Tether – it’s going to collapse.
This is going to be a quick little rundown on why I avoid Tether like the plague – Bitfinex as well.
Bitfinex is Tether is Bitfinex is Tether
Let’s be honest, they’re the same group. The same dude heads them up. They bank at the same bank in Puerto Rico… well they did until their bank in Puerto Rico is looking for someone to buy it.
I mean, look at all these people hanging out together:
(btw, image is from this phenomenal write up on the players of Bitfinex and Tether)
You don’t have a right to it.
Unlike GUSD (Gemini Dollar) or TUSD (TrueUSD), you don’t actually have a right to a dollar with Tether. If I have a Bitcoin, I have a Bitcoin. If I have some Cardano, I have Cardano. If I have 250 TUSD, I have 250 US dollars. If I have 1 billion Tethers, I have zero of anything.
If it looks like a spoof, acts like a spoof and moves like a spoof, it’s a spoof.
Spoofing is illegal in the US. It’s putting out big orders on the order book and faking out traders/investors to and then pulling the orders without executing. Bitfinex is so blatantly obvious with the spoofing they either allow or commit, it’s ridiculous. But if you have magical fairy monopoly money like Tether, it’s easy. Spoofing is a tactic to do two things:
- Take advantage of retail traders.
- Duel with other bots/funds/groups/entities.
Ever watched 3,000 ETHUSDT on the Bid on Bitfinex, and then it disappears before it goes to the top of the book, and no sells went through? That’s spoofing.
Naked Shorting and Wash Trading
Bitfinex has a similar method of funding shorts as Poloniex (although US citizens will no longer be able to get margin on Poloniex), it’s peer to peer lending. Basically, I can offer some of my Bitcoin to be used by someone else, to borrow it for their use and I get paid a little interest. I usually have to agree to a time limit, so I can’t just take it away when I want (unlike stocks). Why would I want to lend my Bitcoin out to people?
So they can short.
Let’s say a guy named Nick wants to short Bitcoin, well he could borrow my Bitcoin (for a small fee) and then sell it right away. Let’s say he sold short my Bitcoin for $10k, so now he has $10k in his account. Later, Bitcoin drops to $8k and Nick buys it back. He pays back the Bitcoin (minus a fee) and pockets the difference: 10-8 = $2k profit. But here’s the point of shorting: supply matters. In order to short, you have to borrow. But there’s that keyword: supply. Bitfinex and Tether have all the accounting and creditability of Walter Whites car wash in Breaking Bad.
Naked shorting is simply this: Shorting without actually having borrowed the instrument to short. It’s like printing free money – kind of like how Tether is created. That brings me to wash trading. Wash trading is something that is rife in cryptocurrency exchanges. Wash trading is basically when an exchange (or broker) is trading both sides of the order book to create the illusion of volume and liquidity – and regular traders get hurt by wash trading. Bitfinex is well known for wash trading.
It will end up like the Venezuelan Bolivar
Tether might be another case study of why printing unlimited money doesn’t work out in the end. Now, Tether could, in fact, have a 1:1 US Dollar match in a bank account not in the US. Tether could have very strict internal accounting and record keeping procedures. But let’s be honest – they probably don’t. Tether is created magically. And there’s a magical amount out there. And what happens when there is too much money in the money supply? Well, look at the Venezuelan Bolivar – that’s what happens. The Monopoly money printing machine of Tether, if it is in fact just printing more and more Tethers, will be a victim of economic law.
Holding onto Tether is like skydiving without a parachute.
Full disclosure, I do trade some USDT pairs. But I wouldn’t be caught dead going to bed or walking away from my workstation with Tether. One of the top-20 exchanges, Digifinex, recently dropped Tether for TrueUSD (TUSD). If Binance, OKEx, Huobi or any other to 10 exchange were to drop Tether… the speed of which Tether would vanish would be insane. And where would it go? Into Bitcoin, Ethereum and maybe a stable coin if one is available.