From Coinmarketcap, Tether volumes are regularly second only to Bitcoin's , and many exchanges who have difficulty getting fiat banking arrangements, make use of it, to get funds into an out of their exchanges.
Loss of Tether would be a very serious blow to those exchanges.
So what's the risk? Well Tether's original proposition was that it was 1:1 backed with actual US dollars held in specific isolated accounts.
What we know now is that they "lent" $850 million to Bitfinex, to cover for funds that Bitfinex no longer has access to as their banking partner (crypto capital) has taken those funds and not delivered them to the appropriate customers.
There is now the risk that iFinex (who control both Bitfinex and Tether) could be technically insolvent, unless they can somehow cover that loss, or get their frozen/missing funds back...
There seems to be a sizable amount of confusion about the difference between insolvency and illiquidity in the tether-watching community.
The fact that they loaned out funds to Bitfinex means that their balance sheet is fine (they are solvent), but if everyone redeemed their tether tomorrow, they would have to delay the payout, which is a liquidity issue.
In short: Liquidity issues are solved by capital injections (loans or equity sales, much like the BFX LEO), but solvency issues are not.
If Bitfinex can't cover the loss, they're insolvent. If everyone redeemed their Tether, it's not a delay it's "you're not getting all of your money back"
As Bitfinex's finances are far from transparent, it's not clear if they're insolvent or not...
You could have said the same for LTCM and government had to bail the market out!
What it literally created was billions of vapor for the holders because ~100% of that “value” was entirely make-belief.
In that sense, there's nothing special about bitcoin. It's just another shared delusion, just with fewer believers. As long as there are believers, there is value. The stronger the belief, the greater the value.
What value beyond speculation does bitcoin have?
sell (stocks or other securities or commodities) in advance of acquiring them, with the aim of making a profit when the price falls.
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In what way exactly is bitcoin helping to “short global financial system”?
And yeah. No amount of belief can make bitcoin into a viable currency.
A few things:
- The scales of the first bitcoin bubble and the last one are very different. The last one created, literally, billions of value for the holders.
- A defunct bitcoin exchange can not "create" billion of dollars of wealth. That does not make any sense. People who bought early and sold when the price appreciated didn't make money from an exchange who went bankrupt but from people who bought higher.
- Bitfinex seems to be doing fine from a price perspective. The premium is gone. The AG doesn't seem to be interested in driving them out of business but rather regulating them.
- The era of the single exchange is gone. Bitfinex is a key player but there is no player holding the whole market. There is also an active off-line trading market.
- A bubble is usually the result of a FOMO-consumer market.
Some people are going to hate crypto and that's fine. But my guess is that crypto will stay here for longer and will mint more millionaires.