What you’re about to read is an update on a series of articles called ‘The Bitcoin Papers.’ If you haven’t been following the series, I strongly recommend to first read the previous Tether or USDT reports as presented below:
Tether Issues Over 300 Million Tokens In Just Six Days
After a very busy November in which Tether Limited printed around 325 million USDT, one of the loudest voices on social media that constantly criticizes the company, Bitfinex’ed made a bold – yet not that unpredictable for anyone who follows the story – prediction. He tweeted:
To follow my prediction of tether issuance for December. Between 300 million and 450 million after a red weekly candle.
— Bitfinex’ed 🔥 #DontGetTethered (@Bitfinexed) 26 noiembrie 2017
The readers are already aware of the 50 million USDT bulk issuance to start the month of December, as presented in my previous update. Several days after that, on December 8 and 9, the Bitcoin price plummeted from over $16,500 to under $13,000. Two days later, Tether issued 25 million of its allegedly US-dollar-backed tokens. Coincidentally, the price jumped from around $14,500 back to over $16,000 reaching a new all-time high.
This was only the beginning though. According to Tether issuing address – which you can find on the Transparency page – on December 13, 50 million USDT more were issued, followed by a whooping 130 million USDT on December 14 alone and another 100 million USDT on December 16. To sum the numbers up, the company printed 305 million USDT in just under a week. Which makes for the total of 355 million in December.
Indeed, the holidays aren’t even here yet and the Bitcoin market is already giving away presents to all users, thanks to the cryptocurrency version of Santa Claus, Tether. Which leads us to this very next tweet:
People have been asking me for a better scale of last Tether issuances. Here’s November and December so far. pic.twitter.com/ndiR9CbvRa
— Bitfinex’ed 🔥 #DontGetTethered (@Bitfinexed) 17 decembrie 2017
Still, no $20,000 mark yet? C’mon Tether, you’re definitely better than this.
Overall, Tether just passed the $1-billion mark in terms of market capitalization and is currently sitting at $1.15 billion if their claims are correct obviously that is 1 USDT is backed by 1 USD.
That calls for a celebration, right? Oh, yeah, Christmas and New Year’s Eve is near so how about that?
Nothing To Do With The USD Lending Market?!?
Before doing that though, let’s make one more stop and take a look at the Bitfinex quarterly report for its shareholders ‘leaked’ just recently.
As you may already be aware, there is a strong link between the cryptocurrency exchange Bitfinex and the company behind the allegedly dollar-pegged cryptocurrency Tether, as shown in our first article of the series. And, most importantly, the link is not only management related, it is also financial as the report shows.
It seems “because Bitfinex and Tether have common principals and banking, there is no limit to the timing or amount of money that can flow between the two entities even if inbound and outbound customer wires are limited.”
The exchange went even further to explain how can USDT be issued at night and on weekends when banks are usually closed.
While it is true that both Bitfinex and Tether have had banking issues in the last six months, we certainly have had access to banking, but for a limited audience. Since April, the vast majority of all Tether issuances have been occurring through Bitfinex.
The exchange does NOT expand on what ‘a limited audience’ actually means. Only the big institutional investors maybe?
Bitfinex also tried to explain how USDT is issued and how the money flow works between the exchange and Tether Limited:
“Bitfinex holds the vast majority of its customer USD balances in the form of USD bank balances. Bitfinex typically only holds less than 20M Tethers for customer withdrawal. When that balance approaches zero, Bitfinex moves money (typically $20M) from the Bitfinex bank account to the Tether bank account at the same bank in order to purchase additional tether from Tether Limited. To be clear, when this happens, cash is credited (or removed) from Bitfinex’s balance sheet and debited (or added) to Tether’s. This can be done electronically, day or night, on weekends and on holidays.”
Unfortunately, the cryptocurrency exchange does NOT provide any proof or actual facts, names and numbers to back ‘the story;’ important facts and names like, for example, its banking partners.
Moreover, the exchange claims the exponential issuance of Tethers comes from an ever-growing demand ‘from verified Bitfinex customers:’
“What are customers using it for? The principal use case for Tether is exchange arbitrage. Bitfinex simply acts as an aggregator of customer demands for bulk creation and acquisition of Tethers. Its balance sheet impact is completely neutral as to Bitfinex—as to Tether, every issuance of Tethers (a credit to its liabilities) is matched by a corresponding debit, or addition, to its assets, as described above—and has nothing to do with the USD lending market. Also, all of the Tether flows and balances are very transparent, which clearly corroborates the truth. Given Tether’s public and verifiable nature, fraud would be easy to detect if it were to occur.”
The issuing address is indeed quite transparent but it shows only a façade, how a company controls the issuance and supply of a token created on the blockchain. We don’t actually know IF the token has value or IF the token is indeed backed by the US Dollar as claimed by Tether Limited and Bitfinex. All we have at the time of the article are promises, websites, various ‘obscure’ reports.
Moreover, there is another interesting ‘coincidence’ pointed out by Bitfinex’ed on Twitter that basically contradicts one of the many claims in the report which is Tether ‘has nothing to do with the US lending market.’
Pretty much every single tether is on margin, you’ll notice that the margin market correlates to tether circulation pretty well. pic.twitter.com/SUck8Xkv97
— Bitfinex’ed 🔥 #DontGetTethered (@Bitfinexed) 18 decembrie 2017
To better understand the situation, margin trading is actually using ‘borrowed’ funds to trade a stock, a currency, or a cryptocurrency. In other words, a small-time investor, for example, can trade with the ‘big boys’ by using a sum of money he can afford to lose plus a margin given by the exchange. As a result, the small-time investor can have a say in the market with a relatively small investment.
In our case, for the sake of the argument, let’s suppose Bitfinex uses the majority of USDT to margin trade. Since we are talking about hundreds of millions that traders consider them to be actual USD, it could translate into an exponential price gain in a relatively short period of time.
What if the market crashes, you wonder? Well, let’s just say Bitfinex could afford to lose the majority of Tethers IF they aren’t backed by the US Dollar:
Suppose 90% of tethers are locked in margin trading and “owned” by finex. Doesn’t this means that there are less then 200 mil Tethers currently in real user’s bags? So in case market go south, finex will only need to redeem like 10% of it’s total supply to real users? @Bitfinexed
— Colorblind (@Mr_Colorblind) 18 decembrie 2017
We can only end this update with an excellent tweet posted more than a week ago by the user Brett who talked about one big irony:
The ultimate irony – create new money because the old money is corrupted and worthless. Create a fake coupon to take advantage of the new money and because it’s attached to the new money people say how dare you criticize my coupons you’re Criticizing the new money!!
— Brett (@optionsandapes) 11 decembrie 2017
A tweet worth more than our Bitcoin Papers plus 10,000 words combined.
Have you ever used #TETHER for “safety” during market volatility?
— over #Bitfinexed (@over_711) 6 decembrie 2017