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The Bit Short: Inside Crypto’s Doomsday Machine

crypto-anonymous-2021.medium.com

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Re: The Bit Short: Inside Crypto’s Doomsday Machine

#121

Post by cryptoanonymous »

not2b wrote: post #110

It seems that this guy decided to go heavily into Bitcoin because of a mistaken belief that seems all too common: "At the time, I saw a market dislocation and the likelihood of significant dollar inflation due to the US Government’s likely response to the unfolding pandemic." He thought that government responses to severe crises that inject lots of money into the economy will cause "significant dollar inflation". In…

Hi, I'm the author.

> Money isn't created primarily because governments print it; whenever a bank creates a loan money is created, and when they call in loans money disappears.

Yes this is right, and I am in fact aware of this mechanism. As I say in the post: "[...] anticipated high levels of lending and consumer spending post-pandemic, seemed likely to fuel substantial USD inflation in real terms through the end of 2021."

Velocity-of-money and the M2 money supply weren't that relevant to the main story I wanted to tell, so I went into no more than superficial detail here.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#122

Post by cryptoanonymous »

ur-whale wrote: post #34

Really good article, recommended read for anyone interested in crypto. For me, it's almost 100% aligned with what I've felt was going on with Tether in the last 2 years. Also, it sort of crystallized an answer to a question I've had about Binance for quite a while: how did they manage to get so big, so fast. Answer: easy, they never had to establish proper on and off ramps to the traditional banking system and lured…

Author here. I really appreciate your kind words about the post - thank you!

I'm also broadly in agreement with your conclusions as to what this means for a crypto trader or holder. I've zeroed my net exposure to this ecosystem myself, both in anticipation for such an event, and out of recognition that I frankly understand it far less well than I originally thought.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#123

Post by qeternity »

nik_s wrote: post #74

The author implies that the recent growth in tether's market cap is an indication of an incoming exit scam. A cursory glance at Coinbase's USDC's market cap [1] shows that it too is growing at almost exactly the same pace as tether's [2]. I think most players in this market would agree that Coinbase, for all of it's failings, is unlikely to be planning an exit scam at this point. It doesn't disprove the whole thesis,…

No, it doesn’t. In fact it’s exactly what you’d expect if Tether is fraudulent. Stablecoins are a great way to transact in dollars that you otherwise wouldn’t be able to, for instance the proceeds of illegal activity. The author notes the exact mechanism: print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC.

You would expect them to increase in lock step if this is happening. If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#124

Post by garmaine »

mountainb wrote: post #114
not2b wrote: post #110

It seems that this guy decided to go heavily into Bitcoin because of a mistaken belief that seems all too common: "At the time, I saw a market dislocation and the likelihood of significant dollar inflation due to the US Government’s likely response to the unfolding pandemic." He thought that government responses to severe crises that inject lots of money into the economy will cause "significant dollar inflation". In…

People often don't understand the implications of an elastic monetary system that is also decentralized because of the way that the Fed and member banks are structured. There are things the Fed or the government could do to frogmarch devaluation (like, for example, encouraging banks to pay people to carry credit card balances through negative interest rate policy or encouraging no-doc/no-credit check loans of all kin…

Distributed, not decentralized.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#125

Post by cryptoanonymous »

acoustic wrote: post #81
dylkil wrote: post #49

>But during the same period, total issued Tethers increased by almost $5.4 billion — going from $4.6B to $10B >The implication was shocking: there weren’t nearly enough dollars in all the domestic banks in the Bahamas to >back the Tethers that were floating around in the crypto market. Doesn't match up with whats shown here[1], Bahamas banks are holding 110bn in customer deposits. [1] https://stats.bis.org/statx/srs/…

Those numbers are for all bank offices located in the Bahamas, most of which are foreign bank branches. The numbers in the row "By type of bank - Domestic banks" [1] appear consistent with the article. [1] https://stats.bis.org/statx/srs/table/A5?c=BS&m=S&p=20202&o=...

Author here; this is the correct answer. The larger number refers to all banks. Deltec is known to be a domestic bank, so we can use the smaller number to get tighter uncertainty bounds on its currency flows.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#126

Post by soneca »

Animats wrote: post #119

Today, January 15th is the court-ordered disclosure date for Tether. So soon we should know how big the Tether bubble is. Clearly, it's time to get out of USDT. There's no upside potential, and there's a big downside potential.

But there will be no news for some time until the attorney general’s office review all the delivered documents right? Or should there be relevant news in the next few days already?

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#127

Post by cryptoanonymous »

nik_s wrote: post #74

The author implies that the recent growth in tether's market cap is an indication of an incoming exit scam. A cursory glance at Coinbase's USDC's market cap [1] shows that it too is growing at almost exactly the same pace as tether's [2]. I think most players in this market would agree that Coinbase, for all of it's failings, is unlikely to be planning an exit scam at this point. It doesn't disprove the whole thesis,…

Author here; I agree this is a valid objection and that one should be very cautious when extrapolating cause-effect relationships. Systems like these also often have multiple embedded feedback loops in them, which can make it impossible to identify a single cause once the flywheel gets going.

It's when you combine the USDT/BTC correlation with the available evidence for Tether's unbacked issuance that the problem becomes clearer, in my view. When issuance is unbacked, it can be decoupled from real demand — and that's a degree of freedom that allows Tethers to be injected arbitrarily into the system. Coinbase's stablecoin is backed by audited reserves, so USDC is constrained by demand — making it more plausible that USDT is the causal factor rather than USDC.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#128

Post by jasonhoch »

qeternity wrote: post #118
mountainb wrote: post #114

Earlier quoted context omitted.

People often don't understand the implications of an elastic monetary system that is also decentralized because of the way that the Fed and member banks are structured. There are things the Fed or the government could do to frogmarch devaluation (like, for example, encouraging banks to pay people to carry credit card balances through negative interest rate policy or encouraging no-doc/no-credit check loans of all kin…

People also don’t realize that moderate inflation is a good thing. You want a gentle inbuilt mechanism to encourage consumption. And we have good tools to combat inflation whereas we don’t really have any tools to combat deflation. There’s a reason nobody spends Bitcoin and it’s mostly not about fees or block size.

Why do you want a gentle inbuilt mechanism to encourage consumption?

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#129

Post by garmaine »

comboy wrote: post #28
quickthrower2 wrote: post #23

Earlier quoted context omitted.

If tether is pumping BTC then it’ll stop pumping BTC when it’s taken away. Weak hands will fold and then there will be a crash

OK, yes, that's a fair point. But it's not clear to me that pumping being taken away would be a bigger change than people trying to get out of USDT and buying BTC. Also we've been there (mtgox's willy etc). I don't think bitcoin will be much less volatile any time soon. https://www.youtube.com/watch?v=XbZ8zDpX2Mg

How would you sell USDT? You’d buy on a BTC/USDT market. These markets aren’t unified—there are different markets for tether and backed USD. Who would be counterparty to a tether exchange?

Thise specific USDT pairings would crash. If they wanted USD (as they presumably do), they’d then crash the other stable coin or backed pairings.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#130

Post by saurik »

not2b wrote: post #110

It seems that this guy decided to go heavily into Bitcoin because of a mistaken belief that seems all too common: "At the time, I saw a market dislocation and the likelihood of significant dollar inflation due to the US Government’s likely response to the unfolding pandemic." He thought that government responses to severe crises that inject lots of money into the economy will cause "significant dollar inflation". In…

To verify, though: in fact, the M2 is skyrocketing in 2020, right?
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