The problem is that in the early days of @Bitfinex'ed this was all a bit of a sideshow because there was genuinely large interest from retail and the outcome of crypto was far less certain.
However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation. Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
But in the depths of the March panic, Tether jumped the shark in order to backstop the entire crypto ecosystem, and they can never put that genie back in the bottle. Much like the Fed who cannot stop monetizing US deficits for fear of letting yields explode, the Tetheral Reserve must continue to print USDT in order to support prices. Exchanges cannot let this fail since the vast majority do not have access to the bonafide banking system and thus scrappy users must devise "fiat onramps".
There are many theories about why, the predominant one being that iFinex know they are screwed, and are making one last cash grab before presumably disappearing. This sounds fairly reasonable if the entire operation is indeed a sham, but it means there is effectively no upper bound to BTC prices because the denominator in 90% of the market (USDT) is effectively zero.
Tether has become too big to fail. Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
People were discussing bitcoin being used as a digital currency. There was talk of bitcoin being accepted on Overstock.com, TigerDirect, and using bitcoin apps on phones as a digital wallet. I would argue the majority of people in the bitcoin community at the time were genuinely interested in the technology and its use as an everyday currency.
Now let's look at some Reddit /r/bitcoin posts in January 2020. I picked this date because there weren't any recent significant price fluctuations.
There was practically zero discussion on using bitcoin as a currency. People were only interested in the price and treated it as a commodity, just like a digital gold.
> EDIT: downvote me if you want but you are flat wrong
Do people treat bitcoin as a currency or a commodity today?
*The narrative around bitcoin has always been "It is digital currency. It works like gold".*
I don't think we need to get into whether or not gold is a currency or a commodity but you are fooling yourself if you think that the price of gold is driven by jewelers and PCB fabs.
People were overly enthusiastic about it intially, but soon realized almost no one wants to use a slower, riskier, and now more expensive payment option. Bitcoin is good for merchants but terrible for buyers.
Bitcoin lightning could change this, instant transactions with almost no fees, but it's still in early days.
The Phoenix wallet[0] is actually quite a nice LN solution. When I tried it out it gave me similar feelings of excitement as when I first got into Bitcoin.
Reading about the Lightning Network gives me a headache in general, but Phoenix manages to hide all the tech stuff. I think my old parents would be able to use it.
And it solves one LN problem of having to have bitcoin for opening a payment channel, you can simply install the wallet and start receiving bitcoin.
> Now let's look at some Reddit /r/bitcoin posts in January 2020.
This is a very amateurish attempt at analyzing what "Bitcoin community" (which you haven't even really defined properly either) are thinking or are interested in. Bitcoin reddit is a bunch of kids who like memes and hating on the FED. I know a lot of serious investors who would never be seen posting or commenting there. It is just not a place for a lot of people.
That may be true but there is definitely a difference between the way people talked about it earlier ("later we will all be paying with bitcoin") to how it is now ("it's a store of value and maybe there is potential for bitcoin-backed currencies").
I think the scaling limitations were well known at the beginning. If Bitcoin were to get as large as visa/mastercard the blockchain would be growing at a rate of a few gigabytes per day, which would kill decentralization.
As far as I was aware, this problem was mostly ignored.
It was expected (again, as stated in the whitepaper) that truncating transactions (in order to shrink blocks that are "old enough") would be able to manage block size well enough to stay reasonable.
In my experience (circa ~2011,) this expectation seemed to be generally accepted without much question by anyone talking about bitcoin. If it was acknowledged as a flaw it was usually hand-waved as only likely to be a problem 10+ in the the future.
edit: Or that a new network would learn from the bitcoin experiment and implement a protocol that works better at large scale.
the limitations have been researched extensively outside of the echo chamber of bitcoin development. It is possible to scale a utxo system like bitcoins to hundreds of millions of txs per day. Xthinner[1] can compress blocksizes by 99%, but bitcoin devs have ignored this with handywavy arguments.
A bitcoiner pinged me and asked for my comment here. It really sucks that people are so easily bamboozled by dishonest scammers.
In the original bitcoin software a node would receive every transaction made while it was online twice: once when the transaction was first relayed, once when it was placed into blocks. This was obviously wasteful, so we created and deployed a reconciliation scheme that exploits the fact that normally all, or almost all the included transactions are already known. https://github.com/bitcoin/bips/blob/master/bip-0152.mediawi...
But because Bitcoin developers are not dishonest scammers they didn't run around putting out (no kidding) press releases claiming "98.6% compression"-- though that's what you get if you compare the size of the BIP152 message to the size of the block. In reality, since it depends on the transaction being known in advance the unachievable limit for this class of approaches is a 50% bandwidth reduction for a node compared to the original behaviour. BIP152 achieves 49.3% out of that 50%, as measured on the latest block.
Even before compact blocks was created back in December 2015, we knew even smaller could be achieved. E.g. we published a scheme that requires asymptotically 0 bytes per transaction, only requiring data proportional to size of the difference between the block and the recipients guess at the next block. But what we found is that the simpler scheme actually propagated blocks much faster because once the block is down to just a few thousand bytes other factors (like CPU time) dominate. Expending a lot of additional code and cpu time to take 49.3% closer to 50% isn't a win in actual usage.
[And for considerations other than block propagation, saving a few extra bytes per block is extremely irrelevant.]
It's also the case that some of these dishonestly hyped supposed improvements beyond what Bitcoin has done for years are actually totally brain-damaged and wouldn't work in practice because they're not robust against attack-- but there isn't much reason to dive into technical minutia because what they _claim to achieve_, once you strip off the dishonest marketing, isn't all that interesting.
That page claims it can compress a single transaction down to 12-16 bits. Unless the vast majority of btc transactions are between the same few wallet addresses, this seems impossible? Even if you assume that the transaction is an instance of a common known script, you still need from-address, to-address, and amount, all of which are >16 bit quantities and in general are cryptographically random.
The only explanation I can think of is that they are relying on a sidechannel to communicate the actual transactions, which makes sense in the miner case (the utxo pool) but not in the general node case.
Beyond that, I run a BTC node occasionally and the bottleneck is validating blocks, not downloading them. Transactions are complicated enough right now that I'm only able to catch up at about 350x real-time (that is, it takes around a full cpu-day to validate a year of blocks/transactions).
>but bitcoin devs have ignored this with handywavy arguments.
Can you provide links to these discussions? I searched around on google and all the results are relating to bitcoin cash. I also searched the usual places that bitcoin (non cash) people congregate and turned up nothing.
Not this again. The entire bitcoin blockchain fits in $6 of hard drive space. The average transaction right now is more than $11.50. The AVERAGE transaction costs almost double what it costs to store the ENTIRE blockchain.
Stop with the storage space nonsense. The only people even storing the entire chain are enthusiasts, servers and miners. Saying "what if it gets a thousand times as many transactions" is ridiculous, but it still wouldn't be a problem. A few gigabytes a day? A $300 dollar hard drive would still take a decade to fill up. I think the few that sync the entire chain handle that.
It doesn't google anymore and might be gone now, but back in the day there was an article on a bitcoin website which went through some math, arguing that Bitcoin could achieve 4000 transactions per second. People used to link to it on a regular basis.
Aside from that, people figured Moore's Law would continue at its historical pace, and Bitcoin could grow indefinitely at the same pace.
It is not a coincidence that gold mining was chosen as the analogy for new coins.
The emission of new bit coins following the "mining" of new blocks is like the minting of new gold coins following the mining of raw gold.
Because bitcoins are like gold coins.
I agree that neither gold nor bitcoin are suitable for commerce. But the narrative around and apparent intent behind bitcoin from in the beginning was "It is digital currency. It works like gold".
I think people are using "gold" in 2 different ways.
In the olden days, gold was actually a currency. The supply of coins you could produce was limited by the precious metals you had. The amount of paper money you could issue was limited by the amount of gold bars you had. In this system, gold is still acting like a currency; but a currency with very real limitations on the ability of any institution to manage it. [0]. This was the original meaning of digital gold.
In contrast, modern gold is not used as a currency. It is used as a commodity and store of value; and a hedge against inflation.
[0] Unlike gold though; bitcoin actually has a predictable issuance schedule. There is no sudden spike in Bitcoin supplies because prospective suddenly discovered a rich vein.
How do you square this with the observation that other fiat-backed stablecoins like USDC, which are obviously legitimate, are also printing massively?
It would seem to me that if transparent stablecoins with utility are going up, the simplest explanation for tether going up is that it serves the same role for people who have either become accustomed to it from its earlier availability, or have it as their only option due to jurisdiction. Not anything nefarious.
There seems to be little actual evidence to support conspiracy theories that Bitcoin's price movements are due to mismanagement of tether.
The argument isnt that there are no legitimate inflows of other stablecoins (or traditional fiat currency) into bitcoin prices. The problem is that Tether is ~80% of inflows [1], and is dubiously backed at best. If 80% of the price support disappears, prices will fall, and legitimate buy side interest from other stablecoins or fiat will almost certainly shrink as well.
The price of an asset goes up when money is being poured into the asset. For many exchanges "money" means USDT, so it makes perfect sense that USDT would be printed before a rally, regardless of malfeasance on tether's part.
Thanks, I will have to read it carefully, but from the abstract it doesn't seem as simple as "increased Tether printing makes BTC rally." But if there is in fact a statistically significant correlation, I would personally wager there's causation and hedge my bets accordingly.
I think the abstract does effectively say that: "these patterns are most consistent with the supply‐based hypothesis of unbacked digital money inflating cryptocurrency prices." And this point is made more forcefully in the paper.
FWIW, I don't have a strong opinion on the evidence presented in the paper -- the analyses seem sensible, but this isn't my field of expertise, so I'd be hard pressed to point out, for example, what alternative analyses they could / should have done.
Also, it's not even obvious to me that unbacked Tether causing the BTC price rallies is necessarily a reason to pull out; markets are weird.
The killer app for Bitcoin is escaping government fiat money that is backed by literally nothing at all and is being printed at increasingly alarming rates. 40% of all USD ever created were “made” in 2020. That will have repercussions for decades and isn’t a currency I want to stay in.
It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
Indeed. A thought experiment: say the US government created a USD-prime currency that floated freely from USD. You could still use the USD in private transactions, but the US government would only transact and tax in USD-prime. What would be the fate of the original USD?
My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.
Yep, but my point is that one is mass belief that the US government will continue wanting USD, the other is a mass belief that other people will continue wanting BTC. Both could be right, both could be wrong, but they are not the same proposition.
Don't forget that the US gov itself is also propped up by mass belief. Its authority rests in the people.
Now you might say "actually its authority rests on people with guns", but that's only to the extent that the people with the guns believe in the governments's authority to tell them who to point them at.
Gold and silver became money for similar reasons (probably). Kings and Emperors found that supplying their armies was much easier (especially in peace time) if they used the method of taxing the population in gold and/or silver and then using that to pay their soldiers who would supply themselves on the open market. That way you did not have the standard problems of a planned economy. The peasants have now need for gold, so they would not need/want to trade stuff for it unless they were forced to have some to give to the tax man. It's much more complicated than that, of course, but like fiat money, gold and silver do not have much intrinsic value besides using it to show off your wealth.
Maybe they didn't have any intrinsic value in the past besides looking pretty but in the modern era both gold and silver have industrial uses. They are not just stores of value. One could also argue that both metals also had intrinsic value in the past since both metals were used in jewelry and various items to make them look good.
The industrial usefulness is an irrelevant byproduct when considering gold and silver as an investment.
Put another way, if people lost faith in gold as an investment tomorrow, and the value fell to the economic value of the industrial use cases, investors in gold would be ruined.
I’ve never thought of it this way. I wonder what the price of gold and silver would be if they were strictly used for manufacturing and jewelry instead of speculation and store of value?
>It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
That's more than enough reason why we should try something else. It doesn't inspire a lot of confidence. By that reasoning, the USD has the same sort of backing as the Venezuelan Bolivar. So what's to stop the prior from becoming like the latter?
Ok are you saying that is a good reason to invest in it? I always hear this and it seems like if force or military force is your only bastion of reason left to invest in a currency you should have left it long ago.
People who repeat this don't understand that fiat money is based on trust...and that is not a bad thing.
This is why blockchain is fundamentally stunted: the global society is based on trust and cooperation. Trustless systems will never be able to compete in these arenas.
speaking of jumping the shark, have you seen what governments have been up to lately ?
interest rates at a 5,000 year low, moral hazard abound & global fiat collapse imminent in the best case and in the worst case we have banks/elites/governments who are going to be looking to further enslave those in debt and forced out of business/work with some dystopian debt forgiveness scheme involving a 'vaccine' schedule and travel restrictions or whatever else (use your imagination).
the truth is that everything mentioned in these comments was an argument that had already been had years ago - the markets reflect that - but i did enjoy reading the last sentence of your original comment and thinking to myself "am I reading Time Magazine ?"
1) trying to distract the above problems by pointing out other issues doesn't make them go away
2) you talk about fiat collapse being imminent...USDT is worth far less than any fiat (see: nothing) I don't get how these ardent fiat haters don't see their entire ecosystem has been coopted by something that has infinitely less value than the thing they so despise
Seems to me like you're tacitly agreeing with GP here - you're just making a claim about which currency system you trust more! (And attempting to convince others of the same position.)
USD is backed by being valid for the redemption of outstanding USD denominated invoices, loan repayments and tax bills, all of which ensures demand to possess the currency and are likely to continue to exist in increasing quantities in future.
"Escaping" that for something which literally is backed by nothing at all is a strange move.
During the gold standard, did people take payment in gold?
I don't think so...
They used paper that symbolized "withdrawal rights to gold". USD (or any other piece of paper that people agree has a value) is a perfect currency for exchange, it's just not a great store of value.
> USD [...] is a perfect currency for exchange, it's just not a great store of value.
USD is a fantastic store of value. Since 1982 (arguably the beginning of the modern inflation-targeting era), the USD has lost no more than 6.3% of its value year-over-year, nor gained more than 2% (CPI measured, source https://fred.stlouisfed.org/series/CPIAUCSL#0).
In contrast since 2016, Bitcoin has 60% of its value year-over-year (2018) and gained 1700% (also 2018).
A store of value is not a story of appreciation and hoping for a gain, it's a story about holding a stable and most importantly predictable value into the future. The USD more than satisfies this condition. Bitcoin does not, no matter its speculative merits.
Most importantly, society does not owe people a fictional store of value guaranteed to never lose purchasing power. People don't eat quarters, nor do they live under dollar bills. It strains credulity that a nominal token (however minted) should hold a guaranteed value, without taking capital-like risks required of any productive investment.
The point I was responding to was saying that they wanted to get away from USD and that this was BTC's killer app.
My point is that you can't "get away" from USD, while the BTC market is effectively tied to USD.
so if the USD supply is massively inflated, and people can use those USD to buy BTC, the tie is still there.
If and when people denominate their goods and services in BTC without any reference to a fiat amount, then they are decoupled and BTC loses the tie to USD.
Money is not property. Money is an entry on a ledger, which tracks credits and debits. So yes, fiat currency is not redeemable for a physical asset. But if it was redeemable, what ensures that say gold or a chicken will suffice to settle a debt or serve as credit for a future transaction. Chickens die and gold is only as valuable as your skills as a trader. The ledger and all of the social norms and institutional structures that accompany it is what maintains financial wealth.
Preventing debasement of currency via inflation via printing money, which a lot of people use as their go to argument against fiat money, is simply adding economy wide debt to the ledger. This is necessary from time to time especially during crises and especially in a services/financial services/ intellectual property heavy economy.
If no money existed, at all, how would you receive compensation for providing work of an IP nature to your neighbor. You would need either a perfect trade (you really want their chicken it’s just the right amount of chicken for you) or you take an iou. Which is a debt. Now have them write that iou down on a piece of paper and hand it to you. Your neighbor just printed money. Not so crazy.
I have a question, isn't the problem with the gold standard that the amount of dollars is fixed and in order to have enough currency to drive a rapidly growing economy you would in essence be buying a gallon of milk for .25 cents?
It seems to me that either you the amount of currency in circulation needs to increase or the value of the existing currency needs to increase.
Taking into account the gold standard was used for possibly centuries (not sure) was this problem encountered before and how was it solved?
A shortage of bullion in Europe during the 15th century caused problems everywhere. That was followed by a huge influx of gold from the Americas in the 16th century, which also caused massive problems across the continent!
Both under- and over-supply had negative effects on the economies of Europe.
The gold standard really was a primitive fiat currency anyway, governments would debase coins so they contained less gold in order to expand the money supply for instance. And only a small fraction of coins would be gold anyway, silver was far more common - the Pound Sterling takes it's name from a pound of silver from the easterlings (Germans). Paper money just made it obvious that physical currency was only a representation of wealth and not a fixed unit of wealth itself.
The gold standard is basically a political myth about a system that never really existed. Money is a very abstract concept, and reducing it to physical tokens and easily intuitive rules is appealing to many.
This was posted to HN and it was quite eye-opening. For those that don’t know, 1971 was when the gold standard was abandoned by Nixon. I don’t know if the graphs are cherry-picked and I hope they were honestly since the US is never going back to the gold standard and it seems to have far-reaching negative effects in every aspect of human life.
To answer your .25 cent milk question it seems to have not been a problem in history and health of the country before 1971. The profits and benefits of the rapidly growing economy have pretty much all gone to the ultra wealthy that are nearest to and in control of the money printer.
I think this is a gigantic leap. They show a whole bunch of graphs without even advancing a theory as to how abandoning the gold standard caused a decline in, for example, employee compensation growth. Or divorce rates. Or ... obesity rates, really? There's so many graphs on here that it would take forever to dispute all of them, but here's some general points.
1. A lot of these graphs start at 1940 or 1950, showing a change in the trend in the early 1970s. But that was the end of WW2, where Europe was in ruins and rebuilding and America saw a massive increase in prosperity and economic output. That was a pretty unique period, it's only natural for that trend to diminish or change over time.
2. A hell of a lot happened in the late 60s and early 70s, not just abandoning the gold standard. One of these graphs is of the incarceration rate. Do you think we started seeing mass incarceration at that time because we abandoned the gold standard, or do you think it was because of the war on drugs?
3. Some of these graphs are deliberately misleading. One is of the cumulative inflation rate, and seems to show the inflation accelerate in the early 1970s. Except a healthy economy should have a steady inflation rate each year (of around 2% I believe), so this graph is supposed to be exponential! They just picked the right window so that 1971 is the inflection point.
The change from the gold standard is almost certainly a coincidence. Whether the dollar is backed by gold or government promises doesn't make businesses decide to give less money to their workers and more to their CEOs.
A much more relevant development in the 70s was the switch in economic policy priorities from demand-side to supply-side. Nixon was the first president who prioritized tax cuts, union busting, subsidies, and legalizing outsourcing to cheaper labor markets in China and SEA. Every government since has given corporations a blank check to cut labor costs by any means necessary to prioritize profit.
Those graphs paint a fair picture of the nature of the crisis, but I am not so keen on their explanation.
Nixon ended gold convertability, but the USD was not on a true gold standard and was in danger of not being able to fulfill this obligation. The standard was Bretton Woods, it was an international framework for finance, and it was the failure of the framework together with the OPEC oil crisis that caused the mess documented in those graphs.
adjustable, with a benign regulator > fixed > adjustable, with a corrupt regulator
So, the aim shouldn't be a return to the gold standard or a switch to BTC, but to make sure that central banks can do their job without interference from politicians.
To the left of that list I'd put "self-adjusting, without needing a regulator."
Hayek argued that a system of competitive privately-issued currencies would achieve that. I'm not qualified to say whether he was correct, but an economy built on cryptocurrencies would be exactly that.
Yes. That is called deflation. It also has to do with fractional reserve banking. The fraction of your outstanding dollars that you could actually cover with gold. If no one ever wants to make a run on your bank, you can keep the fraction very low.
I understand the deflation part, but my question really was is it an economy the size of the united states even possible if we stayed on the gold standard.
Not having enough money to transact would definitely have suppressed our economic growth, but then again maybe we would have gotten really good at mining for gold to make up for it
"Really good at mining." This might be good point to compare with BTC. Where huge amounts of electricity is spend on doing essentially useless calculations, outside keeping the system safe and running.
Good at mining would have meant spending good part of our economic output to mine gold and then just storing it somewhere or moving it around...
> government fiat money that is backed by literally nothing at all
It would be really nice for people to spend even a few minutes thinking about how money works, or open a textbook even just to learn what you disagree with.
It's tiresome to explain over and over and over again to people how the "full faith and credit of the United States" is not "nothing at all" but in fact a guarantee of great value, at least as good as any on any other security, and one that is quite measurable (by for example comparing the prices of full faith and credit securities with other almost identical securities without this guarantee).
On the contrary, I'd say that it's the cryptocurrencies that _by design_ are based on nothing at all.
However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation.
The killer app is decentralized, permissionless, open source, and censorship resistant network.
Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
Gold morphed from worthless rocks in the the ground, to coins traded by traveling merchants, to stores of value that were eventually centralized and monopolized by governments.
RE: Tether
I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.
Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
Bitcoin is sound. The centralized exchange layer built on top of it is dirty.
> The killer app is decentralized, permissionless, open source, and censorship resistant network.
That’s like saying the killer app of the internet is the internet.
The web gives me access to information quicker and easier than going to a library or bookshop. Email and IM means I can communicate with people in other countries quicker and easier than I could by post. Crypto doesn’t change anything.
A few drug dealers and some people living in countries with hyperinflation may care about “permissionlessness” and “censorship* resistance”, but for most people, actual money is far, far more convenient.
* That’s some Orwellian newspeak, btw. If someone defrauds me and a court of law ensures that I am restituted, the reversal of that fraudulent transaction isn’t “censorship” because stealing money isn’t “speech” or “expression”.
Digital gold is the kill app. That is enough to justify its market cap.
For example, Chinese can use bit coin to exchange large amount of funds to other currency, although this can only be done in private because the official ban.
Bitcoin is bits of data on a network. It does exactly what its supposed to do; a dictionary for strings to integers.
Securing external value to people is not a goal or responsibility of Bitcoin. That's simply a consequence to how we as humans choose to use scarce assets.
The hurdle for bitcoin is finding a way for people to turn it into a currency they can use. This is where you end up with a centralized exchange layer built on top of it.
I can make a $12,000,000 transaction for $.35 but if I actually want to get the money, I have to pay 2.5% to a legit exchange or take my chances on some janky ass exchange. Why not just transfer the money via ACH and pay the small fee and save myself the headache?
The barriers to entry, usage, and understanding are just too high for average Joe. That and how the value of their money fluctuates compared to fiat makes it more difficult to use as a daily currency.
Also, when things go wrong there's nobody to turn to in most cases.
In a long enough time frame, people transact with cryptoassets directly and don't need to exchange into fiat. We are early in this development, money as we know it is changing.
Over a long enough time frame the chances that you get hacked, scammed or make a fatal mistake and lose all your cryptos is high. Putting anything more than pocket money in this is idiotic.
Why would I pay for Porn? But on that note, the PH website still accepts several types of credit cards.
Whatever Wikileaks originally was, it is now a Russian propaganda tool. Go ahead and try to post leaks critical of Russia on Wikileaks, or for that matter, of Donald Trump. Why would I want to donate to a website that is openly seeking the destruction of my country?
> With Bitcoin you own property that can never be confiscated or debased by any government.
Private keys can be confiscated like anything else. They won't do you much good if you're thrown in prison for not turning them over if legally compelled. Sure you can try to hide your ownership, but my point is that actual cryptocurrencies are only one layer of very deep opsec you need to resist state actors. For the common illegal goods consumer it's unlikely to do much more than provide a false sense of security due to other opsec failures (use of phones, use of cookies, use of mailing addresses, use of non-e2e chat, using a hosted wallet, lack of anonymous vpn, etc etc etc).
> The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.
Interesting use of "dollars." How much is actually Tether? How much is manipulated market cap (through wash trading or more convoluted defi mechanisms)? How much is actually liquid USD?
A wrench attack will always be the easiest vector. That said, there is no other asset in history that gives you this level of security for such marginal cost. The cost of securing $100 is essentially the same as the cost of securing $100m.
The chances of loosing $100 is essentially the same as the chances of loosing $100m. If you loose your private key nobody can help you recover your money.
Yes, it can. The U.S. government has in fact seized Bitcoin directly and sold it at auction several times. It is arguably the single largest non-exchange seller of Bitcoin in Bitcoin's history.
Money can only be seized if the safe is found. And the combination is handed over by a willing party.
The difference is that money is actually more secure because you don't have a public ledger telling you that it exists and who owns it and how much of it they own as you do with the public cryptos like Bitcoin and Ethereum.
Crypto is magnitudes more accessible. I can travel to any country in the world with an encrypted usb drive of my seed words, and no one is wiser. OR even upload a file to the internet and forego carrying anything at all. A government can try to censor transactions belonging to an address, but we don't have good precedent to see how the network will behave. Miners in other jurisdictions have no reason to follow someone else's censorship.
A government could seize miners, and given that ~50% of the world's Bitcoin mining capacity appears to be located in one country, that might give them considerable leeway to rewrite the blockchain to their liking.
Did you mean "soft fork", or are you thinking of a different concept I'm not familiar with?
Forks can and have been used to deal with isolated malicious incidents, but do you think they can be successful against an actor in extended control of a substantial part of the hash rate?
> RE: Tether I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.
Tether's page (https://wallet.tether.to/transparency) claims $23.6 billion in total assets. Despite their claims to transparency, I see no report of what those assets are, how risky those assets are, or any audit that assets they even own those assets. Their front page has a big link saying "Proof of funds", which leads to an audit published 2½ years ago, claiming only $2.5 billion in cash in two bank accounts with unnamed banks.
For a company that claims to be "always fully transparent," that is shockingly opaque.
I find this a little bit too biased. The Bitcoin universe is waving between a lot of reason why to love bitcoin and it shifts often.
I stopped following the money side of it (atm and sites accepting btc) but a vast majority of btc and cryptos attention right now.. is simply better yearly returns than other kinds of possessions.
I’ve been wondering if Tether is really a scam for a long time.
In all these analyses, one key point is missing: arbitrage traders have to make up for the sell pressure on USDT when Tethers are being printed and sold for BTC. Can anyone show me how there is a plausible mechanism/scheme/conspiracy that keeps the USD/USDT exchange rate stable while a crazy amount of illegitimate Tethers are being printed?
It's just that conspiracy theories and doom stories are nice to write about. USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin.
Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)
>USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin.
Technically it is possible. You don't need an equal or larger market cap to inflate something else 90%. You just need enough to dominate the trading volume.
As an extreme example, if bid/ask volume is exactly 1 (ie the ONLY trade volume consists of you and 1 other person trading a quantity of 1), then at the minimum, all you need is a bank roll of 1.9x the current unit price, with both you agreeing to the trade it for 1.9x, for the going price per unit to inflate 90%. And since market cap = price per unit × units outstanding, then the market cap also inflated 90%. If the units outstanding was 5000, and the unit price was $1, then the market cap increased $4,500 using only $1.90.
As long as tether can provide a small percentage of liquidity on USDT/USD then they (arbitrageurs) can maintain the peg. This can obviously break down, and has in the past. It's all about liquidity...
I'm not sure what arbitrage you're referring to. But more importantly, nobody is selling these freshly printed USDT for USD...that's the whole point. They are selling USDT for BTC.
99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.
It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.
Exactly, I don't say OP is wrong but I need to see how I can
1. buy X for USD
2. buy BTC for X
Shouldn't the price for X then stay the same? (Bought X once, sold X once)
Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD?
Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?
Because the mechanism to transmit USDT to USD doesn't exist. Tether has never demonstrated a single USDT redemption. All of the trading on an exchange doesn't matter because on USDT exchanges, you never actually have USD. If you trade USDT/USD on Binance, your profits are still actually USDT denominated! There is no proven way to convert USDT to USD except via another crypto (i.e. Binance USDT -> BTC and then Coinbase BTC -> USD) hence this entire topic...
The peg would break down if there was any real convergence mechanism. But there isn't. This isn't a problem until people actually try to exchange these supposedly fungible assets.
I think it's a waste of time trying to argue with the USDT conspiracy theory crowd. I'm not really sure what's their problem; they clearly never traded the market or used it. Maybe it's a butt-hurt feeling from missing out on this decade best performing assets?
I'll give you a more sensible counter-argument: If you held USDT in the last 4 years (only) and actively generated yield (requires 1 hours work max per week), and periodically withdrew it (1-3 months) my reports show a 120% gain. This means if you bought $100k of USDT 4 years ago, you'd have withdrawn $120k into real dollars and still have $100k of USDT. In this situation, it's impossible to lose even if Tether is worth 0 tomorrow.
Yield have gone considerably down. This means traders now trust USDT more than they did a few years ago. This would also mean that traders who are into risk would not hold USDT, they would rather hold something else to get better yield. If USDT was risky, its total market cap will decrease, as it doesn't make sense to hold into it with low yield. That or the market will quickly collapse.
This can give you an idea (better than a stamped report from any AAA auditing firm) about how strong the USDT position in the market is.
This is moving the goalposts. I don't think anyone thinks tether has full reserves. They literally admitted that they don't[1]. However your original claim of "you can't redeem USDT" is misleading at best.
[1] wikipedia: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"
He said 74% are cash reserves. Meaning, Tether is 1:1 backed by its reserves, of which 74% is cash. The rest could be bonds/loans etc, as long as they're deemed liquid and fair value. I don't know about the latter, just stating facts.
In any case, if indeed (still) true, having their lawyer say that USDTs are backed 74% by cash, makes it arguably safer and more liquid than any US bank, where cash backing your account balance represents a single digit percentage (I would estimate, happy to learn the factual number). Not saying that it shouldn't strive for 100% cash backeding (I think it should be), but noting that if you're concerned about Tether's cash liquidity, you probably should be even more concerned about your bank's chequing account.
I feel like most people think of what you're referring to as trading Tether, and "redeeming USDT" as actually exchanging the USDT for the fiat that is supposedly backing it.
Everybody realizes that for the individual turning tether into fiat both of these amount to the same thing, but they are not the same thing for the system as a whole at all. Ultimately the only way that tether as a company can maintain the peg is by buying their own token with the reserve funds if market won't (there are obviously different mechanisms they could use to do this, either via the exchanges or with the seller directly trading with them). If they don't have access to enough reserve funds then the peg will eventually fail.
That was after how many years of Tether insisting that they had 1:1 reserves, talking about audits thereof, threatening lawsuits against people who said they didn't?
... and many many crypto-fans naysaying anyone who didn't believe them.
Since they can print X and they peg it to USD, it won't change in price itself, but nothing can assure the driving force of BTC price is actual demand.
When central banks peg their currencies to others, that means they buy the foreign currency if their own currency is overvalued in comparison, or sell foreign currency to buy local curerncy in the case of undervaluation.
You say that a peg breaks if the Central Bank doesn't have the exchange reserves anymore to uphold a peg.
Where does Bitfinex take the money from to buy tether to prevent it from devaluing? Alternatively, who else buys tether, arbitrageurs?
>does not have a "killer app" and is 99.99% used for speculation
You could argue speculation is the killer app. I'm not a fan but it's hard to deny it's a huge business and some people seem to like it. Kind of like Las Vegas in a way.
It definitely has a killer app. Probably not a big enough app to justify these prices, but one nonetheless.
As Stripe, PayPal, Visa, Gofundme, Patreon, et. al. shut down avenues of payments for legal, but unpopular purchases, BTC is the obvious workaround.
Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators, etc have become increasingly estranged from the "normal" payments market in the last few years. BTC is the killer app for this.
> Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators
Neither pornography, nor legal funds for unpopular cause (think WikiLeaks), or dissident creators are criminal. At least not in the US or Europe. But they are still blocked by the main payment processing companies.
Drugs are likely the number one things bought using crypto as currency.
Firearms and pornography can be bought with dollars if you’re using crypto to buy them or other unpopular goods or services, you are veering dangerously close to black markets, which invite regulation.
If avoiding reporting a transaction is the goal does committing the transaction to a public blockchain really bypass this? All activity is pseudonymous and in the clear.
I'd say to qualify something as a business, there should be value creation somewhere along the line. With BTC, I see mainly redistribution of value, along with destruction of resources.
Too late to edit my original comment but a lot of people pointing to the "peg" as proof that Tether is legitimate.
The only peg that exists is the one whereby you should be able to go to Tether Inc and redeem USDT for USD 1:1. That peg has never ever been demonstrated (publicly).
All the other "pegs" are just cash trading. If I trade USDT/USD on Binance...I don't actually have USD. Even on that pair, my USD profit/loss are denominated in USDT.
For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.
> For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.
Genuinely curious, as someone who has never used Binance nor USDT:
Why is the "directly" part here significant? If I can USDT (Binance) -> USD (Binance) -> BTC (Binance) -> BTC (Coinbase) -> USD (Coinbase) -> USD (My Bank), then whats the difference other than a few extra steps?
nice in theory but practically if you try to withdraw from kraken you often get a plethora of errors, including "this function is currently disabled". this happened during the last run and this happened this week.
Apart from the fact that there are transaction costs and time delays (it'll take about half an hour after you bought BTC on Binance that you can sell them on Coinbase), what guarantees that the BTC price is the same on Coinbase and Binance?
Well, arbitrage! But suppose BTC it is much higher on Binance. You'd then take USD and transfer them to Coinbase:
It's basically the difference between a fiat currency and one backed by something.
For example, something vaguely analogous would be:
[Setting: The Olden Days]
GP: "I'm concerned because nobody has ever tried to take USD to the government and directly get silver/gold for it."
You: "Why is the "directly" part here significant? If I can USD (My Pocket) -> USD (My Brokerage) -> Gold (My Brokerage) -> Gold (My Pocket), then whats the difference other than a few extra steps?"
The difference is that we never tested to see if the USD is actually backed by real gold.
Yes, you can trade them there. However, there is no mechanism imposed by Kraken to keep the price close to 1. It is purely supply and demand. Nothing prevents the price of USDT from collapsing (apart from arbitrage predicated on exchanging USDT back into USD).
> However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation
With all due respect, this is completely wrong - crypto has the same killer app it has for years, and that app is _crime_.
Whether you're buying drugs, paying anonymous extortioners, accepting bribes, money laundering, or tax evasion, cryptocurrency is the go-to choice for electronic funds transfer for your modern criminal.
The crypto killer app is evading China's currency controls. Pay for mining hardware and electricity in renminbi, transfer cryptocurrency to foreign countries, exchange for convertible fiat hard currency (dollars, euros, etc.).
>Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
This narrative was an intentional morphing by various actors within the space (Blockstream) who believed raising the blocksize to allow higher throughput would cause 'centralisation'. Instead they want people to use layer 2 solutions such as blockstreams own federated product Liquid.
As explained by blockstream co-founder Greg Maxwell in [1], the blocksize is constrained in order to ensure a steady backlog of fee paying transactions, that allow bitcoin to remain secure in the long term when block subsidy becomes insignificant.
>that allow bitcoin to remain secure in the long term when block subsidy becomes insignificant.
this line of reasoning is silly. To match the current block subsidy with the current block size limit when miner subsidy runs out the average transaction fee will need to be >$127.
$45mil daily revenue / 350,000 txs per day
OR, you could increase the block size limit to 10mb, allowing 3.5mil txs per day, or 100mb allowing 35mil txs per day. Then the average fee paid per tx is significant lower.
The reason this was argued against by blockstream was because a bigger blocksize means more storage is needed by the miner and more txs means better hardware and bandwidth to process them, effectively pricing out normal people from running full nodes.
Essentially, the ability for normal people to send a transaction cheaply is being sacrificed so that normal people can setup a full node. Counter intuitive imo.
No it does not - that's an invalid inductive conclusion.
There are clear deadlines that may change everything (apparently Jan 15th might be one of them, from the twitter thread). Justice takes time, but trials do eventually come to a conclusion. If that conclusion is to kill the mechanism that pumps BTC, then all bets are off.
This is true. It's also the tremendous irony of bitcoin evangelists narrative that fiat is worthless yet constantly touting every ATH (which is priced in that supposedly worthless fiat). Who cares what BTCUSD is if USD worthless?
And then you realize that this is pure speculation and the most ardent supporters are just praying for the greater fool theory to rain good fortune on them.
You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.
The vast, vast majority of "bitcoin evangelists" couldn't care less about the actual mechanics of Bitcoin. They don't care that it was created as a digital F-You to fiat currency, and they don't care that it enables you to be your own bank. Just look at /r/bitcoin. It's 99% price/hodl memes, and 1% posts about the protocol & enhancements to the protocol itself.
> You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.
"Nobody" is an exaggeration. There is a big community of enthusiasts who enjoy cryptocurrencies for what they are and enable, not for their USD value in the markets.
I won't make the case for cryptocurrencies here, have a look at ethereum.org for instance.
> Is what they enable worth $40.000 to the enthusiasts?
I'm not denying that the current price hike and media attention has little to do with any other aspect than "decentralized ponzi"/dollar escape. Was just correcting a false statement.
Not going to happen. It's a mindshare thing. If there are 10 million people who think I may as well have a bit of my portfolio in bitcoin that gives it value and that's probably not going away in a hurry.
If anything it'll get worse as it goes from 1 million to 10 million to 100 million. Back when 1 bitcoin = 1 pizza there were perhaps 1000 people into it?
Most global payments are transactions, not cash transfers, and the transacting parties have banking relationships that make those transfers low cost and strictly superior to Bitcoin.
As a freelancer based in EU working on some US projects, I'm forced to pay 5.5% fee to PayPal or some fix fee to the banks (SWIFT payment).
Plus conversion fee from USD to EUR (or my local currency).
That's too high for just a simple thing as receiving money from different country.
Really looking forward for that Strike Global.
I agree that a Tether reckoning is coming, but point #10 of that thread is the most important: it could be weeks, months or _years_ before it's fully corrected, so be super super super careful about using Tether as a reason to short Bitcoin...
"The market can remain irrational longer than you can remain solvent"
It's even worse than that. Shorting TSLA is dangerous because of the above. But it's mitigated by people purchasing shares with real fiat. They have a natural incentive to not be absurd: whether or not $800/share is absurd is a matter of opinion...but everyone would agree that $1m/share is absurd.
Tether has no such limitation. All the exchanges are complicit in this, wash trading is rampant, and there's an de facto central bank run by actual criminals. There is absolutely zero reason why iFinex can't take bitcoin to $100k or $1m or whatever they like. They only have opportunity costs.
The only thing keeping them in check right now is the appearance of legitimacy. If they were to overdo it, people might actually sell, which is not what they want. So until their legitimacy is tested (Jan 15) they will probably responsibly grind this higher. But on the last day, I expect billions and billions of USDT issuance so that they can run stops on every short in the market, collecting their last few shekels before the music stops and they vanish to an island somewhere.
Do you know if the public will actually find out any info on Jan 15th, or will that all be private, sealed documents? (I'm a bit lost at how that process is going to work)
Bitfinex and Tether have till the 15th of January to submit documents to the New York state attorney general about their financial relationship. The shortfall of $850m was allegedly printed by Tether and given to Bitfinex to cover up the losses Crypto Capital created. It is speculated Bitfinex and Tether can't submit any documents without revealing their cover-up. This will result in the conclusion that Tether isn't backed 1:1 by USD by a lot of investors and will results in more investigation by the attorney general. Tether is unaudited at the moment, meaning no one checked the bankroll of Tether if there really is $23b USD there.
The thing is $850m isn't actually that much money. The big exchanges made on the order of several billion dollars profit during the last bubble; presumably they are also making that much in this one.
Tether has printed almost double of its amount just BEFORE Bitcoin price jump. It's the biggest pump and dump scheme ever, made by organized crypto-mafia. I doubt this will continue for long.
OP gives no proof that Tether is not holding 1:1 reserves. There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently. Bitcoin price dropped to $4.000 last year and Tether exchange rate has held pretty well. It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps. People regularly sell USDT on the offline market, and can exchange to USDC on many exchanges.
> But Tether is printing so much money.
So is USDC, and the price of Bitcoin is going higher. This means Bitcoiners have lots of value in Bitcoin and some of them are going to convert that value to USD. They are mainly using USDT for that, for whatever reason.
> Tether printing press is driving Bitcoin price.
Wrong. My proof for that is "where is the premium to buy Bitcoin". In a very liquid market (which for the most part, crypto is), prices should be the same up to the costs (transaction and banking fees). Prices have been higher in Coinbase during this run. As I am typing right now, Coinbase prices are 50-80 dollars higher for Bitcoin. GBTC is even more ridiculous with 10-15% premium on price (but also GBTC is less liquid/arb-able). This signifies that demand is coming from US retail and institutional investors.
> Tether is holding USD as securities/derivatives/whatever.
> It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps.
USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). If Tether came and said "sure we'll redeem these fully backed Tethers for USD 24/7/365" you would quickly find yourself with a liquidity crisis.
Is that relevant? I'm not arguing against the claims that tether is shady, I'm only arguing against the outrageous claims that you can't convert USDT back to USD that some tether opponents claim.
Well ofcause you can. A pyramid scheme keeps paying out profits to the chumps right up to the point when it doesn't.
The argument here isn't that Tether has no cash on hand, it's that if enough people pull out, they hit the the bottom of the non 1:1 reserve and everyone else left holding will zero out. If you have 1 kg of gold and start selling papers giving people claim to that 1kg of gold, nothing will prevent you from seeling 1000 claims, making it seem like you're holding a ton of gold for people when looking at the market cap, but if 2 people come and ask you for their 1kg of gold and you don't have enough of the cash you got seeling claims on hand and an oppotunity to buy gold quickly, then from one day to the next 999 claims are worthless.
This is of cause not a big risk in the industry normally because markets are regulated and those who hold gold or other assets backing claims go through audits.
Naturally Tether can't go through an honest audit because even though they might be holding enough cash to cover a decent amount of the market, it would expose them for lying over time, which would still hurt their business tremendously.
You seem to be spending 3 paragraphs re-arguing that tether is shady, when I already said that wasn't the point I was arguing. A argument in favor of tether shouldn't be taken as a sign that I support them wholeheartedly.
> USDT is only liquid BECAUSE there is no redemption mechanism
This isn't necessarily true, as in that event, although possible, wouldn't necessarily have happened. Much like banks with limited liquidity can survive for a long time. To your point, it's confusing how they managed to thrive after admitting that they were lying about being backed 1:1.
Edit: I haven't been paying too much attention to tether in ages. It looks like they're now offering redemption of $100k+ at a minimum of $1000 a pop?
> Tether's reserves only matter when people try to redeem Tethers. This is currently not possible.
This is why being liquid and freely trade-able matters. Tether is fully redeemable if you can trade it against other crypto/stable coins. Want to redeem USDT? exchange it to USDC and then withdraw to your bank account.
Somebody will need to take the counter-trade (the arbitrage dude) and unless he can redeem to close the circle, he is going to stop.
USDT are redeemable to your bank account if you have a good sizable balance (talking 7-8 figures). You'll get it deposited from some of their offshore shell companies. But you didn't hear it from me :)
> No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen.
I'm not an expert, so I might be wrong (seriously, not sarcastically). I _think_ this is technically arbitrage even though you never complete the loop.
It's arbitrage if you can close the loop with little or no risk. Preferably immediately if you already have a buyer lined up. Otherwise, you incur more risk -- you might be caught holding the bag when the music stops.
If Tether Ltd. had at any point in time made any significant USDT -> USD redemptions that outweighed the new USDT given out to new buyers, we should have seen that by a significant number of Tethers being destroyed. Looking at the historic Tether market cap on CoinMarketCap - which is practically equal to all non-destroyed tethers due to USDT being pegged to the USD - however does not reveal any significant drop in Tether market cap ever that could be an indication of actual redemptions. And I refuse to believe that in all of Tethers' history, with all of Bitcoins' ups and downs, there has never been a period in which people weren't pulling more money out of the crypto ecosystem than other people were putting fresh money in. I would expect that to be the case in most of the Bitcoin deflation phases.
And since Bitfinex is the owner of Tether Ltd., there is unfortunately no outsider that could credibly confirm to have actually received any USD in exchange for those burned Tethers. Bitfinex might just as well have sold Bitcoins from its own stash (or from customer wallets) to others for USDT and then burned those USDT in order to stabilize the USDT/USD price which wasn’t exactly holding up well at that time. If they had actually printed more USDT than they have USD in the past, this would be a smart move in order to distribute the "missing" funds more evenly across multiple crypto coins in their custody, which makes it less likely for them to run out of one of them and thus makes it less likely for the alleged scam to come to light.
I mostly agree with your skepticism on USDT driving BTC price, but I disagree with this:
> There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently.
All this proves is that they have something in reserve, not that it is 1:1 backed. Most modern banking operates on a fractional reserve system, but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.
> but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.
Now try taking out 50 million or more, you'll face same difficulties.
This tether nonsense comes up every few months, still adamantly holding the 1:1.
Not mentioning that it's not the single dollar peg option in crypto space anymore, plenty of other options USDC, Dai.
> Now try taking out 50 million or more, you'll face same difficulties.
Sure but that’s my point. The fact that my small volume transactions go through without friction is not proof that the system is not fractional reserve. In the case of a (properly run) bank the value still exists but isn’t liquid; in the case of USDT we don’t know without an audit.
That's good for 97% of the time, but not for the 3% where prices either crashes or goes way-up (volatility blackswan). These stressful situations tests the 1:1 peg. (which is why I mentioned the $4000 price crash). They probably have 1. good reserves ratios and 2. very liquid assets as reserve.
Lets pretend Tether has no backing what so ever. They could still defend the peg 1:1 completely. How? Well if someone wants to sell a bunch of tether, they simply print even more tether, use that to buy crypto on exchanges, and sell that crypto to anyone willing to buy it that generates dollars to pay of the person selling their tether. But that also leves them with the tether that was sold back to dollars, which they can then buy more crypto with an either just hold or also sell to generate dollars. The visuals of this from an outside ends up looking effectively like there was just ton more new money coming into the system when in fact the exchanges and new money took a hit, and the money printing people just raised their perceived holding without backing. That is to say, that in this case the event of someone wanting out looks like the market is rising. You can keep this going as long as your un-backed coin can be exchanged for other liquid crypto.
As long as they have a blindly trusted money money printing machine, they can use it to defend the illusion that it's printing real money. This is thes standard playbook for a pyramid scheme. You use new money to keep the illusion of a big holding and you can keep that going as long as the illusion holds.
The difference between having 1:1 backing and “pretty good” reserves is that if they claim (as they do) to be 1:1 backed and it were to come out that they were not, it could spark a “run on the bank” type scenario for everyone to get their money out while they can.
It's not like it didn't happen before (it happened twice), and their rate diverged from the 1:1. Actually, their rate wasn't that super stable until very recently. The reason why I think they are fully backed is that the crypto-market yield for USD in the last few years have been crazy. So unless you are planning an exit scam, you can't go broke. Even if they are losing money to move the money, or they screw up here or there (get accounts blocked), they can still come on top.
There's a lot of bots doing arbitrage between exchanges though. If one diverges significantly from the other, the bots will eat up the difference, I don't think you can make any claims about where the demand is coming from based on this?
Bots will arbitrage up to the transaction costs. (the price is not worth arbing if it is a small difference). Some exchanges, sometimes, lead the price and this can be visible if you are actively trading (you'll notice that the arb bots are selling in one exchange and buying in the other, aka: bearish exchange trailing the market).
The proof is that Tether almost never deleted any of its tokens, even when Bitcoin dropped significantly, e.g. from $10k to $5k in 2020. Does it mean that no one wanted their USD back from Tether organization? I highly doubt it.
However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation. Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
But in the depths of the March panic, Tether jumped the shark in order to backstop the entire crypto ecosystem, and they can never put that genie back in the bottle. Much like the Fed who cannot stop monetizing US deficits for fear of letting yields explode, the Tetheral Reserve must continue to print USDT in order to support prices. Exchanges cannot let this fail since the vast majority do not have access to the bonafide banking system and thus scrappy users must devise "fiat onramps".
There are many theories about why, the predominant one being that iFinex know they are screwed, and are making one last cash grab before presumably disappearing. This sounds fairly reasonable if the entire operation is indeed a sham, but it means there is effectively no upper bound to BTC prices because the denominator in 90% of the market (USDT) is effectively zero.
Tether has become too big to fail. Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.