I remember a lot of people (including myself) saying the same thing a few years ago, and selling a bunch of BTC at ~$8000.

"The market can remain irrational longer than you can remain solvent"

It's a good thing I was simply closing positions instead of taking a short position, cuz boy oh boy was I wrong.

That was before institutional money started going into BTC. Will be interesting to see if the 'little guy' individual investor will be enabled to take large amounts of early stage profits and saddling the 'big guy' institutional investor (which is in a lot of cases, essentially just lots of 'little guys' money pooled together while the managers skim the profits off the top) with the late stage losses.

(I am long BTC)

The sad thing is, people (like yourself) who were critical of tether a few years ago have already been validated on multiple counts: the Bitfinex connection (which tether denied) was proven; the claim that it is 1:1 cash backed was walked back to “asset backed”.

So it isn’t a case of crying wolf, it’s more a case of pointing out a wolf and being dismissed as FUD.

That’s Cassandra syndrome: https://en.wikipedia.org/wiki/Cassandra_(metaphor)

Cassandra was gifted by Appollo to see the future, but then cursed to be not believed.

How can you be “long BTC” - it’s a currency not a stock. You might say “I’m long USD” but then you are really saying you believe the US economy will grow, and the value of its currency will strengthen.

Given Bitcoin isn’t attached to anything… what does long mean?

> How can you be “long BTC”

By owning BTC, or equivalent economic exposure to owning BTC, ie, you will profit if BTC becomes relatively more valuable, and lose if it becomes relatively less valuable.

> it’s a currency not a stock. You might say “I’m long USD”

People take long position in currencies all the time. That is just a perfectly normal thing that people do, all the time. I have no idea why you think a currency is somehow different than any other financial asset here; it is not (except, perhaps in some cases, taxes).

> but then you are really saying you believe the US economy will grow, and the value of its currency will strengthen.

No. That's not how exchange rates work. The US economy is growing all the time (...well, outside of recessions), but so is everyone's else. A thousand factors go into determining relative strength.

> Given Bitcoin isn’t attached to anything… what does long mean?

It means you have a positive exposure to an increase in it's price, probably by owning some, or something that closely approximates that. Same as being long anything else. Why would it be different? What did you think being long meant?

Exactly as I suggested in my examples. Being "Long" in the USD implies general stability of the currency (which as you say has a number of factors... all of which are non-existent in bitcoin). So my question still stands. What exactly are you thinking factors into the growth of the currency? Beyond say... hopes and dreams (aka gambling).

The fact that people go "long" in fiat currencies is not at all relevant, as there is a government and usually a central bank that controls production of that currency (responsibly or not).

100% exchange rates work based on the economy underlying them (and the governments control on it)... they are not just random numbers fluctuating randomly... There is almost no comparison to crypto here, is there a fiat currency that shows as much volatility for as long as bitcoin has?

> Being "Long" in the USD implies general stability of the currency

It does not. Many currencies aren't stable at all; people still take long and short positions on them, either as part of an explicit investment thesis, or just by, you know, having some paper currency in their wallet. People have been buying gold for centuries as a way of reducing their exposure to unstable currencies.

I would assume it doesn't need to be explicitly said, but just for safety's sake, let's be clear: A long (or short) position is a bet, and you can bet on unpredictable things. Nobody uses the terminology, but technically you're "long red" if you bet on red coming up next on a roulette wheel at Vegas.

Currently equity markets have been consumed with discussions of the "meme stocks". People have been going long on, eg, Gamestop, but the stock has been incredibly volatile, and there are no underlying economic factors that even begin to support the highs it's reached. Again, being long in a super volatile stock because it's funny, or because you're bored, or because you're trying to make a statement, or because you believe it is bouncing around randomly and you're trying to profit from this is still being long on the stock.

Being long is not a moral judgement, it just means you've got an exposure to the asset becoming more valuable. If you own a share in Gamestock, or a USD, or few satoshis, or a house, you're long those assets. It doesn't matter why you own them.

> which as you say has a number of factors... all of which are non-existent in bitcoin

That is also untrue; many factors have exact equivalents, such as evaluating competing currencies for differences in projected inflation or deflation, projected interest rates, projected uptake in usage in new markets, projected change in regulations. If you think DeFi will continue to grow, or that Ethereum's migration to Proof Of Stake will finally happen and be successful, that suggests a relative strengthening of of Ethereum versus Bitcoin. If you think that a pure Bitcoin ETF will be approved by the SEC and will be good for Bitcoin prices, that suggests a strengthening of Bitcoin versus other currencies. And of course, you can evaluate the so-called "shitcoins" to decide if you think they'll ever get a fraction of the adoption Bitcoin and Ethereum have, etc.

> What exactly are you thinking factors into the growth of the currency? Beyond say... hopes and dreams (aka gambling).

As above. Although let's be clear: All currency speculation is gambling. Exchange rates are volatile, unpredictable, and for major pairs, impossible to manipulate. You can (and so very, very many people have) come up with some thesis about why the USD/EUR rate is going to move in a specific direction, go long (and/or short) in the appropriate currency, and get run over, because the market doesn't care about your thesis. Even if you're right about the thesis! :)

> as there is a government and usually a central bank that controls production of that currency

And...?

> they are not just random numbers fluctuating randomly...

They might as well be. Given the closing price of the USD/EUR pair today, there's no amount of information I can give you about relative economic performance of the US versus the EU that will let you predict the closing price of the USD/EUR pair tomorrow. Or next week. Or next year.

> is there a fiat currency that shows as much volatility for as long as bitcoin has?

There are - and have been - some very volatile currencies. Certainly bitcoin is at the far end of the volatility distribution. What of it? Again, you seem to have the model that you can only bet on sure things, and the more random something is, the less you can truly "gamble" on it. That is, if anything, the opposite of how it works.

My model is: Bitcoin investing is gambling. There are no underlying factors that could rationalise a “long” position.

You used euro/usd comparison… why not Argentina peso to usd… is there a chance it could close higher than the usd tomorrow? - no. Because the underlying economies do effect currencies and they are not random despite the three paragraphs of prose you wrote.

My question, perhaps poorly put, is why would you (rationally) go long on Bitcoin? It looks like pure gambling/speculation. I’m 100% wanting to know the value judgement being made. I’m quite okay if that answer is: gambling.

The US dollar isn't really tied to the strength of the economy either, it's about the supply and demand for dollars on the international market. Generally, dollars are in high demand as a result of their status as a worldwide reserve currency, but otherwise the strength of the dollar should be tied to the trade deficit. Having a trade deficit, all else the same, exhibits downward pressure on the dollar because people buying foreign things in dollars give their money to people that need to then trade those dollars back to someone for their own currency.

This is REALLY common finance terminology and it is being used properly here.

You are long a thing if you hold a position which benefits from its price going up. You are short a thing by holding a position which benefits if the price goes down.

So not only could I be short gold by not holding it (because I now have more equivalent gold quantity if gold price goes down) I could also be short the market by being long puts on SPY

Sorry my question wasn't about the term... but the meaning behind the term. In finance land, this terminology usually implies you believe it will go up based on ... factors.

I don't see any attached factors to bitcoin, i.e. it's purely speculative. So my question was more "Why are you long on bitcoin?" As - it seems quite random.

Apologises for not being clearer... The old "I knew what I meant" problem :\

It absolutely does not need to imply anything about the psychology behind the position. If I'm long BTC (or whatever) it simply means I'm holding a position that benefits from a positive price movement in that asset.

The more pop culture meaning of 'long' meaning "i support" is post facto the other pre existing meaning. And it's not unreasonable to correlate them. If your money is where your mouth is, they are the same thing.

It's totally possible though to be "long BTC" via a position while thinking bitcoin is a total scam, if let's say you believe you can exploit some short term irrationality.

Thank you for articulating an answer that makes sense to me. I see how my initial assertion was incorrect.

You rock!

When people say they are “long something” they mean they are invested in the price growth.

People can be “long USD” because they expect the price to increase. That's not expressing any belief beyond that. People are long on something for many reasons.

> it’s a currency not a stock.

It's a digital asset that you buy with dollars (or equivalent). If your position benefits from the price in dollars increasing, then you're long.

It just means that you think people are willing to buy it from you at a higher price later in time.

Not sure why you’re being downvoted. I think it’s a fair question. Being “long” in a zero-sum game seems a bit odd to me, as well.

In a zero-sum game like Bitcoin, there is necessarily a timing component at play. Being “long” seems at odds with that.

Long simply means taking a position that would benefit if the stock/currency/commodity/bond/etc goes up in value. Similarly, being short generally means the opposite (although in specific situations it can mean selling something you do not own, like a stock, with the intention of buying it back later for a lower price). The terminology isn't limited to stocks, investors talk about being long currencies all the time.

Hope this clears up some of the confusion.

You’ve used the term zero-sum incorrectly. Zero-sum games result in gains equal to losses.

Let’s say we all invested in Bitcoin today and only bought from people who had purchased at $10000. Then, in two years, if we sell our Bitcoin for $100000, we all make money. That’s not a zero-sum game because no one lost money.

Whoever gave you the $100000 lost that money unless they can sell it later for a higher price. Eventually someone will be left holding an empty bag.

You’re not describing a zero-sum game. Someone “holding the bag” means nothing—from your understanding, investing in the $SPY would be a zero-sum game as well.

Well, it’s not. Unless you think the entire value of our entire world economy will become zero. Merely predicting that the value of something will become zero doesn’t automatically make it zero-sum.

In order for a game to be zero-sum, that requirement must be built into the rules of the game. That isn’t true in either of these cases (Bitcoin nor $SPY).

From https://en.wikipedia.org/wiki/Zero-sum_game (emphasis added):

> Zero-sum games are a specific example of constant sum games where the sum of each outcome is always zero. Such games are distributive, not integrative; the pie cannot be enlarged by good negotiation.

Investing in the $SPY would not at all be a zero sum, because the value invested would be converted ultimately into something of real experiential value (in the form of the goods and services produced by the underlying companies), rather than Bitcoin which by definition is only ever an exchange of value.

It is precisely that difference which (I think) makes it zero-sum

> … Bitcoin which by definition is only ever an exchange of value.

Even if this was true (it is not) this still does not make an exchange of Bitcoin a zero-sum game.

I’ll prove it.

Let’s first denominate value in BTC to simplify this. I then mine one Bitcoin with less than 1 BTC-worth of energy (I wouldn’t mine it, otherwise). I now have 1 - (cost of energy) BTC,

I then give my BTC to someone else in exchange for a Widget. I now have a Widget, and they have a non-zero amount of BTC.

At no point are the sum of our two assets equal to zero, and they never could be. This could never be a zero-sum game, either by definition or in practice. There is always a non-zero net value after adding up all assets and debts between all of the players.

My background: I studied Applied Math in college, with a focus in finance, game theory, and computer science. I studied games and game theory extensively.

Just to be clear though, there is not a whole lot of places you can transact from Bitcoin to goods and services. Those that do accept it, pin it to the usd… so Bitcoin is only used as an exchange of value for USD. That is still zero sum. $1 in $1 out

You are correct mining is at least surface level not zero sum. If you apply the assumption that the energy, computing equipment and time were worth less than the resulting btc. But given the fact it has no intrinsic value… is only valuable in exchanging between fiats… I don’t think those assumptions hold.

Read about the credit creation process.

Money is created by loans by banks.

What you’re describing is precisely a Ponzi scheme. Run the game long enough, the net expected value is 0.

What you’re describing is a hand-wavy caricature of the actual definition of Ponzi scheme. Let’s be precise in our language here, please.

From Wikipedia [1]

> A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds

Do you see a distinction between this and the system theli0nheart described?

[1] https://en.wikipedia.org/wiki/Ponzi_scheme

> Let’s be precise in our language here, please.

It is pretty silly when people who are calling bitcoin a "currency" and autonomous blockchain agents "smart contracts" complain anytime the term "ponzi scheme" is used for a zero sum speculative asset that only pays out gains to existing holders by bringing in new "investors".

If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/

So many people have been saying it's a scam for so long that I almost wonder if something else is going on. Like, if you polled anyone who knew what Tether is, I bet 80% or 90% would say it's a scam. It's pretty much consensus. I've never seen a single defense or counter-argument of it online. And the vague reserve disclosure didn't help.

(And, to be clear, I also think it's likely a scam.)

I'd perhaps think it's like the lead-up to 2008 where the people behind the scenes largely knew it was funny money but the general public didn't - but here it seems pretty unanimous from the lowest-level retail investor to the most sophisticated institutional investor that it's a scam.

So what's the deal? Is it gonna be the most predictable catastrophe ever? How have they existed from 2012 until today, seemingly without any issue, despite all of the universally extremely negative PR? What are the odds it's somehow not a scam?

The reality doesn't matter, what does is what people agree on. As long as people are willing to exchange them for $1 it can continue indefinitely. The incentive is clear: why would people invested in crypto actively nuke their investment? As long as their investment grow, reality and rationality really doesn't matter. I think it's a good lesson because that behavior is not unique to crypto.

As with all classic Ponzi schemes it will collapse when some external event causes a bunch of people to demand convertibility at once, and they can't meet their overvalued rate.

This is, after all, how Bernie Madoff got caught, how bank runs generally start, and how most currency crises occur.

> As with all classic Ponzi schemes it will collapse when some external event causes a bunch of people to demand convertibility at once, and they can't meet their overvalued rate.

But why is everyone keeping their USD in USDT? For ponzis it makes sense because you're promised a rate of return, but for USDT you're essentially losing money every day due to inflation.

I mean, I don't think it's being used for this purpose, but something convertible to dollars is handy if the US specifically doesn't want you to trade in dollars. Although that then potentially makes Tether itself a target of the US government.

You can loan out USDT for absurd interest rates.

If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/

I see a key difference: we choose to participate in a Ponzi scheme, whereas the central bank fiat system is one we are forced to participate in, just by means of being born in a particular country. There’s no choice involved, being backed by the full force and legal monopoly of the state. That’s a key difference many tend to gloss over when pursuing this characterization.

The details may be different but the active ingredient is fraud.

>The incentive is clear: why would people invested in crypto actively nuke their investment?

That doesn't really make any sense. Holders of USDT are people who sold their crypto, ie. people who aren't invested. Moreover, it's unclear how switching to a more reputable stablecoin would nuke their investment. At best it's a prisoners dilemma and I'm skeptical that everyone chose the "cooperate" option rather than the "defect" option.

If they are holders of USDT they have not sold their crypto. The risk is on the USDT/USD pair, and the game will continue while people (like you said) think they have exited to USD by holding USDT.

>If they are holders of USDT they have not sold their crypto

Technically USDT is a cryptocurrency but I can't think of a real reason why someone who cashed out of BTC would keep it in USDT rather than cashing out for real USD (the FDIC insured and in a licensed bank kind). If you're only cashing out for a short period of time and are planning to buy back, then you're not really "out", and I doubt that all the tether that's out there is coming from people who wants out for only a week or two.

Because the ecosystem has been offerint 8-20% interest to hold USDT and put it in a savings account or defi contract.

It was seeing these rates that made me believe the market was a ponzi. Somehow the system has created a strong incentive to hold USDT rather than USD in the form of divergent interest rates. And 12% is crazy high: Madoff claimed returns of 10%.

There could be a benign explanation but my bet would be that various market actors are propping up the system short run with unsustainable interest payoffs to stave off withdrawal attempts to maintain the Tether peg. Huge house of cards.

> Because the ecosystem has been offerint 8-20% interest to hold USDT and put it in a savings account or defi contract.

1. do the defi contracts not accept other stablecoins? Does USDT have a disproportionately higher interest rate than more reputable stablecoins?

2. This situation (large amount of USD being parked in USDT, people warning that it's a fraud) has existed since the last run-up (2017-2018), before defi got popular. So while there might be people parking their money in USDT to earn absurdly high interest rates, I don't think that's the whole story. It'll also be interesting to see how much USDT is locked in defi contracts vs that's issued.

The first is a solid point. I’m not sure USDT has a higher interest rate than, say, USDC.

The second actually isn’t compelling though. If you have a fraud with, say, 10% daily interest in will unwind in months. But a fraud with 10-20% annual interest will take years. Madoff kept his scheme going 20+ years.

You might want to keep it on-chain, which a stablecoin would allow you to do.

I can't think of a good reason to keep it in USDT that sits on a centralized exchange, but maybe someone has one.

USDT isn't actually crypto, right?

It's just an asset that a lot of crypto exchanges use, because it's more convenient to do so than usual (regulated) financial alternatives.

Tether will probably just evaporate in the face of alternative stablecoin competition, before volume decreases to a point that a sudden devaluation kills it off.

It is an ERC-20 token on the Ethereum blockchain, so yes it is a cryptocurrency.

There is good stablecoin competition in USDC, or, my favourite, DAI. Unfortunately I think exchanges like Binance are somewhat in kahoots with USDT which is why they will not move off it.

Thanks for the correction! :)

Re: kahoots, it feels like the answer to "What's the easiest way to generate returns?" has one obvious answer: increase leverage.

And what prevents leverage? Regulation.

So wouldn't it be great if you could create an unregulated instrument via which you could balloon the amount of funds you had to play with?

I think you're living in a media bubble.

There are a plenty of rebuttals to the Tether criticism, but on sites like Hacker News no one bothers anymore. It's not worth dealing with the vitriol and downvotes to even try.

That being said I also have concerns about Tether, but I think they are way overblown.

This is the correct answer. This post by Dan held really explains the “it’s not that big of a deal” with tether.

https://danheld.substack.com/p/dont-fear-tether

"I want to note that I feel weird defending Tether and Bitfinex. I don’t particularly like either company, as they’ve done a ton of shady things over the years. I am not vouching for the long term durability of either company."

"So we know that Tether is at least partially backed and has functioning wires in and out of the bank they use, Deltec."

Lol okay, nothing to see here, your money is definitely safe.

The same way the Albanian government collapsed due to a Ponzi scheme: everyone knew it was a ponzi scheme, but everyone thought they were smarter than most and would get out on the right side of the trade.

I think it's an obvious scam but it's a very useful scam, so there are many people with a vested interest in maintaining the illusion.

From people who want to pump up the price of other cryptocurrencies, to offshore exchanges that want to avoid KYC requirements dealing with real banks, to ordinary users who like being able to transfer USDT... there's many people incentivized to look the other way and pretend that water isn't wet.

It's anecdata, but none of the retail crypto speculators (five or six now) I've spoken to IRL have even heard of Tether.

Fair. Regarding my first paragraph, I just meant of the people who do know what it is, I think 80 - 90% would probably say it's likely a scam. (I'm sure a good percentage of investors know nothing at all besides the words Bitcoin, Ethereum, Dogecoin, and hodl.)

Is that because they're using non-tether exchanges (eg. robinhood or coinbase)? If you're using something like binance I find it hard to believe that they don't know about tether (or at least heard of the term) considering that "USDT" is plastered everywhere.

Coinbase added Tether in May: https://blog.coinbase.com/tether-usdt-is-now-available-on-co...

And then recently rolled out their own stablecoin in USDC: https://www.coinbase.com/usdc/

But by default (eg. someone buying BTC or DOGE) they're probably not touching USDT right?

There's a pretty rich history of exchanges suffering "hacks" or other losses and giving all of their customers a haircut on assets to make themselves whole. Coinbase is a little less sketchy than offshore, unregulated exchanges, but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe.

>but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe.

That's only an issue if they blend USDT and USD balances together, which to my knowledge they don't. If you sold a bunch of your bitcoins for USDT rather than USD (which seems unlikely, seeing that BTC-USD has 28x the volume of BTC-USDT), and USDT goes bankrupt, that's on you.

It’s hard to imagine someone invested in the crypto market who isn’t aware of stablecoins.

I'd be shocked if more than 10% of the people investing in crypto on Robinhood know what a stable coin is. I bet a fairly high percentage of total crypto investors (not by amount of crypto, but count of individuals investing) are on Robinhood. I'd expect that other casual-friendly trading platforms with crypto support are similarly skewed toward people who don't know much about the space, though probably not quite as much as Robinhood is.

Oh, the OP said “crypto speculators” which in my mind is a bit more involved than random dudes buying Doge on RH.

buying doge on RH is the most obvious accessible kind of speculation.

You'd be very, very surprised, then. I would wager probably at least 60% wouldn't even be able to make heads or tails of the term "stablecoin", and possibly up to 80% or 90%, even.

Sometimes crypto investors do their investing through means that can be several times detached from the nitty and gritty (e.g. would buying COIN or MSTR stock be considered crypto investing? Some say it would) so it doesn't surprise me that much. I don't think it's too healthy, but hey.

There is a rumor going around the meme stock circles that financial institutions were using crypto to manage their liquidity/collateral issues. I'm in no way well-versed in this, but I'll try to convey my understanding. Essentially, banks are carrying too much cash from QE and the emergency infusion due to the COVID crash last year. They don't want to pay the interest on it, but they still need it for their other operations (the conspiracy theory is "manipulating meme stocks and preparing to cover should they fail a margin call"), so they'd been buying up crypto assets, hiding that cash in something that they could pump and dump almost at will. A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset, and coincidentally, we saw the bottom fall out of Bitcoin and the Fed's overnight reverse repo program (where the Fed does a short term swap of US treasuries for cash) begin to expand around the same time.

Suffice it to say that everyone figures that SOMEONE big is manipulating the crypto market to their own ends. With Tether serving as the lubricant greasing the wheels of the rest of the market, it has finance's prized "too big to fail" distinction.

Edit: I found one of the posts that explained the theory. I probably misunderstood it. https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_...

I know, I know... I present it mostly for you to consider as you may.

Crypto isn't nearly a sufficient alternative to the money market, in traditional finance its use is highly regulated, the whole reason for the current situation is that since 2008 banks are extremely limited in holding any kind of risk assets. The theory is obviously nonsense, because there are much lower risk instruments a bank could invest in to receive an interest-like return, were it permitted. The issue is not that banks are secretly conspiring to destroy your favourite shitcoin, it's that by law they're extremely restricted in investing excess capital in anything remotely resembling a shitcoin, never mind a stock index.

Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.

Hm. Well, I don't disagree that the crypto market is probably something of a giant Ponzi scheme. I don't have a favorite shitcoin, and I hold a minimal amount of the largest coins, mostly to try out dApps freely. (I can't resist asking you how the market cap of the crypto market has reached some multiple trillions, if not without the assistance of traditional finance.)

I think that's a wholly separate issue from that of the specter of bank malfeasance. Which is to say that you're completely off the mark in that regard; it's clear that finance is abusing its position and running right up to the line - if not over it - in spite of the lessons it should have learned after 2008. And the argument here isn't that banks are conspiring to destroy crypto; it's that they are (were?) using crypto as a tool to avoid insolvency due to the fallout from inadvisable activity over the past year or so. Even those not swept up in the cultish thrall of crypto and meme stocks are looking at that behavior with a wary eye; Archegos et al., after all.

That said.

>Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.

No. :) Someone asked a question and I answered with what I thought was a likely explanation. You can disagree, or even be offended by my stupidity, but I presented it respectfully and in good faith, so here it will be. Silliness aside, I do find the core holding of the GME crowd compelling, and likewise, occasionally, their analysis of what is an unfortunately murky subject. If you disagree, the spirit of HN's standard of discourse is to explain the manner in which "obvious nonsense" is such, and not just to simply state so in an offensive and patronizing manner.

> A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset

What does it mean to be an interest-free asset?

This is Time Cube but for money.

A high percentage of finance in general is kind of Time Cube for money.

Well yeah, but even by that standard, I mean.

It's just a Ponzi scheme where everyone is invested in the scheme because they hold crypto of some kind.

Then one day someone will wake up, decide they don't want that kind of exposure, and the whole thing collapses.

You're correct, except that the waking up with be those holding dollars loosing confidence, not bitcoiners.

If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/

I think they are partially backed, and kicking themselves back billions of dollars. It's trivial to do this for them, and their whole board is filled with crooks, ponzi schemers and "Criminal" lawyers. They hide behind anonymity and shady shell corporations. Their ceo hasn't been seen for years. Etc etc etc.

By their own numbers, it is at most 2.9% backed by cash.

The rest of it is supposed to mostly be commercial paper.

The problem with that is, in one month, they would've needed to buy more commercial paper than was even sold.

So that part is likely false, too.

> will likely take the whole crypto market with it.

I often see this repeated on HN, but this is never explained. Why will the collapse of Thether impact the whole crypto market?

My theory is, that they are mostly not backed by real USD nor assets - it's virtually impossible that they have so much commercial paper without nobody in the business even knowing them. They are most probably lying.

If this is true, and everything points to it, then there is simply much less real USD on the exchanges than people think. People often quote the crypto market cap and that Tether only represents 5-10% of it - but most BTC were never really available anyway - they were never bought or traded on any exchange. So the total inflow of USD (or any other real money) is much less than crypto market cap - and a lot of it was eaten by miners, arbitrageurs and exchange fees.

When the music stops - and enough people try to get their real money from the exchanges, it simply won't be there.

Real money = bitcoin, so yes, if people leave their bitcoin keys on the exchanges, they'll loose real money. Not your keys, not your coins.

No. By real money I mean fait currencies

People love using Tether to purchare BTC (and other cryptovalues).

> over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers. [0]

Thus, it is not unreasonable to say the 1 Tether = 1 USD change indirectly affects (read: inflates) the valuation of BTC, and that a depreciation of Tether may have an impact on BTC.

[0] https://crypto-anonymous-2021.medium.com/the-bit-short-insid...

If anything, it would most likely create substantial buying pressure in BTC or ETH in the short term. The whole reason people hold Tether is because they’re in an ecosystem where they can’t easily access dollars directly.

Say you’re on a crypto only exchange, like BitMEX, or on blockchain. What are your exit options? You can’t buy USD on Uniswap, only stablecoins. In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.

> In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.

I’m sure there would be a lot of people who would like to trade their Tethers for Bitcoin in the event of a collapse, but who is going to sell it to them?

Someone who thinks that they can recover 10% of the nominal value may be willing to sell BTC for Tether, at a price 10x as high as the actual-USD Bitcoin price.

Yup, flight to safety in crypto means buying BTC. Nobody needs Tether—you can get into and out of nearly any fiat currency from BTC directly.

One problem: nobody with BTC will want to trade it for tether if tether collapses, I bet even the market makers would stop exchanging BTC a for tether.

Right. But problems with Tether don't affect bitcoin. People who want dollar-pegged digital currencies can hold other USDx tokens, including DAI, which is all provably based on over-collateralized (minimum 150%) debt obligations in a decentralized system.

Absurd. It is like saying the collapse of Lehman Brothers would be good for other bank stocks.

When Tether implodes the entire space will deleverage.

No, it's more like saying that a downgrade in America's AAA debt rating would lead to a rally in price of the US dollar and Treasury Bonds. (Which is exactly what happened in 2011.)

It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.

If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.

No, Tether can simply become worthless. Take the extreme case where Tether's backing organization does an exit scam and there are no assets at all behind it. Anyone who has Tether has simply lost that money; they don't get to sell it and buy something else.

Have you looked at market-wide charts when I Bitcoin is having a bad day? All the others are red too.

Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of cryptko.

Have you looked at market-wide charts when I Bitcoin is having a bad day? All the others are red too.

Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of crypto.

In case someone is interested in shorting Tether, thanks to DeFi this can now be done without explicit exposure to a crypto exchange or dangerous BTC shorts. For the uninitiated, I think this is also a good example for the kind of craziness that is possible now:

Deposit a "good" stable coin (for what counts as good in this space, which is USDC) on Aave or Compound and borrow Tether against it (75% and 80% loan-to-value respectively). You can now either send it to an exchange (e.g. Kraken) and swap USDT to real USD, or go to curve.fi and swap USDT for more USDC and deposit back to Aave or Compound. Repeat until either 4x/5x leverage (theoretical max) or your personal risk tolerance is reached. Remember to service the position by depositing more USDC occasionally (otherwise will be liquidated with penalty). As of this writing, variable interest rate is ~3.5%, fixed interest rate is 11%.

Scenarios:

- USDT goes to zero, buy as many as needed for scrap, pay back the loan, free the original stablecoins, sell for real USD and make between 1.75x to 4x/5x, depending on which route you chose above.

- Both USDT and USDC go to zero, you lose between 25 to 100%, depending on the route you chose above.

- There's a USDT shortage (real or somehow engineered) and it goes way above $1 causing your position to be force-liquidated, causing you lose between 25 to 100%, depending on the route you chose above.

- Only USDC falls below peg (temporarily or permanently) and you get force-liquidated (25 to 100% loss)

- You forget to service the debt or a spike in the variable interest rate causes you to get force-liquidated (5% penalty)

- Tether never goes to zero and you keep paying 3.5% interest (variable)

- Smart contract hack / Ethereum shuts down, you lose up to 100%

- Unkown scenarios

While there's no explicit exposure to a crypto exchange, there's still the implicit exposure to Coinbase/Circle via USDC. DAI offers no escape here, since its 50% collateralised by USDC (the other 50% crypto would likely be in serious turmoil in case USDT collapses potentially losing its peg as well).

In spite of this, I think this is a considerably better way to profit from a Tether collapse then the much more dangerous route of shorting BTC futures, or shorting via an unregulated crypto exchange where there's no guarantee that they'll pay or even be operational in such an event.

I like this strategy, but would seriously not recommend it to anyone that isn’t willing to lose everything they put in. This isn’t a spot play where you still have the underlying crypto asset.

I know apes will ape, but seriously, don’t.

I have no doubt Tether has something wrong going on in the background but:

> Tether is bound to collapse soon

I've literally been hearing soon™ for years on this one. I think I was sent from a post here in 2018 to http://www.untether.space/ because it was going to collapse any day at the time.

print tether, deposit it into an exchange, buy btc, tether is now back by an asset (btc), btc now higher in price, repeat

It's as much of a scam as any bank is sans the fdic insurance. As long as most tether holders don't redeem at once then the shell game can go on forever, just like Bank of America. Tether should convert to a bank and get fdic insured.

“It's not what you don't know that kills you, it's what you know for sure that ain't true." (Mark Twain)

I read this comment about 5 years ago on HN.