And currently bitcoin’s in an unusually large bubble, so there are lots of people buying into it who’ve never previously had experience of it. I see ads for, basically, “get rich quick with bitcoin” every day now. The people clicking those are not the world’s greatest critical thinkers; if the site on the other end says “buy tethers with our affiliate code to BUY BITCOINS AND GET RICH”, they’ll do it.

There are sufficient people buying tethers at face value, from the company, to keep parity. And I don’t think there’s really a facility to short sell them (that might change things a bit)

One issue, is that they just revealed this arrangement. The Tether website makes it look like you can both buy and redeem tethers through an online wallet on that site, but apparently nobody has done so.

The core issue is, that despite promising to do so, Tether has not released an audit proving that they only issue new tethers on receipt of dollars.

If in fact they are issuing them unbacked, they can easily fake demand for Bitcoin. Tethers are transferable via block chain between exchanges, and are used by exchanges without access to real US dollar banking to conduct trade in (nominal) across cryptocoin-USD(T) pairs.

It’s unclear whether there have been any significance redemptions of tethers for dollars. There have been ~$800m tethers issued this year.

It's still a market, so market logic should apply.

> get rich quick with bitcoin

I see the same shit with real estate.

> sufficient people buying tethers at face value

It's a market. Smart money can sell tethers. When there's information that all market participants know, the market price should reflect that information.

Or, a "crash" as defined a dramatic plunge rather than a downturn over time is usually some kind of feedback loop where prices falling creates expectations that prices will drop even further and so on, often if the market is mostly driven by greater-fool-theory herd behavior.

What even is the market? If it's the people in it, and they're smart, why did they buy subprime loan investment instruments and nuke the housing market and lose all their money?

A democracy where people vote with their money. Since their is significant risk involved, said people are assumed to do at least some due diligence/research before placing their "votes." And for that reason people have confidence that markets are right/smart, because why would so many intelligent people put themselves at enormous risk by placing their confidence in a bad investment?

Of course if the original investors get rich, eventually this leads to ignorant people (i.e. people who have not done their research) jumping in and the smart market becomes something else.

I know I am oversimplifying

I only ask because most of what I've been reading has assumed the market is irrational.

And that, famously, _never_ crashed.

Housing prices crashed after most of the negative voices capitulated and bought into the speculative fervor, until there were no more buyers.

Today, nearly everyone's gut instinct is that cryptocurrencies are scams, frauds, bubbles, Ponzis and tulips.

Popular sentiment has been negative for years. How will this thing unravel before the majority capitulates?

On the other hand, a large secular demand will always exist for housing. The same is not true for bitcoin.

For completeness, "housing crashed when lots of people who had bought housing on credit turned out to be unable to service the debt and couldn't sell to someone else for more than they paid"

That italicized part is what caused the downward spiral, and that's the part that's relevant to Tethers and cryptocurrencies.

Most people with worries about escalating real estate prices had capitulated and bought in before the crash. With no more buyers, the self-reinforcing cycle went into reverse.

With cryptocurrency, the vast majority of wealthy people already think it's a scam, bubble, Ponzi or fraud. Unclear how a bubble can form when most people think it's a bubble.

I think that bitcoin prices are being primarily driven by long-term speculation - if everybody hoping to flip BTC for overnight profit exited the market tomorrow, it wouldn't make that much a difference in the end. Wouldn't surprise me if I am wrong though.

I don’t think that many people are really holding onto tethers all that much; who has tethers to sell? Bitfinex itself?

How many levels of deranged libertarianism are you on? The market never makes mistakes?

> I see the same shit with real estate.

Right, and the real estate market spectacularly imploded and took the global economy down with it when it turned out the market was wrong. Is that your point?

> When there's information that all market participants know, the market price should reflect that information.

It should, but it empirically does not. "The market can remain irrational longer than you can remain solvent" - i.e., smart investors know that you don't bet against a bubble, even if you're 100% right that it is a bubble, unless you have very deep pockets, because you can't know how long it will continue to grow (and thus how much money you'll lose) before it pops.

Even if you know it's a bubble, the rational thing to do is to ride with it, make as much many as you can and try to get out at the right time. Hence bubbles can exist and grow even if every participant knows what's going on.

you can trade bitcoin for cash balances at various exchanges but actually withdrawing those balances is subject to miniscule daily/monthly withdrawal limits and if there's a run on the market those exchanges will almost certainly collapse. there's no significant over the counter market. you can swap your bitcoin or tether for other crypto currencies but none of those have independent exchanges/markets. the best you can probably do with them is trade them back for bitcoin.

if you're a market participant who thinks things are a scam your best option is to withdraw what you can while you can and do everything you can to prop up the price until you are liquidated

Trading is dominated by smart money -- whales, arbitrageurs, etc. Coinbase may have a lot of newbies buying 0.002 BTC, but these aren't the ones trading Tether.

Whales and arbitrageurs have many facilities for withdrawing national currencies. They've completed the AML/KYC process. They have access to multiple banks in multiple countries.

If the smart money knows Tethers are fractional reserve, if they know cryptocurrencies are bubbling, wouldn't they withdraw?

Wouldn't the smart money put downward pressure on exchange rates?

And if the market is that illiquid, a little downward pressure would be magnified into even more severe price drops.

Since that's not happening with Tether, BTC or ETH, there must be another explanation.

Maybe the smart money knows something that isn't obvious to the rest of us.

Afaik Bitstamp doesn't have any withdrawal limits for verified users.

If Satoshi rocks up with 1 meeeelion BTC, if faith evaporates, the bid price could well be zero.

This assumes that the price of bitcoin will go down but the rest of the system (exchanges, tether, mining, etc.) will stay intact.

As long as people want to short bitcoin there will be lots of demand for tether at a little over a dollar that the tether company will be happy to supply. These people will balance out anyone who wants out of tether in the short term, and it's impossible to lever your "tether goes down" position.

In the future, when people decide to turn around and sell in bulk for a little under a dollar, tether might not be able to make good, particularly if they were holding their balances in bitcoin instead of USD like they claim.

Bitcoin shorters might be willing to gamble that they can move faster than the tether market will collapse in that situation and not be the bagholder.

There's no way to short "the whole mess" aside from just not getting involved in the first place or trying to get your money out while you can.

"Shorting" means borrowing bitcoin and then selling the borrowed bitcoin. What you've described is simply selling bitcoin for USDT, unless I'm missing something.

Since nobody-ish lets you borrow for bitcoin margin trades you have to "borrow from yourself" (already own bitcoin) and be long-bitcoin in the long run for that to make any sense.

But if you're a to-the-moon true believer that also thinks that bitcoin is in a bubble and going to make a temporary correction you could make a ton of bitcoin by being right... if you can actually make the trades and not get screwed by a counterparty.

Interesting observation.

Most people here are say fractional-reserve Tethers are inflating the exchange rate of other cryptocurrencies.

But that doesn't really make sense, because buying cryptocurrencies means selling Tethers, pushing down the exchange rate for Tethers. But Tethers are trading 1:1 for USD, so something doesn't add up.

You say that Tether demand is strong because traders are selling Bitcoin, and that's propping up the exchange rate of Tether.

So what happens if a Tether fraud is revealed and traders want out of Tether -- does the Bitcoin exchange rate go even higher?

See https://en.wikipedia.org/wiki/Gresham%27s_law where Tethers are the "bad money" causing traders to hoard Bitcoin, the "good money".

"so they move into tether hoping to buy back in after bitcoin goes down without having to do the expensive/difficult bitcoin-usd move."

How does this help them avoid an expensive bitcion-usd move? They will still have to buy btc with tether and then do a transaction for USD incurring blockchain fees.

Sentiment of people not in the market (readers of WSJ, etc) doesn't really affect the price all that much. They didn't want to buy bitcoin at $4 they don't want to buy it at $14,000.

For mature markets, short sellers might do such a thing. But bitcoin is hard to short and the market is so irrational its risky to try. The CME might fix the former, but it won't fix the later.

So, IMHO, the most likely possibility is simply that your market is inefficient.

Either that, or because too much irrelevant information is present, combined with an inability to separate the wheat from the chaff. In other words, it also quite frequently happens that the necessary information is there, hiding in the midst of all the noise.