Something is up with Tether
There’s something fishy going on around the Crypto space, and here’s why it’s important to you:
Although crypto-agnostic by nature, there is a genuine optimism at Uncrypt about the space in general. A hope that it can evolve into something that is a global net-positive change in information technology. As much as that hope entails cheering on the best and innovative ideas, or decrypting them for newcomers to the space; there’s a responsibility to call out bad actors, scammers and shed light into dark places. Enter Tether. The cryptocurrency that was launched on Bitfinex and shares the same ownership. Let’s start by calling it like we see it: Bitfinex = Tether.
Tether began trading in 2014 as a cryptocurrency purported to be tied at a 1:1 ratio to the dollar. The sort of “stable coin” the market has been clamoring for: a crypto freeing users from unnecessarily “off-ramping” into fiat if a user wants to sell out of a particular coin and into another one. Previously, the need for Bitcoin as a reserve cryptocurrency toward this purpose seemed expensive and cumbersome. Additionally, the promise of a “stable coin” was to make it easier for merchants to accept crypto for products and services without fear of the extreme volatility that comes along with this early phase.
Sounds great…unless you consider the possibility that Bitfinex creators launched Tether, promising that it’s backed by real US dollars in a bank account at a 1:1 ratio, but actually only backed about a third of it with US dollar reserves. Then, massively overproduced a huge amount of Tether with the sole purpose of mass-buying Bitcoin and other cryptos to inflate their price, eventually selling them off to the exploding numbers of users that are signing up for exchange accounts on Bitfinex, Coinbase, GDAX, Bittrex and others. That would be fraud. And this is not a hypothetical, several watchdogs in the space have weighed in on how sketchy the Tether situation looks, eventually promting investigative articles written by the New York Times and Bloomberg.
The question for the average Bitcoin holder is, “so what? I’ve already heard there are tons of scam coins out there, you’ve found one, but that’s why I don’t trade alts — I stick to BTC, fam.”
Yeah well…at what rate did you buy your BTC? Because it sure seems like the overprinting of tether and opening of margin accounts to create a massive volume spike sure may have had an impact on your basis.
To be clear, Bitfinex has loudly denied the allegations, going so far as to hire a legal team to defend against what they consider to be baseless accusations. You have to admit though, when the homepage of their website claims that “Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD,” but then in the fine print states:
“There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”
Something seems off, no? Furthermore:
You may have read about the Tether hack. That a malicious hacking group broke into their system and made out with $30 Million in Tether tokens. What? Thats a major heist! What happens to the purported $30 million sitting in a bank account somewhere thats tied to this currency? Did the value of non-stolen Tether just get a boost because of the $30 million windfall? Are they going to adjust the ratio? Radio silence from Tether. Meanwhile…
Recently Bitfinex announced that they will no longer open new accounts for users located in the United States. This comes shortly after Wells Fargo bank announced they will no longer function as a correspondent bank for wires incoming to Bitfinex. Bitfinex claims that U.S. regulation makes it too expensive to work with U.S. based clients and banking.
Wait what..
The company, whose ownership released Tether, and is basing the value on being pegged to the U.S. Dollar, is no longer accepting U.S. users? So, who exactly is supposed to be “on ramping” their fiat USD into an exchange to buy Tether? Why have hundreds of millions of Tether been created in December? Is there another country out there whose citizens hold large reserves of U.S. Dollars relative to their home currency? The opinion here is that there’s no way Tether is backed 1:1 by the US Dollar and furthermore, Tether has not provided any information about their banking system, or how they’re even banking.
This doesn’t begin to get into the margin practices going on at Bitfinex with Tether (pumping), wash trading, spoofing, etc. I’ll leave the details to those who have been calling out Bitfinex for months. Specifically Medium user @bitfinexed has been doing an excellent job tracking the Bitfinex/Tether controversy ever since the allegations became loud within the crypto community, and this post is an excellent deep-dive into the complexity that is behind Tether’s “banking” (spoiler alert: it’s shady).
Do not be surprised if we learn the current crypto sell off eventually has something to do with hundreds of millions of Tether being liquidated due to a crackdown on Bitfinex’s practices, and the overprinting of its token. Keep an eye on this taking place as soon as this weekend (Dec 23/24) or over the week heading into the new year. If not, at least we’ll know there’s plenty of Tether around to bring prices back up!
Anyway, this much is clear: If you say that your token is pegged to USD at a 1:1 rate, and every Tether is backed by a US Dollar, but actually it is not, that is fraud. There are plenty of smart developers out there figuring out the solution to a “stable coin,” and eventually a good solution will make its way to the market; even if we have to wait a bit longer for it. Until then, know that Tether is not one of them. Use it as an exchange medium between alts at your own risk.
I would hope that newcomers to the space don’t get totally turned off by this kind of shady behavior, rather feel relieved that scams are getting called out by the community — if that is indeed what this is.
But if it walks like a duck, and quacks like a duck….
