> Print tether, buy bitcoin, sell bitcoin for real money.

But to buy bitcoin for tether, you first need someone to sell bitcoin for tether. And this guy then has tether. What is he going to do with the tether?

> Day traders use tether to slip in and out of positions in a volatile market. Unregulated exchanges use tethers in place of real dollars.

But day traders close their positions at the end of the day (or at least regularly) so they will not hold tether.

A number of exchanges like bitfinex are in on the scam and are just holding the tether in cold storage: https://i.imgur.com/eIKDzJl.png

The exchanges will make money if btc goes up and more people buy it through them. By accepting tether for bitcoin they help pump up the price. Holding useless tether is fine as long as more retail comes in to them for bitcoin with USD.

> A number of exchanges like bitfinex are in on the scam and are just holding the tether in cold storage

But how can that be a scam if they hold the tether? It can only be a scam if someone else now has the tether and they have the real money. I'm trying to understand who is getting scammed here.

Moreover, why are they printing tether if they already have too much?

Bitfinex benefits from the increased business from retail investors that are lured by the bubble mania, that is one solid source of profit from running this scheme. While Tether, the company, makes a killing by buying btc low and selling high, they now have cash to back sufficient tether to cover whomever wants to convert their tether back to usd, such as say, their co-conspirators bitfinex.

Tether is pretend-dollars that allows them (bitfinex and Tether the company) to fraudulently pump btc. As long as enough people believe 1 tether = 1 dollar, the show will go on. Tether has yet to be audited to prove their reserves, and the crypto community believes them even though they talk about trustless systems all the time.

So this is a two party scam, one is Tether, the company, printing money out of thin air, who then the exchange, the second party, accepts and gives btc in return as if tether was backed 1:1 by USD. This transaction is what kicks off the chain reaction that pumps btc's value. Tether, the company, now sells btc for USD at a profit, and can use that money to convert tether back to USD if say, the exchange comes to them looking to trade tether for btc. So both parties win, and tether is just weird monopoly money that they know is useless but they have to continue pretending it's worth 1 USD or else they can't keep rinsing and repeating this cycle.

> But to buy bitcoin for tether, you first need someone to sell bitcoin for tether. And this guy then has tether. What is he going to do with the tether?

He may not have an off-ramp (which means he can only sell the Tether to someone else, either directly or using cryptos as a bridge). He might be a crypto trader or even trader of other kind of merchandise and need the liquidity provided by Tether (which is for all purposes, "real" as long as the entire thing doesn't collapse)

Majority of the USDT volume come from SE Asia where countries often have strict capital control, and in these situations USDT or cryptos do provided utility by allowing people to circumvent the capital control. That's also why there's a crackdown of crypto OTC desks in China reported a few weeks ago.

What, no? Tether is used as collateral for crypto futures positions. No day trader is buying spot, they are buying swaps (perp futures) or regular futures. And it's better to hold the collateral in tether or some other stable coin than in btc so you don't have to hedge as much exposure by writing futures.

I see. And these traders are responsible for the increased demand of tether?

pretty much. the firm I work at has many millions of tether for this reason (to support the market making bots)

So there is no tether printing scam in the first place? (If there was a scam, I'd love to understand how it works)

I think the accurate answer at this point is we don't know for sure. It depends on how plausible you think it is that Tether has received ~$14b inflow in the past 6 months.

This doesn't create any net demand for Bitcoin, though, right? It's in one end and out the other.

Or is the theory that Tether is actually backed by Bitcoin, in a sort of circular way that is sustainable as long as the Bitcoin price goes up but would unravel disastrously if the price were to come down?

Print tether for bitcoin, so the btc-usdT price goes up. Arbitrage bots buy btc in dollars so that btc-usd reaches parity with btc-usdt. The media and people notice that btc has gone up, euphoria is borne, they jump in, further driving the price up, narratives like paypal are used to explain the pump.

The people that printed tether now sell their btc for a profit and can now cover their tether obligations to keep the illusion going that tether is 1:1 backed with usd. They can now repeat the tether printing cycle.

> The people that printed tether now sell their btc for a profit and can now cover their tether obligations to keep the illusion going that tether is 1:1 backed with usd. They can now repeat the tether printing cycle.

And who is getting scamed here? Who is sitting on the tether at the end of the day?

Retail people seeking to get into bitcoin in the middle of this bubble are getting scammed because tether is being used to artificially inflate its value. If tether goes away that would hurt whomever believes it's worth a dollar. The exchanges who are in on the scam can trade tether back to USD if they need to when the tether company sells their bitcoin for a profit. But the exchanges also make a killing from increased business during this mania, so they may choose not to sell their useless tether since they are collecting real money from retail traders and might help with plausible deniability.

Sorry, I'm slow and I really don't understand this.

> Retail people seeking to get into bitcoin in the middle of this bubble are getting scammed because tether is being used to artificially inflate its value.

But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?

I now have 18k USDT, but I can't spend them on blackjack and hookers. In fact, I can buy nothing with the 18k USDT except crypto!

So I have two options:

* I keep the 18k USDT. But why should I do that?

* I buy back my BTC. But then somebody else has the problem of spending the 18k USDT! Where do they eventually end up? I dont get that part.

>But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?

It doesn't really work like that. It's more like: you see BTC being traded at 15k, and you refused to buy because that's ridiculously high. Two days later, the price pumps to 18k (which is, at least partially, caused by Tether printing). Now FOMO kicks in and you saw a tweet by some rando that says that Bitcoin will breach the ATH and get to 25k for sure due to his TA. You decided to buy in at 18k.

Notice that in this entire thought process, there's no difference between USDT price and USD price. They are considered one and the same, at least in the vast majority of traders, holders, miners and crypto media.

Now, you may have access to USD exchanges like Coinbase, but many people don't. For those, their only FOMO option is USDT exchanges like Bitfinex, which means they need to buy USDT first, which means the Tether ecosystme just got some new cash inflow and someone else got to cash out their USDT.

So for this to work out I am tether the company, you are an exchange that is in on the scam. So the initial denial of declining 15k USD doesn't even happen. What happens is I print a billion tether and use that to buy a bunch of btc from you. You willingly take tether despite knowing that tether is useless, because you know that this transaction will pump the value of btc and you benefit from that. We both benefit from btc going up. So it's in our best interest to keep the charade going.

The price of btc denominated in tether (BTC-USDT) goes up after our transaction. Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity. Now bitcoin's price in dollars has gone up and people notice this, and news articles are printed and people get FOMO.

But at the root of this pump is a fraudulent transaction. I printed tether that I know is not worth one dollar each, and you played along with me and we exchanged tether for btc, and we caused btc to go up in price so that we both benefit. Whomever buys btc (i.e. retail investors) after I've pumped the price is in great danger of being scammed because there was no real money behind the initial tether transaction. You, the exchange, might be holding a lot of useless tether, but it doesn't matter because you've already profited from the price increase in btc via higher trade volume and usage of your platform plus all the publicity you get from a media that is always happy to report insane btc valuations.

So you don't do anything with the tether, you don't care about it as the exchange. It's unclear if the tether in these exchanges, which is a lot, will be redeemed for dollars at some point in the future by coming back to me, the Tether company, where I would use some of my profits from selling btc high to trade some of your tether for USD and help maintain the appearance that tether is fully backed by USD.

> Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity.

This is the bit that doesn't make sense.

Arbitrage bots trying to push BTC-USD up to match BTC-USDT will end up holding a lot of USDT. So what do they do with it? You can't just magically make USD markets go up; that needs actual USD to enter the system (as part of the arbitrage process, if nothing else).

Someone in this whole scheme is leveraged to the tits on tether, and newly minted tether is needed as an asset to back the old tether. And as long as nobody actually tests the convertibility of the currency too strongly, this can hold up.

But if arbitrage bots were pushing the BTCUSD price up to match BTCUSDT, they'd have giant piles of USDT. And they'd have to convert it back in large quantities, or else they'd go broke.

The world where no one tests the peg too hard is incompatible with the world where Tether caused huge BTC runups all on its own.

It's musical chairs. When the music stops, somebody's holding USDT: either because they were using it as in intermediary to trade into other coins, or because they believed that Tether is really backed 1:1 (lmao).

> Where do they eventually end up? I dont get that part.

Without a chair.

More likely (most definitely), they are using tether as collateral for their futures positions. It's not capital efficient to trade spot in most cases.