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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?
  - maxerickson 9y ago
    I certainly find the leeway advertisers have infuriating. On the other hand, I would sign up for an ISP knowing full well that their advertised bandwidth is "best effort". I would not sign up with an exchange knowing that their intention to give my money back was "best effort".
ulrikrasmussen 9y ago
This article talks about suspicions that Bitfinex has "printed" large amounts of Tether (a so-called stable token which is supposed to be backed 1-1 to a supply of real USD) to buy up Bitcoin and artificially inflate the price.
- Cthulhu_ 9y ago
  You'd think that if they really did link 1:1 to the dollar, they'd encode some kind of proof in the tokens themselves - like idk, the registration number of banknotes, or a transaction number in a publicly viewable bank account (supported by a real, trusted bank). You need some way to verify the claim that "1 tether == 1 real USD" instead of just trust.
  - petre 9y ago
    Money in a bank account doesn't have serial numbers. In fact, less than 10% of money in circulation is cash.
- usrusr 9y ago
  I could see that getting rationalized as "creating tether for the contemporary USD equivalent of BTC, so it's still all as promised" (even though it is not), but that would really just be throwing tether under the bus to buy bitcoin some more time. And not terribly far from plain out minting unbacked tether.
mattnewton 9y ago
Imagine you and I have a collection of paintings by an artist. We want to sell them for more than the last painting by that artist went for- but the market price is pegged around that price. We agree to buy each other’s paintings at a much larger price- which is fine for us, because we are paying roughly the same as we are getting and we will still have a painting. But now it appears to third parties that the paintings are worth the new price. In the case of tether, I understand the second painting might have been just a a new canvas with “I-owe-you-x-dollars, signed-bitfinex”. And also both parties are essentially the same people here. Disclaimer: I am not a finance guy and I don’t know what I am talking about.
- lazerpants 9y ago
  Interestingly, this is sort of the case for housing as well, and one explanation for why it goes through boom and bust cycles. Edit: just the first paragraph, about moving assets at ever increasing nominal values

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?
- maxerickson 9y ago
  I certainly find the leeway advertisers have infuriating. On the other hand, I would sign up for an ISP knowing full well that their advertised bandwidth is "best effort". I would not sign up with an exchange knowing that their intention to give my money back was "best effort".

ulrikrasmussen 9y ago

This article talks about suspicions that Bitfinex has "printed" large amounts of Tether (a so-called stable token which is supposed to be backed 1-1 to a supply of real USD) to buy up Bitcoin and artificially inflate the price.

Cthulhu_ 9y ago
You'd think that if they really did link 1:1 to the dollar, they'd encode some kind of proof in the tokens themselves - like idk, the registration number of banknotes, or a transaction number in a publicly viewable bank account (supported by a real, trusted bank). You need some way to verify the claim that "1 tether == 1 real USD" instead of just trust.
- petre 9y ago
  Money in a bank account doesn't have serial numbers. In fact, less than 10% of money in circulation is cash.
usrusr 9y ago
I could see that getting rationalized as "creating tether for the contemporary USD equivalent of BTC, so it's still all as promised" (even though it is not), but that would really just be throwing tether under the bus to buy bitcoin some more time. And not terribly far from plain out minting unbacked tether.

mattnewton 9y ago

Imagine you and I have a collection of paintings by an artist. We want to sell them for more than the last painting by that artist went for- but the market price is pegged around that price. We agree to buy each other’s paintings at a much larger price- which is fine for us, because we are paying roughly the same as we are getting and we will still have a painting. But now it appears to third parties that the paintings are worth the new price. In the case of tether, I understand the second painting might have been just a a new canvas with “I-owe-you-x-dollars, signed-bitfinex”. And also both parties are essentially the same people here. Disclaimer: I am not a finance guy and I don’t know what I am talking about.

lazerpants 9y ago
Interestingly, this is sort of the case for housing as well, and one explanation for why it goes through boom and bust cycles. Edit: just the first paragraph, about moving assets at ever increasing nominal values