Bitfinex is one of the largest exchanges, and Tether is also used by many other exchanges like Binance.

It's not implausible to think that there's $13B of inflows to BTC this year.

This whole Tether speculation / hit piece is basically people thinking "It's implausible people want to buy bitcoin on the largest bitcoin exchanges".

If Tether were in fact receiving real USD to support the billions in USDT it keeps issuing, then why hasn't it handed over financial docs to NYAG, which is investigating it for fraud? Why has it not had a third-party audit? Why does it keep printing USDT in larger and larger numbers (a sign that the real $$ may be disappearing from the system)? Why don't we see a similar growth in other regulated stablecoins?

Because their banks keep shutting down their accounts. They've been playing whack-a-mole with regulators for a long time, and they probably view the NYAG's request as a backdoor way to find out where and how they're banking in order to shut them down.

So nobody knows if Tether is backed because:

* it isn't and Tether wants to keep people in the dark

* it is, but a hammer is ready to fall that probably involves OFAC freezing funds

Any other options I'm missing? Because neither of those look good.

People have been saying this for years now. Not only has nothing materialized, but the price has barely ever deviated from the 1:1 peg.

Danny you have that 100% backwards.

> This whole Tether speculation / hit piece is basically people thinking "It's implausible people want to buy bitcoin on the largest bitcoin exchanges".

This whole Tether speculation / hit piece is basically people thinking it's implausible that people are physically capable of redeeming Tether for USD, ever. Not a single audit has ever been conducted - except for one that was started and then the auditor literally quit half way through. If you begin there, the rest all falls into place.

Come on, you've got a super shady organization based somewhere between a virtual office in Hong Kong and a corporate entity in the BVI. [0] Who pretended not to be involved with Bitfinex until the Paradise Papers showed it to have the same principals. [1] Who lost banking access repeatedly - being cut off by Wells, before issuing a letter that they were now banked in Nassau, Bahamas with Deltec that Deltec then denied ("The bank previously declined to confirm any relationship with Tether when reached"). [2] For about as long as I can remember they promised to release an audit, but of course, their most recent auditor literally walked out once they got a peek under the covers [3]. Then when Bitfinex (care of Panamanian company CryptoCapital) had $850M seized they just transferred it from whatever mattress is keeping Tether funds and left Tether with an IOU [4]. And are now the subject of 5 or 6 ongoing investigations and lawsuits, most significantly by SDNY [5].

If I didn't have sources for all this you'd think this was the most absurd conspiracy theory ever. It's all true, though, and what sane person could possibly believe $2B of fresh new money is making its way to their big ol' Bahamian mattress?

Bitfinex is a massive fraud, and Tether is a massive fraud, it's plain to see for anyone willing to take a quick peek.

[0] https://craft.co/tether-holdings

[1] https://www.icij.org/investigations/paradise-papers/paradise...

[2] https://www.coindesk.com/tether-produces-letter-confirming-d...

[3] https://news.bitcoin.com/tether-severs-ties-with-its-auditor...

[4] https://www.wsj.com/articles/bitfinex-used-tether-reserves-t...

[5] https://cointelegraph.com/news/new-york-court-rejects-bitfin...

You could have $13B of inflow to BTC with only $1B of Tethers because they should be reused. Who is holding them and why?

Who is holding USDT? Likely traders who went onto Bitfinex (Tether's sister company) and sold their BTC there for what they thought was a good price. BTC, in this scenario, is a bridge to USD, because it can be moved to an OTC desk or a banked exchange and sold for cash.

So they're going to hold USDT until the crash, then re-buy BTC and move that out? Plausible, but it sure seems complicated.

If arbitrage bots try to arbitrage between BTC-USDT and BTC-USD markets, and the USDT markets are the ones pushing the price up, then it's the arbitrage bots that would end up holding huge amounts of USDT. So what are they doing with it? They should mostly be trying to maintain equal holdings to handle arbitrage, so they would have to sell it on USDT-USD markets (or redeem it from Tether, if that's actually possible).

If the tethers are actually unbacked, then the USDT-USD markets should be dropping hard as arbitrageurs try to unload tether bags.

I think the ponzi continues to work for now, the arbitrageurs can cash out, while the illusion that tethers are backed prevails. So indeed if no one does redeem these USDT as I keep reading could the arbitrageurs just slowly buy the cross to USD over a period of time after the trade? Alternatively USDT seems to be a proxy-currency to move across exchanges and networks, so it may indeed be transferred off to other pairs/tokens to fund alternative trades...

Arbitrage isn't magic. The only way arbitrage can push BTC-USD prices up to match BTC-USDT is if the arbitrageurs are selling a proportional amount of USDT for USD. Either they're redeeming them with Tether, which some claim isn't actually possible (?), or they're selling them on USDT-USD markets. Since those markets still trade around $1, it's safe to assume there is not some massive imbalance for selling USDT over buying it.

Tether might be shady in all kinds of ways -- their operation has a lot of red flags to it. But it basically can't be responsible for massive BTC rises all on its own, because the rises happen even at pure USD markets, and that can only happen when a lot of real USD actually got injected.

>they're selling them on USDT-USD markets.

My hypothesis is they get dripfed onto these markets so as not to spook them. Or just transferred off to collateralize other trades - hey it's free money to them, why not set up another trade elsewhere while they are in?

It is not safe to assume anything based off market price action. You seem to be assuming there is some essential relationship between volume traded and price. These are market prices, they can be totally irrational, especially if there is some fake news (Tether is fully backed) behind them.

There exist a pretty huge number of OTC desks in SE Asia (mostly in China) that deals with USDT, they provide significant liquidity and could feasibly support cashing out of the arbitrage bots.

Also, because the order book is pretty thin on most exchanges, it may not take much arbitrage for the USD price to catch up.

Thanks, that is very enlightening. So Tether are all about maintaining the apparition of a 1:1 backing of USD to USDT. It's the lynchpin of the whole scam. Otherwise the step above you mention around the arbitrage bots buying btc-usd no longer occurs, and the game is ruined for them.