Worries Grow That the Price of Bitcoin Is Being Propped Up

> Tether is sold as a fully-backed instrument, so there's major (potentially billions of dollars of) fraud if it's not fully backed

The fraud issue (not to mention the securities price manipulation issue) is still a big deal.

Sure, but violating the regulation has no victim. If you sold lemonade on a stand in california, you would be breaking regulations but there is no victim that would ever sue you for damages.

Regulations, at least in general, about preventing something from happening by restricting action. Legal action is about responsibility: if something happens you are going to be accountable for that which happened.

Tether deserves a lawsuit on fraud, because they committed fraud. But we don't need the sec for that.

> There's an expression that describes your attitude, it's "throwing the baby out with the bathwater." The thing about "the laws designed by previous [generations]" is that most of them are good, and the ones that aren't will eventually be abolished or modified, in a democratic society.

Tell that to all the people doing 25+y for doing or dealing pot. They must agree with you!

> For example, https://en.wikipedia.org/wiki/International_Traffic_in_Arms_.... lists several instances.

I'm no expert on arms dealing but isnt the US Gov the one that gives out the most weapons to radicals? I thought the US as a successful exporter of weapons..and certainly of violence!

Don't miss the fact that regulation is excercised by people with the same incentives as anybody else, but with more power.

- An exchange could lie about the trade ticker. That's easy. I don't know what kind of ticker, if any, Bitfinex publishes or whether the market cares about the ticker.

- An exchange could lie about the market data, especially if the exchange has a separate protocol for actual users and for the public at large. It's easy for an exchange to fail to publish an order that should be on the books, and it's even possible for an exchange to show an order on the books that doesn't actually exist. After all, there is no guarantee even on a fully honest and perfectly implemented exchange that you can actually trade against an order just because you see it on the books.

- An exchange that's willing to live on the edge can act as the counterparty to trades, which is quite similar to just pretending that an order has a counterparty when it doesn't. Depending on how this were done, it could result in an exchange's BTC reserves not matching the amount of BTC on deposit. We've never seen that happen, of course :)

- As mentioned in this article an several others, Bitfinex primarily deals in BTC vs USDT. So the combination of Binfinex and Tether likely has the capability buy an arbitrarily large amount of BTC/USDT on their own account.

Here's a potential scheme that could be happening. Bitfinex, Tether, and/or related entities mint USDT that isn't backed by anything. They use it to buy BTC. This has three effects: it raises the price of BTC, it potentially lowers the price of USDT, and it causes them to own a bunch of BTC. This isn't, by itself, terribly useful -- BTC isn't a great asset to hold on to, especially if you expect the price to crash whenever the gig is up. But the bad guys could sell some fraction of the BTC elsewhere in exchange for real USD. This will depress the price of BTC, but, if the fraction sold elsewhere is small enough, the net effect on the real BTC/USD price should be upward.

The interesting bits are the effect of the fraud on USDT/USD and on the price difference between BTC on Bitfinex and the price of BTC elsewhere. The former is a major problem, but, as long as enough people are confused as to what USDT is or believe it to be save, USDT/USD will remain near 1. As for BTC spreads, it seems to me that the effect, if any, would be to push BTC up on Bitfinex. After all, if Bitfinex were engaging in such a fraud, they would probably be buying up more BTC on their own exchange than elsewhere, and BTC is notoriously awkward to arbitrage between exchanges.

If Bitfinex (hypothetically) decided to try to depress the apparent BTC price on their own exchange, I think they could do it in a few ways. One way would be to wait for someone to submit a sell limit order for, say, 1 BTC in exchange for 11k USDT. Then, in the market data, they lie and say that the user is willing to sell 1.05 BTC in exchange for 11k USDT. When someone matches the order and tries to buy that 1.05 BTC, Bitfinex uses their excess of BTC to make up the difference. (Remember, in this scenario, they're selling less BTC for USD than their buying with their freshly minted USDT.)

This is all pure speculation, of course. It's not advice, and it's not an accusation.