Over the past several years, the crypto markets have grown significantly. Most of the world has attributed this rise in price as a consequence of excessive money printing, and growing fears of inflation in the traditional financial markets.
While those things may have played a small role, the main contributor to the bull market has been a mysterious stable coin known as Tether. Tether has been riddled with controversy for years as the company continues to spread misinformation, fires auditors, and refuses to provide any real transparency regarding their backings.
This story has gained lots of traction over the years but is also something denied by the majority of hardcore Bitcoin maximalists. They will often brand this as “FUD” and go out of their way to defend an unregulated, fully centralized, fiat-counterfeiting company founded by an enigmatic group of convicted criminals in China.
This isn’t just a story about a tiny fraudulent company. As I’m writing this, Tether is now valued at nearly $63 billion, which would rank it amongst the largest financial crimes in history. It’s a ticking time bomb, and this article will provide a quality summary of why Tether is a systemic risk you shouldn’t overlook, or ignore.
Does this sound legit to you?
The problem with Tether is they are printing unbacked U.S Dollars, sending them to shady unregulated crypto exchanges, then injecting it into many crypto assets, most notably Bitcoin.
Unlike the standard with other stable coins, Tether is very bad at showing transparency and has been caught lying on dozens of occasions.
Tether only has 13 employees
Tether’s LinkedIn page shows they have only 13 confirmed employees, making it the most valuable company on a per-employee basis in the entire world. Wow, not suspicious at all!
This reminds me of Bernie Madoff, who ran the largest Ponzi scheme in history. In the early 2000s, Bernie Madoff’s held the record with only 28 employees. By having fewer employees, you have fewer whistleblowers.
Tether’s Website Changes
Until March 2019, Tether claimed to be 1-to-1 backed with USD reserves; Tether’s website then modified this claim to instead be 100% backed by reserves, meaning non-cash (and cash equivalent) assets or loans could also be included in their holdings.
The problem with this is, nobody has any insights into what their real reserves are. They refuse to provide any audits to the public, other than simple pie charts they spent 10 minutes making in Microsoft Paint.
In May 2021, Tether released a pie chart of its $42 Billion In Crypto Reserves.
According to JPMorgan, Tether’s disclosures are very unrealistic. It would suggest it has become one of the world’s largest investors in the US commercial paper market, rubbing shoulders with the likes of fund managers Vanguard and BlackRock and dwarfing the investments of tech giants like Google, Microsoft, and Apple.
As of now, Tether claims to be the 7th largest holder of commercial papers in the entire world and is expected to become the “largest” by the end of 2021.
“We’ve got lots of inquiries and heard lots of discussions, but have not seen any active participation,” said Deborah Cunningham at Federated Hermes.
“Until last week we hadn’t really heard of them,” said a trader at a large bank.
“It was news to us.”
Tether is essentially backed by 2.9% cash, which is much different from the 100% cash backing they previously claimed. Unfortunately, the majority of crypto traders are too focused on their desire for the market to go up, than to admit the uncomforting truth, that Tether doesn’t have sufficient reserves and is propping up the entire crypto market with fake money.
Ethereum and Ripple Execs voicing concern.
Even the leaders of some of the largest cryptocurrencies are voicing their concerns over Tether. I’m sure if Satoshi Nakamoto was around, he would agree too.
On The Tim Ferriss Show, Vitalik Buterin said:
“I think the Bitcoin ecosystem does have its own […] ticking time bomb demons too, like Tether is one example.”
Earlier this month, Brad Garlinghouse and Chris Larsen’s attorneys requested the SEC to Investigate and obtain important documents from iFinex, the same Chinese firm that operates Tether and Bitfinex.
The Market is Fueled by Tether
Many Tether defenders claim that even if Tether disappeared, other stable coins will quickly take its place and that the markets wouldn’t drop at all. They say Tether has zero impact on the market and is just a nothing burger.
While there are other stable coins trying to follow Tether’s corrupt path, such as USDC, the market is still largely dominated by Tether.
USDT volume often ranges from 50% to 80%, which is higher than any other crypto on the market. Exchange data clearly shows USDT is mainly fueling Bitcoin’s price valuation, which is deeply concerning.
Bitfinex is closely involved in this price manipulation and fraud scheme. If we look at the data, nearly 75% of their volume is with Tether.
What makes it especially sketchy is how it was confirmed (paradise papers leak) that Tether and Bitfinex are controlled by the same Chinese company known as iFinex Limited. For years, Tether and Bitfinex lied and said the two operations were separate, but this leak proved otherwise.
Correlation Between Bitcoin’s Price and Tether Printing is Uncanny
Notice how Bitcoin only rises during times when Tether is seen injecting hundreds of millions into Bitcoin. And during the periods they stopped, we saw major market corrections.
Tether printing is the backbone of market growth. In court documents, we saw leaked conversations from top Bitfinex executives which included the admission that “Bitcoin could tank below $1K if we don’t act quickly”
Immediately after NYAG announced its settlement with Tether, Bitcoin lost 25% of its market value in only a few days. When Tether released their questionable pie chart showing the breakdown of their fake reserves, Bitcoin dropped by another 53% and lost over $520 billion in market cap.
To calculate the true value of Bitcoin, we must remove Tether and all of its fake money from the equation. I would assume Bitcoin would erase most, if not all, of its bull market gains, when Tether eventually exit scams.
New York Attorney General — Tether Findings
In February, New York Attorney General Letitia James announced they have agreed to a settlement deal with Tether. Immediately after this news was announced, Tether’s puppets rallied that “Tether was free and clear,” and were just “proved of no wrongdoings,” which was not true at all.
In reality, the settlement deal required Tether to produce quarterly audits for the next two years, required them to seize all business in New York (they were banned), and forced Tether to pay almost $20 million in fines.
These are direct quotes from NYAG’s report:
“Bitfinex and Tether Deceived Clients and Market by Overstating Reserves,
Hiding Approximately $850 Million in Losses Around the Globe”
“Bitfinex and Tether recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines,”
“Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.”
“The OAG’s investigation found that starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations.”
Paid Tether Promoters and Defenders
Like all other fraud scandals, exposing Tether has been met with lots of resistance from those who are profiting directly from it. Many Bitcoin maximalists, in particular, have started vicious misinformation campaigns to brand this controversial topic as “nothing but FUD”
Adam Back is a prominent Tether Defender. And you may be wondering, why? Well, If you dig into Adam Back’s history, you’ll see that he’s the founder of this company called Blockstream.
This audio clip we found shows Zane Tackett, a Bitfinex executive, revealing that Tether was actually 1 of the 4 seed investors of Blockstream. Blockstream is the company that wants to be the foundation for the financial infrastructure of Bitcoin. He loves to defend Tether, but does anyone else see the conflict of interest? He’s on their payroll, and his company is being funded by Tether.
Samson Mow is the Chief Strategy Officer for Blockstream and has thus shown his full support for Tether. He has thousands of tweets bashing anyone who speaks against it and adamantly spreads misinformation that Tether is legit, and fully backed — despite NYAG investigators confirming otherwise.
I could write an entire article on Blockstream, and how that corrupt company is desperately trying to take full control over the Bitcoin network. Its involvement and defense of Tether come with no surprise.
This is a group of criminals trying to hijack every aspect of the network and are trying to silence anyone who gets in their way.
Peter McCormack is also another Tether defender. He’s the host of a Bitcoin podcast, and continuously tweets about how Tether is legit.
He has deep ties to Tether, including the fact that they even paid for his legal fees in a huge lawsuit he was involved in, which is very suspicious.
Peter also had Paolo Arduino & Stuart Hoegnerand, Tether’s lawyer, on his podcast. He conveniently asked zero questions about the controversy, but was rather defending them on a multitude of topics. His podcast episode was basically just a paid promotion to heal their reputation.
Anthony Pompliano went from calling Tether the biggest scam ever, and expressing his concerns it wasn’t actually pegged to the dollar, to being a top supporter, and advising his followers to not read articles about it.
This is how they think the scheme will continue. If they remain ignorant and urge their followers to be as well. His strong connections with BlockFi, Blockstream, and his horde of scammy paid promotions, and investments make him susceptible to large losses if Tether fails, thus why he now shows his full support for this fraud.
There are dozens of other big pages that love to be Tether’s little puppets, including Dan Held, and Nic Carter, who have strong connections to Tether and are visibly on their payroll. These people shouldn’t be trusted.
In traditional financial markets, this is also why crime goes on for so long. The insiders and elites who are benefiting from it have no incentives to call it for what it is. For me, and the few other pages who call out Tether, we are incentivized by our morals to protect investors' capital by warning of the risks.
Tethers Fate, and Its Impact on the Crypto Markets.
Consumer Protection Bill
Members of Congress announced the proposal of a new consumer protection bill to increase the oversight and regulation of existing stable coin issuers and stable coin-related service providers.
The Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, seeks to provide protection to unbanked and underbanked communities from fair lending risks and other consumer protection challenges such as disparate impact, predatory lending, and digital redlining.
In short, US regulators are considering new legislation that will define stable coins as securities. If the bill is adopted, Tether will likely face a lawsuit from the U.S. Securities and Exchange Commission, which could be another nail in the coffin.
The big question is, what happens when Tether is busted?
No one can predict the future, but we can make calculated assumptions based on the data we have. It’s overwhelmingly evident that Tether is the glue holding up the crypto markets. With its insolvency, we will likely see a crypto-liquidity crisis which will create extreme levels of panic and fear amongst investors.
The money won’t just flow to other stable coins, but rather destabilize the entire market. Seeing how dependant top exchanges are on USDT, also highlights how much of the market is dependant on fake volume, and fake demand, which isn’t sustainable at all.
If the crypto community isn’t sufficiently preparing themselves for Tether’s insolvency, we could see a doomsday-like event in the markets. This includes exchanges halting withdrawals, trading paused, excessive panic and fear, prices plunging as investors rush to get out, new government regulations, and banks even freezing all Bitcoin deposits.
I’m a huge fan of Crypto and would’ve much rather preferred if this market was organic. Sadly, human greed took over, and we’ve since watched Tether grow into one of the largest frauds in history.
This tweet by Jason Calacanis is very true, and I couldn't agree more!
Tether has been an active participant in the crypto markets since 2014, yet refuses to answer basic questions, refuses to be audited by a reputable company, and has been caught lying many times. If they were truly legit, they would’ve proved it years ago.
Thank you for reading!
Article originally published by Mr. Whale on June 16, 2021 at: https://cryptowhale.medium.com/the-tether-scandal-the-biggest-threat-to-the-crypto-ecosystem-23a169003205