I agree with your premise but the s&p isn’t going up by 7% right now and the author is just taking a calculated risk. That’s his business. If he thinks Tether is going to collapse then he’ll make a massive return on his investment.

He’s essentially gambling $46/yr to get a $450 payout if Tether collapses.

> massive return

Just around 100%. That's not massive for crypto gambling.

You could just buy BTC and have 600% in less than 3 years if only BTC won't break out of its 12 year trend.

And that's a very conservative gamble.

Not if you believe BTC is wildly overvalued. I personally don’t think it sets a new record high, ever, and is mostly down from here

look i'm as skeptical as the next HN'er but the evidence of past history is against you and "ever" is a very long time...

BTC doesn't have to win mass adoption for it to set new highs, it just has to be the "store of value" (i know, i know) for enough people and for the next QE cycle to start in 3 years to get going again

BTC hasn't been around long enough for it to have a past history to be evidence against the belief it will downtrend. Not relative to other currencies or commodities.

That's like putting a match to gunpowder and claiming based on the trend of the first few microseconds, the flame will engulf the world.

Bitcoin doesn't raise exponentially. It slows down over time. Each swing cycle is shallower than previous one.

It's more like putting a match to a gunpowder and theorizing that at some point some equilibrium will be reach at greater volume than currently observed.

Instead of price history look at utility history: It’s never been anything other than a speculative asset or a temporary medium of exchange for criminals. There’s no future here.

Future returns on BTC cannot be compared to the S&P!

Is there currently new and previously not knowable information regarding its utility compared to when the price was going up?

No, it’s never been particularly useful.

Do you believe a popular pyramid scheme has demonstrated utility? If a pyramid scheme made people a lot of money in the past does that suggest it has long term value?

People similarly argue that stocks are a pyramid scheme but that doesn't stop them from existing.

You got a nice lil dvote from our HN friends because you spoke negatively about stonks (they like stonks a lot!) and neutral about bitcoin (they HATE bitcoin! Mostly out of jealousy). I don't think either is a pyramid scheme but both often trade at inflated valuations.

Replace "pyramid scheme" with "stock" and the argument still stands and is actually relevant to bitcoin. Can you please explain how bitcoin is a pyramid scheme? You can say Ponzi scheme or scam or just hate it because you haven't gained anything from it personally and wish you did when you first heard about it at $5, but pyramid scheme it is not. Thanks.

So you don't believe that scarcity can capture and hold any value? Only utility can do that?

Isn’t scarcity relative to demand? I mean each cubic meter of soil is globally unique, but no one cares. And, in the long term, demand plausibly has a relation to utility?

I do speculate that part of the appeal of a non-loan/investment based store of value to very rich people is that hey wish they could keep all their wealth in a vehicle that didn’t involve investing in the overall good of society, but that is a childish wish - wealth is inextricably linked with the prosperity of the society in which it is enmeshed. A billionaire in a society ravaged by disease, hunger, and conflict, shorn of the comforts of science and technology, will be poorer by far, in terms of objective measures, than a billionaire in a society where the people are educated and science and medicine are widely available, especially over he generations.

It's related to the demand. That's why unique things might not be scarce especially when there's a lot similar things.

That's why NFTs are not scarce even though they are unique.

Personally I would also wish that billionaires kept their wealth in things unrelated to the real world. Because when they put it in the real world they hike up the price for everybody by creating illusion of demand that really isn't there because they won't use what they bought.

This because something is scarce, doesn't make it valuable. Claims to the contrary are just another example of crypto bros not understanding economics or human behaviour. Otherwise, a whole bunch of people with boxes of Beaning Babies would be rich by now.

Were beanie babies truely scarce? The way Rambrant paintings are?

Please do mansplain to everyone about "understanding economics or human behavior", two topics that are barely understood and have wildly unpredictable outcomes on any given day. Back to grown up talk: scarcity doesn't create value by itself, no. A giant multi-billion $ bulletproof-ish network of millions of active users trading a scarce commodity does create value.

There are a limited number of pure collectors, or even FOMO collectors. And much of this collection value comes about through increasing limitation of an item(1), along with a population increase (making more collectors)(2), and increasing wealth of current collectors used to bid up the price on collectibles (wealth increase through means other than their collection, obviously).(3)

(1) - If you buy bitcoin now you might be part of increasing the price of a bitcoin by increasing its rarity through the means of losing your private keys. But this doesn't benefit you.

(2) - We're reaching the point where our carrying capacity is starting to hit limits. Maybe in a few hundred years we'll have space colonies to keep increasing the population, but: 1) This won't benefit you, as you probably won't be around then; 2) There will be other collectibles that the then population may be more interested in. It is the case that certain collectibles are incredibly rare (single digit numbers), but also cost less then $10k, simply because there are not that many interested collectors.

(3) - If you sink most of your investments into crypto this limits the ability of your wealth to grow outside of your collection.

There is a finite amount of BTC, but infinite amount of cryptocoins

True, however none of them became actual competition for bitcoin. Not even ETH which is atrong number 2.

I've got some fresh toenail clippings you may be interested in! I only clip my toenails about twice a month, and probably will cease production entirely within 45 years.

Are they exchangeable for tether? Then it might balance out.

Gold is also speculative and it's much larger than BTC. I hate crypto but $100K BTC is completely possible.

Anything’s possible but gold is useful and has intrinsic value. Bitcoin isn’t very similar. I don’t think one implies anything about the other.

Gold used for jewelry or industrials is a fraction of the overall yearly production of gold though. So it's mostly used as speculative instrument to store value (assuming this sentence is allowed with those two clauses together).

Gold is by far mostly used as a store of value. Bitcoin is by far mostly used as a store of value. Next.

Your tulip futures from 1637 would still be out of the money, even though global tulip consumption is much, much higher and the Netherlands is the world's leading supplier.

Finally! It took this many comments for someone to show, via the age-old tulip example, they know nothing about crypto except that there is hype around it. And thank you for adding the date to show you read the top of a Wikipedia article.

I think you misread me. I think crypto will be very, very big in terms of utilization and value, much bigger than it is today. But I also believe this does not imply that there will be much expected gain from purely speculating in the price of current cryptocurrencies.

That's where the tulip analogy comes in. Not an implication that crypto is useless, just like tulips, but that a speculative mania can leave a novel and in-demand product (asset class, in this instance) with prices that are much higher than they will be at the steady-state in the future where both adoption and production is much higher.

I will probably buy Coinbase stock if Tether finally blows up, but before that the speculation is too much for me to commit to anything.

Evidence of history?

It took COVID to get Bitcoin back up. That's it

Not history, just a rare event.

No one cares about Bitcoin anymore.

You seem to have forgotten the other... IIRC 3 (?) times it has gotten back up ?

(But feel free to short bitcoin of course - not the kind of risk I would take.)

Other 3 times?

Error. 1 long streak before COVID and a large decline then too.

And 2 times jumping around during COVID-19 = over a very short period.

The previous times the bubble popped : around $30, $300, and $3000 per BTC.

The ~$300 one immortalized in this parody music video :

"Blame it on MT.GOX" :

https://youtu.be/K2ku1A5Ox8U

(Note that this one was NOT about MT.GOX going bankrupt...)

And one of the biggest jumps in Crypto ( the one outside of Covid) was when banks jumped on it ( end of 2017 i think).

Now you are seeing the opposite: Eg. https://www.barrons.com/articles/banks-fleeing-crypto-bitcoi...

I'm not replying here again fyi. I don't care about crypto anymore ( went out at 2018 before the crash), I do care about others losing money :).

If you think it will rise again, fine. Go for it.

Almost every speculative asset was up then, capital was desperate to go anywhere as borrowing was cheap and savings rates were high.

Explain why Bitcoin went down before COVID then.

As you say, borrowing was cheap. There was no reason for it to decline after 2018 till 2020...

Reminder: other speculative assets didn't decline then :)

As I said before, Covid, with boredom and free money. No one used Bitcoin as investment and not many would borrow money for buying crypto.

Still: no one cares about Bitcoin anymore except some select people that live in the past.

If you assume that Tether is going down, BTC will crash, too.

Humans are terrible at gauging risk. I think the parent comment was highlighting the risk component of this.

VTSAX-and-chill is gambling also. But the risks are so wildly different that Tether is closer to buying lottery tickets than index funds.

Everyone does what they want with their money but there seems to have been an explosion of “massive returns” content that I think is generally harmful.

(I’m neither saying that this post is or isn’t harmful.)

I’ll just go out and enjoy “neither A or B” instead of “not A or B” or “A nor B”. I had to parse “neither is or isn’t harmful”.

I don't have a deeply researched position behind this, but my feeling has always been that (long term, I say again, LONG TERM) VTSAX and chill is the same bet as holding cash.

If your VTSAX ends up being worth nothing long-term, there is almost certainly no chance that your currency survived the same event.

Curious about this. The geometric mean of return for the S&P500 is about 7% over several decades. The longer the time horizon the more likely you’ll hit 7%.

Why do you think it’s similar to holding cash?

Not that its the same return as holding cash (clearly that isn't true), just that if VTSAX doesn't pay off as a bet long term, it will be because the dollar has ceased to be valuable.

Basically, a bet on VTSAX is underpinned by faith in the dollar. If either one crashes the other is worthless.

> s&p isn’t going up by 7% right now

It always sounds weird to me when someone uses the present continuous tense to refer to the rate of change of stock prices. Like, how are you taking the one-sided derivative of a fractal?

Pick a shorter timeframe like one month, calculate annualized rate.

Then you'd say 'the S&P hasn't been going up at 7% recently'.

The pedantry hasn't been making you a more effective communicator recently.

Welcome to finance: if you're not being pedantic, you're probably trying to sell a lie. Verb tense absolutely matters.

Does anybody here believe aardvarkr was trying to sell a lie with their casual verb tense?

That's a bad idea, since equities have a lot of calendar events and a given month is never representative of a year's performance.

pick 3 months and try it.

I bet you’re fun at parties. The right way to phrase it would be to throw in a “YoY” but clearly you care too much to ever let someone on the internet dare to make such a pedantic mistake. Try contributing to the conversation instead of detracting from it.

If Tether collapses Aave will collapse too, the plan is hilariously defective

Aave as a token might collapse but Aave is a protocol, and it will continue working as designed. When Ethereum collapsed to sub 900$ we could all see how robust these decentralized protocols are. The price of the token has nothing to do with how Aave works.

I am talking about the protocol. They are untested protocols with potential design flaws or potential hacks. We have seen these happening for tens of billions of losses for years now. Waiting for something to collapse in something that can collapse is total irrationality.

The most important line in finance is "Past performance is no guarantee of future results". This is generally treated as a warning label: Don't assume an investment will continue to do well in the future simply because it's done well in the past.

However, what it really means is that nobody can predict future performance, even with historical data. I think it's negativity bias that this phrase is used to apply to downside; it should also be used when considering upside. (The reason, I think, is many people prefer to miss out on upside rather than experience downside, ie we are risk-averse.)

Over some future time frame, the S&P will go up again. It doesn't feel like that will be soon, but as I always admit to myself: I am really bad at predicting the future.

Since October 12 it has been going up at an annualized ~30% rate.

Where it goes next is anybody's guess.

I don’t get how everyone misses this part. Assuming counter-party risk is 0. This is still not a risk free trade by any mean, even if Tether collapses at certain point in the future.

At such high interest rates, you need to close the deal soon otherwise you are bleeding your capital really fast. The interest compounding also means you are losing your money in a compounding fashion.

If the author started shorting Tether 5-6 years they’d never turn cashflow positive and they’d be nearing bankruptcy where they lose all their monies.

They are investing $250. The author realizes that this is not a great trade. It’s a proof of concept.

not much of a proof of concept then

Did we ... need proof of this concept? Here's a thread just on this forum, from over a year ago, explaining exactly how to short Tether via the trade the author is "proving":

https://news.ycombinator.com/item?id=28796356

My take was this is less about proving a concept and more a nerdy/amusing/I don't mind losing money way of saying "I strongly believe Tether is a house if cards that will blow over at some point".

Hence the last line - "for the eventual pleasure of saying “I told you so”."

I partake in this trade. There are other DeFi markets than Aave with better rates (6% to 9% range) for borrowing Tether. I also don't only use one market or one chain to hedge a bit smart contract risk. I also didn't sell Tether and just hold cash. Maxing out my I Bonds allocation and then buying treasuries has offset the interest on Tether such that I've been slightly net positive for the last 18 months on my position. This is all gambling money, no money I actually need day to day is tied up in this and my retirement/savings are invested an a traditional portfolio of stocks/bonds/real estate.

Why do you believe that Tether is investing in riskier assets than treasuries and equivalents? With so much capital, and all the scrutiny they've had for many years and throughout many cycles it seems incredibly foolish to do anything else.

Tether effectively has a risk-free golden goose, it seems quite foolish to slaughter it in an attempt to gain slightly more alpha.

1. doesn't this describe FTX just as well?

2. if they're not doing anything shady, how come they can't be more transparent than they are?

> Why do you believe that Tether is investing in riskier assets than treasuries and equivalents?

That's easy. I can assume US treasuries will be here in 3 month, or a year or 10 years, and almost everyone will agree with me.

Almost no one would agree with close to 100% certainty that Tether will be here in 10 years or a year or even 3 months.

Even Aave itself has better rates -- the figure the author is quoting is from the the platform's option to lock in a fixed rate for your loan. Currently you can lock in 12.24% [1], but you can also borrow at the variable rate, starting at 3.15%.

Now, that does subject you to uncontrollable variation, but if you look at the chart, it's historically stayed at a very low level. Even the occasional spike you see is only for a day or two and has little impact on the annual average. [2]

Furthermore, the whole time, you're getting credited for interest accrued on your collateral. (1.18% on the USDC here -- so, all in all about a 2% annual carrying cost, not a bit issue if you think the crypto market are on borrowed time!)

"But what about the case where USDT borrowing surges and you have a persistent high rate?"

If that happens at all, it's probably because everyone else is dumping Tether, meaning its price is probably falling, and it's a great time to close the short anyway!

[1] https://app.aave.com/reserve-overview/?underlyingAsset=0xdac...

[2] People often miss that "omg high interest rate" for a few days translates into a very little expense in absolute terms. It was especially bad when banks were complaining about having to do one-off overnight loans on a very temporary basis for 4% rather than 2%, supposedly meriting Fed intervention!

> People often miss that "omg high interest rate" for a few days translates into a very little expense in absolute terms

That is assuming crypto rates are like USD bank rates.

Do you know any structural reason the rates can’t spike to a Megapercent (annualised) rate or higher? If you are being charged interest, and the rate spikes, you could lose your collateral quite quickly (and it seems likely trading would be stopped so you might not even be able to close out).

Yes, I do -- you can look at how the borrow rate varies with the fraction of available tokens borrowed, e.g.:

https://compound.finance/markets/USDT

It saturates at a pretty low level.

I have no idea what you mean by the expression "like USD bank rates" though. Fixed? (bank rates aren't that, necessarily)

Sure but the author put less than $250 into this scheme and is not viewing it as an investment.

Yes it’s a click bait exactly. Projects like a smart trade but not really since even OP thinks it isn’t. Weird.

It is not click bait. It’s a thoughtful discussion of the challenges of shorting Tether, and a personal anecdote about attempting to overcome those difficulties.

It is a click bait because the articles goes: Shorting Tether is a great idea and ends with ah actually it’s not a good idea , expensive so I put 200 eur in something with extreme risk to short it. Yes, it is click bait

> the traditional 7% per year

Which is actually 10% if you include dividends. But it's about 6.56% if you adjust for inflation.

https://totalrealreturns.com/