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Worries Grow That the Price of Bitcoin Is Being Propped Up

nytimes.com

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Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#171

Post by bhouston »

marcandre wrote: post #165

I'm wondering how many people are shorting USDT on Kraken? The potential downside is having to pay interest. The upside is 100% win. With enough short position, Tether will run out of funds and the price will have to crash. Disclosure: I'm short USDT.

I have a theory that some of the market crash in December was because of selling Bitcoin (originally gotten from USDT) for USD in order to fill their reserves of backing USD. I think that USDT could be moderately sophisticated in that they could have fulfilled their coffers via market manipulation.

If they were smart and brazen, I think they could have possibly pulled it off. One would have to study the market inflows and outflows.

This type of pump and dump would show up in their books, so a thorough audit would find it. But it may mean that they have a lot of USD now. Thus I am unsure if USDT will technically crash.

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#172

Post by theptip »

sciyoshi wrote: post #149
simias wrote: post #84

The somewhat ironic part is that one of the core concepts of Bitcoin is that you can't counterfeit it. You can mathematically prove how many coins you own, if somebody sends you 3 BTC then once it's been validated on the blockchain you know that the money is now yours, they can't have lied, it can't bounce like a cheque Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfe…

> They're literally making up money as they see fit. I'm playing devil's advocate here (I agree that the whole Tether situation is concerning), but also genuinely curious - is this any different than what banks have been doing for forever with fractional reserve? Even if Bitfinex is overcommitted and there's more USDT in circulation than they have in USD reserves, is there a problem unless a lot of people try to conv…

To answer your direct question, Tether is sold as a fully-backed instrument, so there's major (potentially billions of dollars of) fraud if it's not fully backed. That's an issue because consumers aren't getting what they paid for, i.e. the underlying risk profile is different from what they thought the were buying.

The big difference with Tether is that in traditional banking, fractional reserves are legal, and regulated (i.e. banks are required to prove their reserves, and are required to hold a certain percentage of their deposits).

If there's a run on a consumer bank, and they don't have enough reserves to repay their customers, then FDIC insurance steps in to protect the customers. In this case, there's no protection, so everyone holding tether will be screwed if there's a run.

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#173

Post by elif »

rebuilder wrote: post #48
amluto wrote: post #29

Earlier quoted context omitted.

If Bitfinex or its sister company is engaging in outright fraud, I see no reason to believe its market data.

How would they fake the price while allowing trades and BTC withdrawals?

ghost orders on the books (e.g. freshly minted unbacked USDT), ponzi-esque withdrawals

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#174

Post by celticninja »

acct1771 wrote: post #164
monktastic1 wrote: post #151

Earlier quoted context omitted.

You could say that humanity has repeatedly and organically come to a solution broadly known as government and regulation.

Worked great in 2008.

It's like people assume the current financial system is perfect and bitcoin is not. Bitcoin never pretended to be, it's still an experiment 10 years in, but its a fun expierment.

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#175

Post by kelvin0 »

Leszek wrote: post #145
kelvin0 wrote: post #130

My question is: what is the value of a Bitcoin? It looks to me like a great way to transfer currency and facilitate exchange of goods, but not much more than that. So 'investing' in this digital currency itself does not make much sense to me, because intrinsically it has no 'real' value. I might be misinformed about the subject, in which case I would gladly like to be shown my error. For example, why don't I invest i…

What is the value of anything, really? The value of a metal brick, or a shiny stone, far exceeds any practical utility of the physical object itself. Even the value of a "real" currency is based, in broad strokes, on what you can exchange it for.

Water is immensely valuable. It has an intrinsic value to human life.

Land to grow crops for food is also valuable for the same reason.

Construction materials to build shelter/homes are definitely valuable.

Some metals and minerals are important to our technology driven society. You need these raw materials to build your technological infrastructure.

Bitcoin? I don't see it ...

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#176

Post by luckydata »

acct1771 wrote: post #164
monktastic1 wrote: post #151

Earlier quoted context omitted.

You could say that humanity has repeatedly and organically come to a solution broadly known as government and regulation.

Worked great in 2008.

You know what? It did. You still have running water. Government employees like cops and firefighters and teachers are getting paid (sometimes not enough).

So yeah, it worked great.

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#177

Post by lurker456 »

sciyoshi wrote: post #149
simias wrote: post #84

The somewhat ironic part is that one of the core concepts of Bitcoin is that you can't counterfeit it. You can mathematically prove how many coins you own, if somebody sends you 3 BTC then once it's been validated on the blockchain you know that the money is now yours, they can't have lied, it can't bounce like a cheque Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfe…

> They're literally making up money as they see fit. I'm playing devil's advocate here (I agree that the whole Tether situation is concerning), but also genuinely curious - is this any different than what banks have been doing for forever with fractional reserve? Even if Bitfinex is overcommitted and there's more USDT in circulation than they have in USD reserves, is there a problem unless a lot of people try to conv…

banks are regulated to ensure they don't over-commit and are backed by a central bank to bail them out. That system isn't perfect, but it's a lot better then no regulation.

An unregulated system that allows fractional reserve banking can only end badly. Competition will cause private entities to take increasingly risky positions (if they don't play along, they get crowded out by those who do), and the systemic risk is unchecked. At its extreme, it becomes a ponzi scheme.

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#178

Post by monktastic1 »

acct1771 wrote: post #164
monktastic1 wrote: post #151

Earlier quoted context omitted.

You could say that humanity has repeatedly and organically come to a solution broadly known as government and regulation.

Worked great in 2008.

I didn't say it was perfect. I doubt that whatever "organic" solution we're hoping the crypto community will self-enforce will be either.

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#179

Post by jzymbaluk »

acct1771 wrote: post #164
monktastic1 wrote: post #151

Earlier quoted context omitted.

You could say that humanity has repeatedly and organically come to a solution broadly known as government and regulation.

Worked great in 2008.

It actually did. The market was on it's way to crashing harder than the great depression, but it didn't, probably thanks in some part to government being able to intervene and control monetary policy

Re: Worries Grow That the Price of Bitcoin Is Being Propped Up

#180

Post by hbosch »

Mahn wrote: post #88
dlandis wrote: post #25

I'm curious how big the ramifications for Bitcoin will be if the majority of Tether tokens are proven to be fraudulent and Binfinex collapses (which doesn't seem that unlikely at this point).

You just have to look at what happened after the MtGox collapse in 2014: Bitcoin goes back to sleep for 2 or 3 years, afterwards everyone forgets it ever happened and another rally takes place where cryptocurrencies "go mainstream". Lather, rinse and repeat until the amount of people willing to speculate on it is completely exhausted.

I don't personally think it will be that cyclic. There is so much more invested this time around, so many more people standing to lose so much more money, such a brighter light on the cryptocurrency world now. A devastating loss (e.g. Bitfinex shuts down and freezes all transfers, Tether worthless, that type of thing) to the BTC economy would be critical to the entire future of cryptocurrency as we know it, IMO. I don't think Bitcoin has 9 lives.
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