Bitcoin being pumped up a fraudulent Tether?

by philg

Suggested by a friend who ran one of the most successful investment funds in the U.S. for 20+ years…. “The Bit Short: Inside Crypto’s Doomsday Machine”:

The upshot [from looking at some money flows]: over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers.

This is unusual: if demand for Tethers were real, one would expect Tether Ltd. to combine together multiple USD deposits from investors into a single issuing block. Combinations like that shouldn’t add up to perfectly round numbers every time. What’s more, the supposed USD inputs (e.g., 401,431,056 USD in the top left transaction) are giving perfectly round Tether outputs (e.g., 400,000,000 USDT in the same transaction) in every block — regardless of the prevailing exchange rate or anything else.

The last nail in the coffin was when I found out about the lack of visible reserves. If Tether Ltd. really was taking in 1 USD for each Tether it issued, then it should have as many dollars in its bank account as there are issued Tethers. And it turns out we can check if that’s true! Tether Ltd.’s bank is Deltec bank in the Bahamas, and the Bahamas discloses how much foreign currency its domestic banks hold each month.

From January 2020 to September 2020, the amount of all foreign currencies held by all the domestic banks in the Bahamas increases by only $600 million — going from $4.7B to $5.3B. (The table is in Bahamian dollars, but the Bahamian dollar is pegged to the US dollar, so 1 BSD = 1 USD.)
But during the same period, total issued Tethers increased by almost $5.4 billion — going from $4.6B to $10B!
The implication was shocking: there weren’t nearly enough dollars in all the domestic banks in the Bahamas to back the Tethers that were floating around in the crypto market.

So this was crypto’s big short: Tether Ltd. was short of US dollars — to the tune of about $25 billion.

If you’ve been waiting for the right time to move to Puerto Rico (for the 4% tax rate) and sell those $millions in Bitcoin you’ve been keeping on a Post-It note, maybe this is the time!

(Disclaimer: I haven’t done my own research into the crypto market. I’m sure that if I were a Bitcoin billionaire I would have lost the password!)

Since the article mentions the Bahamas and it is almost MLK Day… statue of Dr. Martin Luther King, Jr. in Bimini (he was there in 1960 to write his acceptance speech for the Nobel Peace Prize):

(Photo from a January 2020 Cirrus SR20 trip, when it was legal to return to the U.S. without a COVID-19 test.)

Related:

9 thoughts on “Bitcoin being pumped up a fraudulent Tether?”

  1. I don’t know much about Crypto in terms of personal involvement, because I don’t have much non-Crypto to play with in the first place, but it sounds like a pretty freaky set of conditions and practices are going on there, certainly enough to merit much closer inspection if your real-world butt is invested in slashdot ether bitcoin in any significant way. This fellow’s post is unusually well done in terms of its scary diligence.

    As soon as he started talking about illiquid startup markets I thought: “Wait for it…here comes the Theranos link!” And sure enough, one paragraph later! Lol.

    All I can say is, I hope everybody trading Tethers and Bitcoins get their heads together and figures this out. Because Cheaper than Dirt’s bundle on a Smith & Wesson M&P 9mm Pistol & Bugout Bag is currently out of stock.

    https://www.cheaperthandirt.com/sandw-mandp9-shield-bug-out-bag-bundle-9mm-luger-semi-auto-pistol-3.1-barrel-8-rounds-black/FC-022188885613.html

    • One (partially) countervailing argument pertains to their method for this (ahem) alleged scheme: why would Tether leave that trail of big, round numbers, since anyone with Crypto Anonymous’ level of sophistication could detect it? In addition to their problems with SDNY, one would think they’d go to the next level of obfuscation and not leave that clue. But what do I know? His argument otherwise is pretty compelling.

  2. People in the crypto industry have known about tether for a long time, this is no news and comes across as highly uneducated. Also, there could be many other reasons for high volume of tether into BTC, in that most exchanges only allow you to trade in tether vs USD. If you want a stablecoin and avoid market risk in a strategy, you’d buy and sell in tether.

  3. Also, one other thought: I learned almost everything I currently know about cryptocurrency trading from reading that link, which is to say, almost nothing. But the psychological arc of the article is: “I had a lot of money at risk…and I spotted something strange…so I did a little looking…and started getting scared…and then I got a little panicked…and then I took my money out…and while I was waiting to get my money…I did some more research…and got even more scared…while I was waiting with bated breath for my money…which finally arrived…so I was —===<>===– safe! … and then I decided to let everyone else know… and drop some big names… so I could help save everyone…”

    Take that for what it’s worth. But reading this article as a total crypto amateur, it would have the effect of making one very spooked. Luckily, I can leave it up to the seasoned crypto investors to figure out if there’s anything there.

  4. > I’ve chosen to post this anonymously, but I may decide to identify myself at some point in the future. Below is an SHA-256 hash of my real name, padded with random characters. To claim authorship of this post, I’ll use an account I control to publish the input string that yields this hash.

    Crypto genius but doesn’t know what gpg is?

  5. Contains zero evidence, and assumes they are using a single bank for the entire balance, which would be unheard of from a risk management perspective.

    Despite many alternative stablecoins being supported by the exchanges it remains by the #1 stablecoin by volume. This means the professional hedge funds with teams of analysts that talk to the Tether people directly and have deeper access to information are comfortable.

    These kinds of articles have been coming out about Tether for at least half a decade, and despite all the work they’ve done to try and shut them down (retaining accounting firms for public audits, being more transparent about some of their banking partners, etc) it seems to be a perennial blog post.

    • My assumption is that bitcoin is accepted as currency and can be exchanged for other currency, goods and services. The tweets claim that bitcoin has no value in itself. This is true for most currencies. No currency creates value by itself and someone can make a case that precious metals are used as medium of exchange for other then its intrinsic values reasons, although I think that its intrinsic value remains high. Is there an easy and liquid way to exchange amount of bitcoins for let’s for example say $50,000 or buy real estate or new BMW with it in USA/Europe/Far East/Brazil etc… ?

  7. If Tether is a fraud (and it likely is), that doesn’t mean BTC is inflated by it except that it happens to be the commodity most often purchased with Tether. While you can redeem Tether 1:1 for USD on kraken, I don’t really see the relevance.

Comments are closed.