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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

#81

Post by JumpCrisscross »

Bitfinex/Tether follow the classic investment fraud story arc. The big frauds don't start with bad intentions. A self-proclaimed genius seeds an operation, gets traction, attracts money, hits a snag, fudges the numbers and keeps doubling down, intending to pay it back, and then (a) collapses, (b) gets caught or (c) rolls the scheme over until (a) or (b). The terminal phase is inevitable given the non-linear difficulty of scaling a fraud and their need to scale to maintain credibility.

The set-up: Tether was, to a layman, a decent idea. The build-up: As creation and redemption was demonstrated, Tether attracted buyers. The snag: Tether got hacked [1] and released an IOU to affected customers [2]. Wells Fargo got spooked and froze Tether/Bitfinex [3].

The fudge: Tether has a hole to plug. They also have nowhere to put incoming U.S. dollars. Someone suggests they buy Bitcoin with the incoming dollars. The stupid figure it's a temporary measure until they find a new correspondent bank, the evil smell a scam and the lazy don't think about it. Bitcoin ascends. This move becomes very profitable. (It also increases the size of their balance sheet, which makes finding a new correspondent bank more difficult.)

Doubling down: Bitcoin descends. The firm becomes, or comes close to becoming, insolvent. Tethers are issued to bring the balance sheet back into line. The stupid figure they can unwind when Bitcoin recovers; the evil and lazy agree to not think about it. The frequency and magnitude of this "support" keeps growing.

The collapse: At each development, the smart and ethical decamp. That leaves everyone on board too incompetent, distracted or lazy to properly address a journalist's investigation [4]. That, in turn, attracts regulatory attention [5].

[1] https://www.theverge.com/2017/11/21/16684296/tether-cryptocu...

[2] https://www.coindesk.com/bitfinex-disperses-unique-token-to-...

[3] https://www.coindesk.com/bitcoin-exchange-bitfinex-sues-well...

[4] https://www.bloomberg.com/news/articles/2017-12-05/mystery-s...

[5] https://www.bloomberg.com/news/articles/2018-01-30/crypto-ex...

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

#82

Post by notahacker »

throwaway30yo wrote: post #60

Could be the best buying opportunity of the year. As someone involved in bitcoin since 2012, these cycles are pretty standard. It went from $1000 to around $250 iirc at one point and recovered. No reason it cant go from $20000 to $5000 and recover. It may take many years, but its not as if all crypto will die overnight. I see crypto being big in the more distant future, 15-20 years away when many of the problems are…

It seems like a bit of a stretch to argue that a major scam just starting to unravel represents "the best buying opportunity of the year". Buy when it appears to be just about to crash said no investor, ever.

But I can see how holding large amounts of Bitcoin you want to shift could distort that perspective...

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

#83

Post by JonnyNova »

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).

A return to the mean. The same will go for alt-coins since because faith in cryptos is founded on BTC and most alt-coins are priced in BTC.

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

#84

Post by simias »

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 counterfeited, their actual value is relatively easy to influence because it's mostly unregulated. I mean think about it, if Bitfinex is lying about their dollar reserves this might be one of the simplest and most efficient scams of all time. They're literally making up money as they see fit. Hundreds of millions at a time. Just like that.

Now of course maybe they're not actually crooks and they do have the money, it's kind of a schrodinger's cat scenario at the moment. Still, the fact that nobody manages to know for sure the truth of the matter shows that they could be doing it and we'd be none the wiser. People are buying and selling for million of dollars of these things, not knowing if they're trading digital dollar bills or monopoly money.

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

#85

Post by btctw12345 »

throwaway30yo wrote: post #60

Could be the best buying opportunity of the year. As someone involved in bitcoin since 2012, these cycles are pretty standard. It went from $1000 to around $250 iirc at one point and recovered. No reason it cant go from $20000 to $5000 and recover. It may take many years, but its not as if all crypto will die overnight. I see crypto being big in the more distant future, 15-20 years away when many of the problems are…

Crypto may win but what makes you think it will be Bitcoin?

Bitcoin is useless as a currency right now because of fees and transaction times. If that doesn't get fixed than what purpose does it serve?

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

#87

Post by Nursie »

inputcoffee wrote: post #59
paganel wrote: post #50

> In recent months, however, many investors have been raising alarm bells about Tether. Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down. The Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and other tokens, helping push their prices back up, according to multiple analyses of data from Bitfinex. Sur…

That is an interesting question. Digital "currency" is unregulated so the question is which law is violated. If, in purchasing a tether, there is some underlying contract that says the tether is backed by a dollar, then you might claim a violation of the contract. You may have to look at the fine print. Who was the counter party? What were the terms? Who is on the hook for it? Is it an entity that is outside the US?…

>> Digital "currency" is unregulated so the question is which law is violated.

I think the SEC and various other bodies are disputing that at the moment. They may not be specifically regulated, but they may come under a variety of existing laws, if a convincing argument can be made about them being a good match for the financial product/asset class/security/whatever that those laws apply to already.

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

#88

Post by Mahn »

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.

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

#89

Post by JonnyNova »

adrianN wrote: post #70
throwaway30yo wrote: post #60

Could be the best buying opportunity of the year. As someone involved in bitcoin since 2012, these cycles are pretty standard. It went from $1000 to around $250 iirc at one point and recovered. No reason it cant go from $20000 to $5000 and recover. It may take many years, but its not as if all crypto will die overnight. I see crypto being big in the more distant future, 15-20 years away when many of the problems are…

Even if you assume that crypto will be successful in 20 years, there is no reason to believe that Bitcoin will still be around.

Very much this. Bitcoin is going to have problems scaling both on and off chain. Newer technology can re-examining of proven methodologies will probably yield a better way forward.

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

#90

Post by rebuilder »

cagenut wrote: post #66
inputcoffee wrote: post #59

Earlier quoted context omitted.

That is an interesting question. Digital "currency" is unregulated so the question is which law is violated. If, in purchasing a tether, there is some underlying contract that says the tether is backed by a dollar, then you might claim a violation of the contract. You may have to look at the fine print. Who was the counter party? What were the terms? Who is on the hook for it? Is it an entity that is outside the US?…

dead center, first row of their home page: Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.

Interestingly, that doesn't actually say it's backed by USD reserves, any "traditional currency" in sufficient amounts would satisfy their claims.
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