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I think the underlying point of the article is that Tether's price movement is not possibly natural. It should often trade at a premium or discount. The fact
by bitreality 8y ago
I think the underlying point of the article is that Tether's price movement is not possibly natural. It should often trade at a premium or discount. The fact that it trades so tightly with the USD is likely a huge sign of foul play. The obvious answer is that Bitfinex AKA Tether is using wash trading and other tactics to keep Tether trading at $1.00.
There is just not enough liquidity on Tether for it to follow the USD so closely. It has been very difficult to sell Tether for USD to Bitfinex AKA Tether over the past year. For awhile, any normal user had no option to withdraw USD from the platform at all. Their banks were completely shut off from the system.
You can argue there were people who were on the inside with Tether / Bitfinex and were able to sell Tether to them. I think there may have been some individuals / organizations that had the ability to send and receive fiat to Bitfinex, but I highly doubt they do enough volume to fully stabilize Tether 1:1 to the USD.
Look at Bitcoin over the past 1-2 years. It is completely common for it to trade at a 3-5% spread between USD exchanges. Don't get me started on exchanges in other fiat currencies. The spreads have been known to reach 10%+. These spreads can also be arbitraged by anybody, but they still appear. So I strongly doubt that Tether is a special case.
If Tether was trading on a real market, it would certainly not follow the price of USD 1:1.
- aeternus 8y agoThe tight trading with USD may actually be an indication of trust in Tether. It indicates that at least one entity has enough confidence that it is worth exactly $1 that they are willing to buy or sell whenever it fluctuates from that price. If that trust is ever lost, or there are questions about solvency, I'd expect the price of Tether to drop very quickly.
- aplummer 8y agoThere _are_ questions about solvency though, and it hasn’t dropped.
- londons_explore 8y agoIt only takes one person really sure about Tether to have a bot which simply always trades to keep the price at 1 USD. That person might be an insider (they know tether is legit, so any deviation from $1 is a moneymaking opportunity), or it could be an outsider who believes the hype.
- gcbw2 8y agoThe very first paragraph opens comparing this to "defying gravity". Your assumption were true it would make it very easy for others to win at all times. Think about it for a second: there is someone buying and selling, consistently at known price points.
- 781 8y ago> Think about it for a second: there is someone buying and selling, consistently at known price points. This happens all the time in the stock market. Look at the SPY stock which tracks the S&P 500 index. At everypoint in time, anyone can compute exactly what value this stock should have. Any deviation from this consistent and known price point is immediately traded away by arbitrators.
- ForHackernews 8y agoThe difference is index funds actually hold the underlying basket of assets for the index they track. Does Tether actually hold one real United States Dollar for every USDT they issue? If so, they sure haven't convincingly demonstrated it by continually lying about being regularly audited (they have never published a real audit) and refusing to allow anyone to redeem their USDT with Tether to get back a USD.
- trophycase 8y agoHow is it foul play? I arbitrage USD and USDT differences because, historically speaking, a price disparity between the two has never persisted for more than a few days. I may be at risk if tether is actually not backed, but as it stands, there (was) enough money to be made arbitraging that it didn't matter.
- wycs 8y agoBoy is this risky.
- CyberDildonics 8y agoHow do you arbitrage differences if you can't get USD out of it?
- dahdum 8y agoThere is little reason to sell tether at a discount if you have significant amounts. You'd usually be better off just buying ether/bitcoin on Polo/BFX/etc and transferring to GDAX to sell directly for USD. Same goes for buying it. In my experience, it only rises above $1.03 when liquidity is low and the BTC/USDT price diverges from BTC/USD enough to make arbitrage possible.
- vostok 8y ago> Look at Bitcoin over the past 1-2 years. It is completely common for it to trade at a 3-5% spread between USD exchanges. This has not been the case for a long time.
- windows_tips 8y agoValue of Tether is nominally $1, right? So why would you expect it to significantly deviate from that value?
- rjbwork 8y agoBecause even though they say that it's backed by a dollar per tether, there's literally nothing that is keeping it from being traded like a speculative security like BitCoin and other cryptos are.
- windows_tips 8y agoWhy would anyone speculate it to be worth more than a $1 though?
- kyrieeschaton 8y agoLiquidity premium on having your nominal dollar already in crypto for trading; liquidity premium of being able to send stable nominal dollars via crypto mechanisms. Consider, why do some bonds trade at negative interest rates?
- windows_tips 8y agoseems like that premium would be tiny
- _trampeltier 8y agoThe BTC-USD price diffwrwnce between exchanges is usually way below 0.5%. The difference between the big exchanges is even smaller, usually something like 0.0x%