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Re:Report on Stablecoins [pdf] by paulgb on Monday November 01, 2021 @10:12PM (#29076053)
I’ve been shorting a few bitcoin-related public companies on the theory that in a run on Tether they will have to liquidate large bitcoin holdings and bring down the rest of the market. It’s not as direct, but I’m less worried about counterparty risk. I wrote up my thesis here: https://paulbutler.org/2021/betting-against-bitcoin/
Re:Report on Stablecoins [pdf] by kirse on Monday November 01, 2021 @11:20PM (#29076560)
Interesting thoughts, I like the miner analysis, esp. since a lot of these companies have moved from OTC to NQ listed recently. I keep a watchlist just to observe how they react to BTC pricing, and pondering some of your thesis it's got me revisiting the thought that miners might be a great target for a "short the VIX" style strategy. There's also the new "BITO" ETF which is most certainly being used by some big brain quants to build some asset basket that nets them a near zero-risk long-term win. Wish I had more financial brainpower to put to it.
Re:Report on Stablecoins [pdf] by tuesdayrain on Monday November 01, 2021 @10:37PM (#29076237)
>I’ve been shorting a few bitcoin-related public companies on the theory that in a run on Tether they will have to liquidate large bitcoin holdings

I doubt a run on tether would even cause a 50% drop in BTC price. Hope your account doesn't blow up when Bitcoin inevitably reaches 1 million per coin ;)

Re:Report on Stablecoins [pdf] by panarky on Monday November 01, 2021 @11:36PM (#29076662)
Either markets work or they don't.

Sure, in the short term, unregulated markets can be manipulated.

But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them.

You can sell Tether on Coinbase for U.S. Dollar deposits to your bank account.

The fact that Tether maintains its 1:1 peg to the dollar is a signal that maybe all the smart guys who have been confidently predicting its imminent and inevitable failure for the last seven years might be missing something.

Re:Report on Stablecoins [pdf] by pcwalton on Tuesday November 02, 2021 @02:32AM (#29077791)
> But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them.

> The fact that Tether maintains its 1:1 peg to the dollar is a signal that maybe all the smart guys who have been confidently predicting its imminent and inevitable failure for the last seven years might be missing something.

Bernie Madoff claimed that his scam started in 1991, though in reality it was probably much earlier. It didn't collapse until 2008.

Even in the cryptocurrency space, Mt. Gox took five years to collapse.

Re:Report on Stablecoins [pdf] by panarky on Tuesday November 02, 2021 @03:00AM (#29077922)
There wasn't this loud of a chorus continuously yelling that Madoff and Gox were scams, in every possible media outlet from blogs to Bloomberg, for seven years.

There wasn't a well publicized US federal indictment and investigation of Madoff and Gox, settled with a fine and no injunction.

I'm not saying Tether is clean or 100% funded, I don't know. But unlike Madoff and Gox, accusations have been very loud and very public for a very long time, and the market still accepts USDT at parity with USD.

If Tether's treasury is empty, and if people can freely trade USDT for USD, it wouldn't hold 1:1.

Re:Report on Stablecoins [pdf] by TheAlchemist on Tuesday November 02, 2021 @08:03AM (#29080002)
There were a lot of people saying Madoff was a fraud for years.

Check this guy: https://en.m.wikipedia.org/wiki/Harry_Markopolos

Re:Report on Stablecoins [pdf] by panarky on Tuesday November 02, 2021 @11:24PM (#29090786)
Few have heard of this guy, while everybody has heard about how Tether is a scam.
Re:Report on Stablecoins [pdf] by alisiddiq on Tuesday November 02, 2021 @09:27AM (#29080850)
You are deluded if you think tether has 70bn liquid assets in case there is a run.

The question of a collapse is when not if.

Re:Report on Stablecoins [pdf] by paulgb on Tuesday November 02, 2021 @12:01AM (#29076885)
> But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them.

How would the smart money profit from obliterating them? If you’re referring to a Soros/GBP style trade, how would one borrow enough USDT to pull it off?

Re:Report on Stablecoins [pdf] by panarky on Tuesday November 02, 2021 @12:29AM (#29077101)
Somebody holds large chunks of the $70.5 billion in USDT.

Presumably, people who hold hundreds of millions of the stuff are well aware of every accusation made against Tether.

If they wanted to, they could trade their USDT for actual US fiat on a 1:1 basis if they thought USD was worth more than USDT.

The really smart money with large crypto stashes could borrow USDT with crypto as collateral, and trade the USDT for greenbacks.

Re:Report on Stablecoins [pdf] by seanhunter on Tuesday November 02, 2021 @01:19AM (#29077378)
> The really smart money with large crypto stashes could borrow USDT with crypto as collateral, and trade the USDT for greenbacks.

Have you looked into the mechanics of this trade? The crypto loans I'm aware of are all significantly overcollateralized. You would have to pledge say 1m BTC to get 0.8m BTC worth of USDT which you could then sell for dollars. If you succeeded USDT tanks, everyone who holds USDT would be rushing for the exit, wiping out the crypto you pledged as collateral also. So you succeed in losing 20% of your money on the initial USDT trade and almost all of the value of the crypto assets you pledged for the loan as well.

These markets are nowhere near as flexible and liquid as regular fx - I would be amazed if you ended up making money overall on this kind of strategy and the execution risk is significant.

Re:Report on Stablecoins [pdf] by panarky on Tuesday November 02, 2021 @03:07AM (#29077972)
> So you succeed in losing 20% of your money on the initial USDT trade

Presumably the value of Tether would drop much farther than the value of other crypto.

If USDT drops 90% and BTC drops 50% in USD terms, the BTC would gain value in USDT terms and your loan would be even more overcollateralized.

Then you could pay back your loan with USDT at ten cents on the dollar and make an absolute killing.

Re:Report on Stablecoins [pdf] by ahnick on Tuesday November 02, 2021 @09:52AM (#29081201)
In this scenario, if USDT drops low enough, might you not have trouble actually procuring enough USDT to payback and unlock your BTC? It would seem like a sudden collapse of USDT might cause a complete stop in all trading of USDT pairs, no? I suppose you could counteract that a bit by continuing to hold a certain amount of USDT, but would the loan instrument still accept USDT as repayment if USDT becomes worthless?
Re:Report on Stablecoins [pdf] by tata71 on Tuesday November 02, 2021 @12:22PM (#29083461)
> These markets are nowhere near as flexible and liquid as regular fx

Love to hear this.

Re:Report on Stablecoins [pdf] by seanhunter on Thursday November 04, 2021 @09:34AM (#29106965)
Some facts to back this up.

1)In normal FX markets the amount transacted goes to trillions of USD per day, and liquidity at the touch is very high. So if you need to unwind a position there will be people who will take the other side and the market won't move much even if you're trying to unload a lot of a single cross.

2)In equity markets (which I'm a little more familiar with from a microstructure point of view) a single large market participant like a big broker/dealer will do more than a billion client orders on a busy day (when you add up the orders they do internally and all the child orders from executing trades in pieces). If you wanted to do a billion transactions on the ethereum blockchain at the current throughput it would take you almost 2 years, and no-one else would be able to do anything. So making a lot of trades fast isn't really possible.

Obviously chains like solana would help this a lot, but the point remains that in the current defi ecosystem markets aren't very resilient because they can't react as fast and they don't have the kind of depth of liquidity that conventional markets have.

Re:Report on Stablecoins [pdf] by paulgb on Tuesday November 02, 2021 @01:06AM (#29077322)
A lot of folks in the “tether will fail spectacularly” camp also believe that its failure poses a systemic risk to other crypto, both because tether holds positions that they would have to quickly liquidate in a run, and because USDT makes up a large component of the daily trading volume for many coins.

So I suspect there’s not much overlap between people who believe they could break tether and people sitting on a large crypto stash to use as collateral.

Re:Report on Stablecoins [pdf] by arcticbull on Tuesday November 02, 2021 @01:59AM (#29077596)
There’s nobody to trade $70B USDT with except Tether Inc and they’re not paying out haha. Those folks are trapped.
Re:Report on Stablecoins [pdf] by paulgb on Tuesday November 02, 2021 @02:12AM (#29077674)
If you could borrow enough USDT though, you could still break the peg without transacting with Tether directly:

- borrow a ton of USDT

- trade it for USD on exchanges, eating away at organic demand as well as the reserves used to keep the peg

- eventually (presumably) the peg will break and the price will collapse, and you can buy back the USDT for cheap to repay the loan

The trouble is getting that USDT-denominated loan, though.

Re:Report on Stablecoins [pdf] by arcticbull on Tuesday November 02, 2021 @02:42AM (#29077839)
Agreed, the difficult part is getting a USDT-denominated loan without crypto collateral and counter-party risk.
Re:Report on Stablecoins [pdf] by tome on Tuesday November 02, 2021 @10:30AM (#29081817)
> Somebody holds large chunks of the $70.5 billion in USDT.

Personally I'm really really confused about who holds all that Tether. Just who is it? I can't come up with any good idea. Is it the exchanges? But if so then why would they?

Re:Report on Stablecoins [pdf] by humaniania on Tuesday November 02, 2021 @01:48AM (#29077537)
Wouldn't that trade be a taxable event in many countries?
Re:Report on Stablecoins [pdf] by pjc50 on Tuesday November 02, 2021 @09:13AM (#29080672)
50% price fluctuations are normal in bitcoin. 31273 on 26 Aug, 65701 on 20 Oct.
Re:Report on Stablecoins [pdf] by tata71 on Tuesday November 02, 2021 @12:24PM (#29083484)
What if Tether had rugpulled on 27 Aug?
Re:Report on Stablecoins [pdf] by fitzn on Tuesday November 02, 2021 @09:20AM (#29080766)
Really interesting article. Thanks for sharing. I was going to ask which tickers you short so I could continue learning, but I see it's RIOT and MARA. Just curious: is it intentional not to mention them in the article?
Re:Report on Stablecoins [pdf] by paulgb on Tuesday November 02, 2021 @09:36AM (#29080984)
Thanks. Yes, I wanted the underlying message of the article to be “you’re not stupid for avoiding bitcoin” rather than “yolo into this short with me” :).

I did create a synthetic tracking portfolio to keep myself accountable to the bet over time, though: https://twitter.com/paulgb/status/1453111218374389763

Re:Report on Stablecoins [pdf] by fitzn on Tuesday November 02, 2021 @10:17AM (#29081602)
Love it, and appreciate your perspective.
Re:Report on Stablecoins [pdf] by SZJX on Wednesday November 03, 2021 @06:04AM (#29092716)
Interesting idea. On the topic of shorting Tether itself, maybe I'm missing something obvious, but exchanges like Kraken actually offer margin trading on pairs such as USDT/USD and USDT/EUR. https://support.kraken.com/hc/en-us/articles/227876608-Margi... If somebody (probably a non-US-person who is allowed to do margin trading there) is convinced that Tether will tank, why can't they just go on such exchanges and initiate a short? Is the fear that the exchange itself will become insolvent after the crash, and you won't be able to withdraw your fiat out of it in the end? I'd be curious to hear thoughts on this.
Re:Report on Stablecoins [pdf] by hossbeast on Monday November 01, 2021 @10:34PM (#29076222)
Very interesting read, and it's refreshing to read some contrary opinions on the topic.
Re:Report on Stablecoins [pdf] by vkou on Monday November 01, 2021 @10:48PM (#29076318)
The only contrary opinion would be the obvious one - that their correlation to tether's fortunes are not 1:1, and that shorting them gives you a bounded upside, and an unlimited, completely uncorrelated downside.

If the Fed prints another trillion dollars tomorrow, their stock price could double, wiping out your short...

Re:Report on Stablecoins [pdf] by challenger-derp on Tuesday November 02, 2021 @03:39PM (#29086411)
Halving risks & information assymetry risks are pretty solid arguments for future headwinds faced by btc miners. Investopedia states that by August 2021, only 2.3M BTC out of the 21M cap remain to be mined (https://www.investopedia.com/tech/what-happens-bitcoin-after...). However, what is preventing a fork of bitcoin from addressing this?
Re:Report on Stablecoins [pdf] by 22c on Tuesday November 02, 2021 @07:02PM (#29088687)
You can fork BTC to do whatever you want, but it doesn't come with liquidity. In other words, a fork doesn't come with the same amount of inertia.
Re:Report on Stablecoins [pdf] by challenger-derp on Friday November 05, 2021 @03:06AM (#29116225)
Suppose BTC is met with a severe logjam as predicted by the author, won't a solution that does not involve mass liquidation (for e.g. a fork) be in demand and eagerly welcomed by existing BTC users?
Re:Report on Stablecoins [pdf] by 22c on Monday November 08, 2021 @06:33PM (#29155736)
Adoption of a fork by it's nature essentially requires there be a "liquidation event". If every single BTC user is on board then that's an "easy" game to play, you simply pick a date and coordinate with everyone that the old BTC becomes completely worthless and the new BTC is worth exactly as much as the old BTC.

That, of course, would not happen. Even if there were such an event you'd still see people trying to beat the clock and mass liquidate the old BTC while there's still demand, or people immediately liquidating their positions in "new BTC" because they think it's not going to eclipse "old BTC".

We have a good real world example of these very things happening with things like BCH and Ethereum Classic still trading quite regularly. Both were the result of some users deciding to move to a fork and some deciding to stay. In traditional markets you could make some parallels with a stock split or demerger.

Re:Report on Stablecoins [pdf] by dmichulke on Tuesday November 02, 2021 @03:23AM (#29078071)
Have you considered longing a BTCUSDT perpetual and shorting an equivalent BTCUSDC contract or e.g. borrow and sell BTC if you dislike the other stablecoins?

The big risk in your play is that the crowd in a panic will select another stable coin for going on the sideline IF AND ONLY IF such a coin is available. If not they will buy the most stable non-stablecoin which is ... drumroll ... bitcoin.

Of course, long-term effects might be different.

Re:Report on Stablecoins [pdf] by gunshai on Tuesday November 02, 2021 @10:31AM (#29081836)
How do you do this add a US citizen. Dydx maybe?
Re:Report on Stablecoins [pdf] by csstanton on Monday November 01, 2021 @10:51PM (#29076333)
Insightful article. Any particular Bitcoin mining companies you’re bearish on?
Re:Report on Stablecoins [pdf] by paulgb on Tuesday November 02, 2021 @12:14AM (#29076990)
Thanks. I mostly bet against the two largest, RIOT and MARA. The smaller ones can be very volatile and thinly traded.