Be Careful with Tether

 

USDT is a cryptocurrency known as Tether. It’s controlled by a sister company of one of the biggest crypto exchanges in the world, Bitfinex. Tether is what is known as a “stable coin” but you should be careful this cryptocurrency. It tries to emulate the price of real fiat currency at a 1:1 exchange rate. In Tether’s case, it’s the US Dollar.

 

This is practical

The reason this is practical is because fiat currencies are subject to more intense scrutiny by governments. It’s quite difficult to buy crypto directly with them, depending on where you reside. Tether acts as a gateway so that you’ll be able to purchase a “token” that is worth one dollar, and that token is accepted in most exchanges at a value of one USD without the hassle of fiat currency regulations.

Because it’s a “tether” to real money, whenever you feel bearish about crypto you can convert it back to USDT instead of cashing out completely to USD (which is harder and slower), and you won’t lose money if the value drops, because USDT will stay at a 1:1 exchange rate vs the US Dollar. when you’re optimistic again, you just trade your tokens again for the cryptocurrency of your choice. you’ll be able to protect your crypto without ever touching money.

If you ever want to completely cash out of the crypto market into fiat, you must always be able to sell your Tethers back to the issuer (Tether Inc) and get real money back.

 

And this is the problem

In essence, Tether works like a central bank. It can issue currency at will because it’s not a proof-of-work system. Whenever somebody buys Tether, they receive their client’s money in a bank account, and then print and transfer the equivalent Tether quantity. but there are many red flags here.

For starters, there’s an explicit disclaimer on Tether’s terms of service where they reserve the right to redeem Tether tokens. Basically, if one day you go to them with 1 million Tethers and want to cash out to fiat, they could refuse and there’s nothing you could do about it. You’d be forced to sell them to someone else who will give you cash.

Apart from that, there’s a long history of suspicious events.

It all started when they were kicked out of the US by the banks. Why? Well, the banks usually didn’t trust the origin of the money that was coming in. Thether then sued Wells Fargo but then quickly dropped the suit. So, they became an issue of a currency that is backed by the USD but can’t bank in the US. Hmmm.

Then, almost instantly, they started printing Tethers. At an insane pace.

Be careful with Tether

In the space of 1 year, they have minted over 2 billion Tethers. According to their 1:1 reserve policy, that means they should have 2 billion dollars in their bank accounts. Without being able to bank in the US.

Mind you, registrations have been disabled for several months now, so who knows where they are getting their funds from.

Tether account

People have repeatedly asked for audits as proof that the reserve funds exist. Tether has never presented one, save for a shady memo by their auditors (Friedman LLP) which didn’t really provide proof of anything. Shortly after this event, Friedman LLP was fired. That’s right. They fired their auditor. Huge red flag.

Tether trading volume raised overtime till February when they stopped issuing more currency. while everybody has been busy looking at the market cap of coins, Tether has silently positioned itself as the second biggest coin by trading volume (arguably the additional important metric). Currently, Tether registers a volume between three and five billion on a daily basis. That’s between 1.5 and 2.5 times its own market cap. That means that every Tether token changes hands between 1.5 and 2.5 times every single day. That’s quite ridiculous. Right now, Tether’s volume is over 50% of Bitcoin’s and registers absurd amounts of volume in several exchanges, against many coins. But you hardly ever hear about it.

The suspicion is that Tether is not really backed by anything, or if it is, it is shady money. Also, some think that it is a vehicle for wash trading. Several articles by different people have posted analyses online suggesting that their reported volumes are inflated. Other techniques like spoofing have also been reported.

In late February, the CFTC sent a subpoena to both Tether and Bitfinex. Then, in early April, news came from Poland that authorities had seized four hundred million dollars. They said they had disabled a money-laundering operation related to drug trafficking. Rumors were flying around that the money belonged to Bitfinex, the exchange that owns Tether, and a Bitfinex user was even interrogated by the Polish police. Some canaries that were present in Twitter accounts of Bitfinex insiders also disappeared.

I could write a lot more about this, but I suggest you read the posts by a guy named Bitfinex’ed (from whom there’s been strange radio silence since February) and all the other analyses available online. You should also read up on the founders of Bitfinex and Tether, especially Phil Potter and his appearance in the Panama Papers.

Be wary of Tether. If it were to suddenly be shut down, or their funds are frozen, and you’re holding any of it, you could lose it all.

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