Tether Conspiracy – Auspicious Calamity or Simple Fruition

Overview:

Nothing like a good ole conspiracy to put doubt in the minds of the herd.  Tether seems to fit the bill perfectly.   In reading several articles it appears to be another never ending gold and silver conspiracy websites use for click bait.

Is it possible that they are printing tether to prop up the price of Bitcoin?  Sure, after all, the previous “audit” had a HUGE disclaimer.

Background:

First a little background and for disclosure I am not an accountant.

In June the law firm of Freeh Sporkin & Sullivan LLP issued a statement that it is confident tether had more money in the bank than tokens.  This is the law firm of Dewey Screwem and Howe, and consists of former federal judges and a former FBI director. 

Of course like any letter, especially one written by lawyers, there were disclaimers.  This appears to have thrown up the red flag, with every conspiracy writer out there.  It is a small report and you can read it here.

Bottom line since it is not an audit by a CPA firm, we certainly have to take it with a grain of salt.  However; there is nothing in the report that throws up a serious red flag.  Sure it was a snapshot of one day of bank holdings, and the banks themselves have challenges of their own, but it still provided more evidence then not, that Tether is backed by dollars.

Like I stated I am not an accountant, and it is possible that this could be the conspiracy that brings down the might crypto empire.  They could have easily have fudged the books.  Since all this is public knowledge the market has taken a position, and it is already priced into the space.  If you or I know about it, it is useless information.

Flow of Money:

Currently there is a 1% premium for trades in tether over pure USD pairs.  This has added fuel to the fire, but is this really an Auspicious Calamity?  The conspiracy theorists would have us thinking that, and again maybe Tether is backed by ghost dollars.

Yet I am going to take another side of the coin, that this may not be the conspiracy people talk about but simply fruition.

Since 2017 the tether conspiracy has lingered, and we have seen previously a premium been placed on USD compared to USDT.  There it is, the house of cards is falling down right? Not so fast my friends!  Another interesting change has been happening in the space, but first let’s look at how Tether is actually used.

Tether Use Case:

When I personally transfer from one exchange to another, to buy some crap coin that only some exotic exchange has, I do not transfer tether. I use Litecoin or Ethereum.  Maybe I am the only one but I doubt it.  I have never used tether as a transfer ever!  Matter a fact I have only used tether as a temporary trade holder.  Nothing more nothing less.

Do merchants take tether?  A quick search on Google results in Top Shelf Toker and that is it.  Wow one merchant.  We can safely assume there is no retail or service market for tether.

How about large money transfers?  Stellar Lumens, Litecoin, Bitcoin Cash among others are much easier and more versatile in not only transferring, but in converting to another currency.  So really not a market there either.  They are also more decentralized as well.

The only reason to hold tether, unless someone can point otherwise, is for trading cryptos.  Nothing more nothing less.  Maybe a few do transfer it to other exchanges but this is not unique to tether.

Fruition – The Rise of Stable Coins:

There appears to be a rise in competitors all issuing their own stable coin backed by the USD.  Not sure how anything is stable pegged to any fiat but none the less it is the flavor of the week.

Tether was the first, but recently Bittrex, Poloniex, Gemini, Paxos and Binance have all issued their own USD backed stable coin now.  Many more are in the works.  Well if you are trading on the exchange why would one not use their USD pegged coin, and what incentive do these exchanges have to promote another?  NONE!

Again what is the use case for tether?  Trading!

As this fruition continues it would seem appropriate that these exchanges would take the tether and change it to bitcoin or another token.  Transfer it back to their exchange.  This could be the reason that there is a premium on Bitfinex.

The more exchanges cashing in tether it is plausible that the premium would go up.  The only exchange that can trade it back into USD is Bitfinex.  If I was an exchange operator, and I was promoting my own stable coin, I would start to get rid of tether.  Especially if I thought an eminent rally was in the future.   

The Premium:

If I believed every expert economist that ran his mouth on CNBC I would have been out of the market since 2016.  If I believed every conspiracy theorist on the internet, I would have stacked up on gold silver and lead, and bought a self sustaining property in West Virginia.

Over the past week the premium for actual USD to USDT has widened to around 1%.  Is this an initial cause for panic?  Maybe, but unless I start seeing the gap widen it could only be temporary.  The gap started around the 3rd of October and we saw similar spreads previously so this is not new. 

Often these types of moves gain momentum regardless if justified or not and it is something we should continue to monitor.  If there is nothing wrong, Bitfinex would benefit by buying Tether off exchanges at a discount.

Precautions:

If this is a concern, and it should be among others, DO NOT KEEP YOUR MONEY OR COINS ON EXCHANGES.  There is absolutely no reason to hold tether period.  Someone please give me a use case for tether other than trading? 

We recommend that you only have on exchanges what you are willing and able to lose.  This is no different then leaving your bankroll in the hands of a brand new friend.  Would you just give someone your wallet and trust them?

NOPE, and the fact an exchange has been around does not provide evidence of trust.

Bottom Line:

It could be simply that exchanges are taking Tether and cashing it into Bitcoin or other instruments as they implement their own stable coin.  This would lead to a premium discount for USDT.  If everyone is cashing it in, the market would demand a premium. 

No different then those selling gold, the buyer demands a premium discount if the market is cashing it in.  We saw this earlier this year where gold eagles were trading at or slightly under spot. 

Whether the underlying fundamentals of tether are simply a house of cards is yet to be proven.  I am not discounting the theory that tether is not backed, I just see no facts otherwise.  The market is also not as concerned as the premium is rather small.  There is also another valid reason tether is losing its shine.  Fruition!

Summary:

Could the 1% premium be a prelude to an issue with tether?  Absolutely!  Starts to hit 2-5% or higher than Houston we may have a problem.  All we can do is continue to monitor and take precautionary measures to insure we are not on the wrong side of the stick.

If this were really an issue Bitcoin would be going down not stepping to the upside.  These types of conspiracies play right into the hands of larger players who are more informed and take advantage of the herd mentality.

Again we are not accountants, and recommend you DO NOT HOLD TETHER, or any other coin on an exchange.   This is not because of a tether conspiracy, but common sense!

This is simply my opinion and as I have stated numerous time I am not an accountant.  Investing in cryptos is risky and should only be done with discretionary monies that you are willing and able to lose period.  If you are looking for more stable investments this is not the space for you!

Photo by Thought Catalog on Unsplash

3 Responses
  1. amussic@gmail.com

    The only problem is that if you are buying cryptos for profits not for long term holdings for 3-5+years than you need those coins on exchanges. And you cant really cashout a profit because than you dont have money to be in the other opportunity. So you are stuck on exchanges and hope for the best.

  2. jlhequities

    Correct me if I’m wrong, but if tether value went to 0, all the pairs it trades against would go up not down. Reason being everyone would automatically dump tether into BTC or alt pairs. Then they would find a way to get into USD. So essientially 2 billion in tether would go into BTC, then into USD. What’s the issue? That happens every day.

  3. jlhequities

    Bottom line, there was 1 usd paid for I tether somewhere. The only way I can buy BTC is send USD to an exchange. I then trade into BTC, then trade out of BTC into USDT. It simplifies the whole thing for exchanges. Unless I can somehow get free USDT to buy BTC then they are backed somewhere.

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