187 9y ago
Perhaps I don't understand it correctly but I assumed that wouldn't result in Tether being created. A holder of Tether would exchange his Tether for BTC. Only a transaction of Tether for cash would result in Tether being created.
- LargeWu 9y ago
  One of the claims here is that Bitfinex was somehow creating new Tether without a USD deposit. In other words, out of thin air. This Tether would then be exchanged for Bitcoin or other crypto, causing an artificial increase in demand for those coins, and causing their price to rise.
tomtimtall 9y ago
If you buy 100 tether for 100$ and I “sell my bitcoin for tether” by trading to you, then no new tether is created. Tether should only be issued when people buy them using new $. Their claim currently is that they have $2bil in an account backing the tether. Yet they can’t get a bank collaboration and can’t manage to get an audit. It smells fishy.
ebbv 9y ago
No because that would involve people buying Tether. Not Tether being printed.
notahacker 9y ago
If it's newly created Tether, the theory requires them to decide they don't want to hold as much cryptocurrency, then successfully convert large holdings of cryptocurrency to real USD in their own bank account, then wire that USD to Tether's Taiwanese bank account so that they could buy USDT, an asset whose sole virtue is it being slightly easier to buy cryptocurrency with (on exchanges that aren't good at or able to handle dollars). Which doesn't make sense period, never mind over the timescales discussed.

kylell 9y ago

I think 90% is true, otherwise why won't they won't agree to get audited, also investors, can you call yourself an "investors" if you give $100 and they give you 100 of something promising you they will keep your $100, while not showing any proof of it.

paganel 9y ago

> In recent months, however, many investors have been raising alarm bells about Tether. Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down. The Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and other tokens, helping push their prices back up, according to multiple analyses of data from Bitfinex. Surely this is illegal? (if confirmed true, of course)

inputcoffee 9y ago
That is an interesting question. Digital "currency" is unregulated so the question is which law is violated. If, in purchasing a tether, there is some underlying contract that says the tether is backed by a dollar, then you might claim a violation of the contract. You may have to look at the fine print. Who was the counter party? What were the terms? Who is on the hook for it? Is it an entity that is outside the US? However, if there isn't such a contract and someone makes the claim, you might claim there was an implied contract. This is harder. Not being a lawyer, I won't even venture to guess how this would play out. In the absence of those two, I don't know if you can claim there was a violation of the law. Edit: There is one more law you can violate, and this is the obvious one: Fraud! In the US it is fraud if: - somebody misrepresents a material fact in order to obtain action or forbearance by another person, - the other person relies upon the misrepresentation, and - the other person suffers injury as a result of the act or forbearance taken in reliance upon the misrepresentation. So now the question is where is the injury? Especially if they are able to sell of Bitcoin and actually back up the Tether? Now it might be a question of: the buyer took a risk they had not intended on taking.
- LargeWu 9y ago
  If they say Tether is backed 1:1 by USD, and it's not (allegedly by a wide margin), then it's clearly fraud.
  - inputcoffee 9y ago
    Yes, I forgot about fraud. That's the obvious one.

beeskneecaps 9y ago

Better get in on GRLC now!

swarnie_ 9y ago
Is GRLC a joke/meme that just got out of hand?
- foepys 9y ago
  Just like Dogecoin. First it was a joke, then it got serious. But wrt Garlicoin, I think the creators know exactly what they are doing and use the gullible masses to make money by exploiting "memes".

throwaway30yo 9y ago

Could be the best buying opportunity of the year. As someone involved in bitcoin since 2012, these cycles are pretty standard. It went from $1000 to around $250 iirc at one point and recovered. No reason it cant go from $20000 to $5000 and recover. It may take many years, but its not as if all crypto will die overnight. I see crypto being big in the more distant future, 15-20 years away when many of the problems are sorted out. Everyone is focused on the extreme short term.

adrianN 9y ago
Even if you assume that crypto will be successful in 20 years, there is no reason to believe that Bitcoin will still be around.
- JonnyNova 9y ago
  Very much this. Bitcoin is going to have problems scaling both on and off chain. Newer technology can re-examining of proven methodologies will probably yield a better way forward.
api 9y ago
Bitcoin could crash and never recover, but the tech and its descendants could indeed find uses in the future. "Cryptocurrency is a massive bubble" and "cryptocurrency and the tech behind it is a major innovation in distributed systems and finance" can both be true.
sunseb 9y ago
Yeah crypto will be big in the future, but Bitcoin (and all the current coins actually) : not sure...
halloij 9y ago
Bitcoin is more like the million dollar homepage, except the homepage grows by a few pixels each day. > its not as if all crypto will die overnight. I think you'll be surprised.
jacquesm 9y ago

JumpCrisscross 9y ago

Bitfinex/Tether follow the classic investment fraud story arc. The big frauds don't start with bad intentions. A self-proclaimed genius seeds an operation, gets traction, attracts money, hits a snag, fudges the numbers and keeps doubling down, intending to pay it back, and then (a) collapses, (b) gets caught or (c) rolls the scheme over until (a) or (b). The terminal phase is inevitable given the non-linear difficulty of scaling a fraud and their need to scale to maintain credibility. The set-up: Tether was, to a layman, a decent idea. The build-up: As creation and redemption was demonstrated, Tether attracted buyers. The snag: Tether got hacked [1] and released an IOU to affected customers [2]. Wells Fargo got spooked and froze Tether/Bitfinex [3]. The fudge: Tether has a hole to plug. They also have nowhere to put incoming U.S. dollars. Someone suggests they buy Bitcoin with the incoming dollars. The stupid figure it's a temporary measure until they find a new correspondent bank, the evil smell a scam and the lazy don't think about it. Bitcoin ascends. This move becomes very profitable. (It also increases the size of their balance sheet, which makes finding a new correspondent bank more difficult.) Doubling down: Bitcoin descends. The firm becomes, or comes close to becoming, insolvent. Tethers are issued to bring the balance sheet back into line. The stupid figure they can unwind when Bitcoin recovers; the evil and lazy agree to not think about it. The frequency and magnitude of this "support" keeps growing. The collapse: At each development, the smart and ethical decamp. That leaves everyone on board too incompetent, distracted or lazy to properly address a journalist's investigation [4]. That, in turn, attracts regulatory attention [5]. [1] https://www.theverge.com/2017/11/21/16684296/tether-cryptocurrency-stolen-30-million-hack https://www.theverge.com/2017/11/21/16684296/tether-cryptocu... [2] https://www.coindesk.com/bitfinex-disperses-unique-token-to-compensate-for-60m-theft/ https://www.coindesk.com/bitfinex-disperses-unique-token-to-... [3] https://www.coindesk.com/bitcoin-exchange-bitfinex-sues-wells-fargo-over-bank-transfer-freeze/ https://www.coindesk.com/bitcoin-exchange-bitfinex-sues-well... [4] https://www.bloomberg.com/news/articles/2017-12-05/mystery-shrouds-tether-and-its-links-to-biggest-bitcoin-exchange https://www.bloomberg.com/news/articles/2017-12-05/mystery-s... [5] https://www.bloomberg.com/news/articles/2018-01-30/crypto-exchange-bitfinex-tether-said-to-get-subpoenaed-by-cftc https://www.bloomberg.com/news/articles/2018-01-30/crypto-ex...

Vraxx 9y ago
Hmmm.. I think your first link is to the wrong hack. If everything were as you claim, the hack would need to precede the bank freeze in order for it to be in any way causal. I was originally writing this reply to refute your claim on that basis, but while investigating it I found that there was indeed another hack where bitcoin was stolen from bitfinex rather than Tether being stolen by Tether. Your article 2 cites the bitfinex hack as well. Furthermore, the IOU issued wasn't Tether, but rather some other token "worth" $1 called BFX. The rest of the story seems plausible, but it seems you have a mixup in your buildup and snag phases of the hypothesis (I'm not saying that it is outright wrong because of this though)

simias 9y ago

The somewhat ironic part is that one of the core concepts of Bitcoin is that you can't counterfeit it. You can mathematically prove how many coins you own, if somebody sends you 3 BTC then once it's been validated on the blockchain you know that the money is now yours, they can't have lied, it can't bounce like a cheque Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfeited, their actual value is relatively easy to influence because it's mostly unregulated. I mean think about it, if Bitfinex is lying about their dollar reserves this might be one of the simplest and most efficient scams of all time. They're literally making up money as they see fit. Hundreds of millions at a time. Just like that. Now of course maybe they're not actually crooks and they do have the money, it's kind of a schrodinger's cat scenario at the moment. Still, the fact that nobody manages to know for sure the truth of the matter shows that they could be doing it and we'd be none the wiser. People are buying and selling for million of dollars of these things, not knowing if they're trading digital dollar bills or monopoly money.

bby 9y ago
The probability of them being a crook is sufficiently high enough to warrant panic by the masses (or scaling down). Why would you invest in crypto when scams like this are possible? Mass exodus from the space may occur in the short/medium term. Advanced regulation in the space may permanently dissuade participants.
FiveSquared 9y ago
Preach brotha! Preach!
- dang 9y ago
  You've been posting a bunch of unsubstantive comments. We actually ban accounts that do that because HN is trying for a higher quality level. Trying and failing, often, but we need to keep trying. So could you please not do that in comment threads here? https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newswelcome.html https://news.ycombinator.com/newswelcome.html
9y ago

sunseb 9y ago

The story of Bitcoin in a fun video: https://www.youtube.com/watch?v=KTf5j9LDObk https://www.youtube.com/watch?v=KTf5j9LDObk

mattbeckman 9y ago

My hope is that there isn't a complete crash before some of the most unique and important ideas being built on blockchain technology have a chance to come to light. It might need a 2014 reset before it happens, but there are plenty of ideas not yet able to be executed because the crypto community at large are waiting for the technology to catch up. I have a business plan in the works on a nonprofit that would benefit the world as a whole. I don't want investors or an ICO or whatever. I just want crypto to still be exciting by the time I build it, otherwise it'll be that much harder to onboard anyone who would benefit from such a system.

wastedhours 9y ago

If it becomes unprofitable to continue mining, and miners physically stop (selling gear etc...), will the change in Target just re-inflate the bubble again further down? Or have I misunderstood in difficulty/incentive structure? From here it looks like the flood of market actors with an unsustainable price have created a crash, the flakes will get out of the game (pushing the price south), and then it might begin to get more profitable again? Not sure what the outcome will be, but looks like a grass-burning point for those with skin in the game.

roywiggins 9y ago
If nobody wants to buy Bitcoin, it doesn't really matter what the difficulty is to the price.
- wastedhours 9y ago
  But don't the same market forces come back into play? Shortened transaction times, "brand name" for speculative buyers, more attractive price. It'll burn a lot of people, but another one born every minute...
  - Zamicol 9y ago
    Yes. A price drop will result in hardware going offline, meaning the difficulty should drop.

jnordwick 9y ago

Here a possible explanation on what Tether is doing and the economics behind why there is such an incentive behind pump and dump BTC. I think they are running a currency board pegging USDT to USD, and then using the BTC gained to push up BTC even further. Part of the idea of a currency is a stable value, that means supply and demand need to be matched. With a fixed quantity such as all the common cryptos, when demand rises (either organic or from manipulation) there is no way to keep the value stable so the value of the currency will be constantly whipped around as demand is constantly changing. This is the general problem with floating currencies. They are difficult to keep stable. Fiat tries to solve that by putting someone in change of money creation (in the Feds case until recently this was mostly in the form of manipulating the overnight rate banks charge each other). Another way to do it is through pegging the price to something believed to have a stable value itself. Various precious metals have been used in the past, but commodity baskets are also thoght of (look at the chart of the CRB index vs gold and they are almost the same). Baskets of floating currencies have also been used but they arent nearly as stable and still rely on central bank decisions. A currency peggged to an underlying doesnt mean you need to hold all the underlying. You just need to intervene in the market when your target price rises or falls too much. This could be what Bitfixex/Tether is doing. They aren't holding dollar reserves, but they are keeping the exchange rate constant with other traders by stepping in when necessary. That's why they don't have a conversion window. If you had a crypto that was stable, pumping might not be nearly as effective since the currency you are pumping isn't going to increase in value, just more will be created to cover the demand. So now we have a situation where BTC is easily manipulated up on artificial demand pressure, but that will also cause a rise in BTC/USDT sales as there are now just more trades. This pulls the value and price of USDT up, but to keep it at 1 USD, more USDT need to be printed and sold. And this is exactly what we see. So they can sell either USDT for USD directly, or they can sell USDT/BTC. But now they have a bunch of BTC, so they can go sell that too pushing BTC even higher. The party stops when demand for USDT starts falling and the price needs to be defended. I think if we ever get a good crypto currency it will be pegged to a commodity basket or gold or something. I'm working on the idea of how to control supply algorithmically and fairly though a combination of systems and bonds.

FiveSquared 9y ago

wslh 9y ago

The regulators were extremely slow in this case. Bitfinex is/was a major exchange and not performing a proof-of-reserves is not a red flag but a motive for immediate action.

deleted 9y ago
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jorblumesea 9y ago

Crypto is learning all the hard lessons that banking has learned over the past 100 years. Ironic that a currency founded on the idea of transparency (the blockchain) is so fundamentally opaque at almost every other level.

kelvin0 9y ago

My question is: what is the value of a Bitcoin? It looks to me like a great way to transfer currency and facilitate exchange of goods, but not much more than that. So 'investing' in this digital currency itself does not make much sense to me, because intrinsically it has no 'real' value. I might be misinformed about the subject, in which case I would gladly like to be shown my error. For example, why don't I invest in Yuan or the Pound instead of Bitcoins? From my perspective the only thing driving up the price of Bitcoin is the demand for it by 'crypto-investors', which is completely artificial and they are not chasing any tangible value. Can anyone enlighten me?

Leszek 9y ago
What is the value of anything, really? The value of a metal brick, or a shiny stone, far exceeds any practical utility of the physical object itself. Even the value of a "real" currency is based, in broad strokes, on what you can exchange it for.
- kelvin0 9y ago
  Water is immensely valuable. It has an intrinsic value to human life. Land to grow crops for food is also valuable for the same reason. Construction materials to build shelter/homes are definitely valuable. Some metals and minerals are important to our technology driven society. You need these raw materials to build your technological infrastructure. Bitcoin? I don't see it ...
  - ricardobeat 9y ago
    I don’t see the internet either. The value of bitcoin is its decentralisation. As long as there are people running nodes, the network is alive, regardless of what any government or entity in the planet thinks. Being global also means it’s used by people who do not have a stable money store (countries with unstable currencies), and for transfers between borders that would otherwise be impossible.
- deleted 9y ago
  [deleted]

nopinsight 9y ago

I don’t think the price dynamics looks great for Bitcoin, even if one wishes to think of it as a long-term investment. Since a lot of, perhaps most, people buy it for speculation but the price has gone sideways for a number of reasons. If it stays sideways for a while and then it drops, some speculators will start to panic which might cause further drops. Also, some people who made handsome profits from early speculation have got out, and new money who might have less faith came in. These people are likely more sensitive to bad news. Maintaining the prices or increasing it a bit might be possible but to get it to rise stratospherically like last year is unlikely because of the amount of money required to balance with those who cash out for other coins and other investments. This is unless there is a huge change in regulatory landscape and popular mindset—-that is, Bitcoin becomes widely thought of as a good long-term store of value—which are unlikely. The analysis above is mostly about Bitcoin, although it will likely have side effects on most other cryptocurrencies as well. That is, the upside for a well diversified crypto portfolio is limited now (Feb 2018), almost certainly much less upside in percentage terms than in 2017. Although one could beat the market by picking the right horses, as in other markets. ... and the downside could be quite an abyss.

bby 9y ago
Who is to say the market wasn't propped up by Bitfinex/Tether bad actors last year?

JulianMorrison 9y ago

Bitcoin is a system where you can have reasonably strong trust in the ledger and absolutely no trust in any other part of the market at all. It's a demonstration in practise that pure unregulated trade in the digital equivalent of used unmarked bills leads to a broken market where literally everything is a scam, crime pays, and meaningful business cannot be transacted. Its value is being propped up beyond this technical tinkering, by poorly informed optimism, ideological dreamers and a lot of people hoping to make hay while the sun shines, sometimes by knifing you first. It is going to bust all the way down to $0 and probably get internationally banned as an attractive nuisance.

jebeng 9y ago
In what way is a transparent blockchain where every transaction is recorded and fully public analogous to unmarked bills?
- JulianMorrison 9y ago
  Way to pick out a non-central point. But the answer is that cash and bitcoins are intrinsically self-authenticating but not owner-identified and do not rely upon a credit card / bank-account facility which can be shut down by authorities if it is being misused.
  - mrhappyunhappy 9y ago
    Here's a thought: if you bought Bitcoin with Fiat it is 100% identifiable to you. Please learn about blockchains before you talk.
    - leereeves 9y ago
      Your real identity isn't in the blockchain. You can only be identified if the identity of whoever you bought from is known, they know your identity, and they can be induced to share it, or if the transaction can be identified and you can be tracked from the transaction.
9y ago

marcandre 9y ago

I'm wondering how many people are shorting USDT on Kraken? The potential downside is having to pay interest. The upside is 100% win. With enough short position, Tether will run out of funds and the price will have to crash. Disclosure: I'm short USDT.

bhouston 9y ago
I have a theory that some of the market crash in December was because of selling Bitcoin (originally gotten from USDT) for USD in order to fill their reserves of backing USD. I think that USDT could be moderately sophisticated in that they could have fulfilled their coffers via market manipulation. If they were smart and brazen, I think they could have possibly pulled it off. One would have to study the market inflows and outflows. This type of pump and dump would show up in their books, so a thorough audit would find it. But it may mean that they have a lot of USD now. Thus I am unsure if USDT will technically crash.
- marcandre 9y ago
  Interesting theory. If they indeed hold the USD, they could still run away with it. The 2.3B$ worth of Tether represents more than 75 years worth of gross profit of Bitfinex (see https://www.reddit.com/r/BitcoinMarkets/comments/68wlre/some_numbers_about_bitfinex/ https://www.reddit.com/r/BitcoinMarkets/comments/68wlre/some... ).
ifdefdebug 9y ago
Just tried to short sell USDT on Kraken. Response: Canceled - Insufficient Margin. This means "that the exchange's margin pool for that currency is currently used up" [1]. So this might give you an idea to start with... [1] https://support.kraken.com/hc/en-us/articles/217696017-Insufficient-Margin https://support.kraken.com/hc/en-us/articles/217696017-Insuf...
- jandrese 9y ago
  Or basically: No remaining suckers available for this transaction.

unabridged 9y ago

How hard is it to audit tether? Can't they just point to a bank account or US treasuries that add up to the total they owe?

seppel 9y ago

I asked this before and I still don't understand it: Who is holding the Tethers? I can see that "someone" wants to artificially increase the BTC price by buying BTC using USDT. But for this scheme to work, someone needs to sell BTC for USDT (and hold the USDT!). Who would do that and why? We are talking of about 2 billion USDT that have to be somewhere.