I've been hesitant to write this post. It's something I've posted about on 3 separate occasions this year in depth (link to the most detailed post at the end) The recent Bloomberg article, the fallout from it, Public adding crypto, and some discussions on the Discord channel have all convinced me of the necessity to not just post about this but do so in a way that conveys just how serious and real this situation is.
I'd like to talk to you about Tether also known as USDT. As of this moment it has the #5 biggest market cap of all coins. The total market cap is $68,217,402,077 USD and it has a 24 hour trading volume of $81,136,977,763 USD according to https://coinmarketcap.com/currencies/tether/ . It is what is known as a stablecoin. This is due to the notion that each coin is backed 1:1 by $1. It has the highest market cap of any stablecoin and is used worldwide by exchanges in trading pairs. It was created out of a necessity. Many banks worldwide especially internationally have been unwilling to deal with entities involved with cryptocurrencies. The stated reason is the lack of regulations requiring brokers of cryptocurrencies to know their customer. This, they say, could make it easy for money laundering and crime to be financed. This reluctance by banks led to issues converting from Fiat to crypto and back again. Enter tether.
The company that issues the currency, Tether Holdings Ltd., takes in dollars from people who want to trade crypto and credits their digital wallets with an equal amount of Tethers in return. Once they have Tethers, people can send them to cryptocurrency exchanges and use them to bet on the price of Bitcoin, Ether, or any of the thousands of other coins. And at least in theory, Tether Holdings holds on to the dollars so it can return them to anyone who wants to send in their tokens and get their money back.
For years, however, people have questioned whether this was actually what was happening. Tether publicly maintained for a long time that each tether was in fact backed by $1 USD. Before long cries for them to release an audit of their holdings produced a response from the company. They modified their website which had stated all coins were backed by $1 to then say the coins were backed by $1 OR dollar equivalent. When pressed about what exactly these dollar equivalents were they revealed they were in the form of commercial paper which are short term loans to companies. When you factor in that this year alone 49 billion (49,000,000,000) Tethers have been created for a total of 69 billion (69,000,000,000) that are allegedly backed by mostly short term loans to companies it would make them one of the biggest holders of commercial paper in the world. More than Charles Schwab. More than Vanguard. Yet when people on Wall Street were contacted none of them have ever done business with or seen anyone else do business with Tether. A company that if licensed would be one of the top 50 largest banks in America and yet no one at any of the large firms dealing in commerical paper has ever dealt with them.
All of the unanswered questions and suspicion eventually found their way to the NY district attorney's office. After over a year of investigation the results were announced in February 2021. In a statement, New York Attorney General Leticia James declared:
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. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.
In an effort to save space I've included a link to the full findings below. Before dismissing this as nothing you should absolutely see just how detailed and just how bad it was. It was incredibly bad.
The end result of the investigation led to the company settling for $18.5 million in fines and being banned from doing business in the state of New York. The NY district attorney then handed off their findings to federal authorities who have been investigating ever since. Earlier this year, prosecutors from the U.S. Department of Justice sent letters to Devasini and other Tether executives informing them that they’re targets of a criminal bank fraud investigation. The government is examining whether they deceived banks years ago to open accounts. Head of the SEC Gary Gensler has made very clear that the entire stablecoin industry is being strongly considered for regulation largely as a result of what is happening with Tether. Keep in mind, the NY investigation concluded in February. Since then nearly 50 billion tethers have been created. This almost triples the amount that existed before the investigation. Due to the settlement agreement the company not only admitted no wrong doing but actually claim it as a victory. They have still revealed no specific information as to their holdings or even exactly where they're even holding these holdings.
There's so much here that I just can't get into because of space. I have included links to everything so you can see just how bad this really is. You need to know how much this affects you if you're invested in any cryptocurrency. Because a large number of exchanges trade in pairs with USDT, if one side of this pairing was shut down you should ask yourself exactly how you could even close out those positions. At $69 billion some are calling Tether the biggest Ponzi scheme in history. Bigger than Madoff. Keep in mind, when the Madoff scheme unraveled almost nobody got any money back.
The Bloomberg article also revealed that the company is deeply in debt to China and itself has loaned over $1 billion to Celsius, the company behind another stablecoin USDC. But don't be fooled into thinking that you have to be holding either one of these coins in order to be affected by this. In a previous post I detailed how an academic paper alleges that Tether was behind the 2017 bull run and then collapse of Bitcoin. The fact that is used in so many exchanges around the world means that every coin will be affected. Also keep in mind why it existed in the first place. If it is shut down there is no one to fill this role as intermediary between the crypto world and the banking world. This means it could instantly become almost impossible to convert crypto into Fiat. We're not talking about something that's far fetched here we're talking about something they've already been found to have done in New York. The fact that they feel that they won that situation means it's unlikely that they've stopped doing any of it. After 10 months of federal investigation the results of these investigations could come down at any time. The fact that tether is not backed by US dollars but is instead backed by commercial paper means that any run on the currency would quickly face issues.
When this all comes to a head people are going to claim that the federal government is trying to take down cryptocurrency. After reading this and the sources that I provided you should know better. This is a case of several individuals defrauding everyone. It's not a matter of if it's a matter of when this is all going to blow up. before investing money that you can't afford to lose you need to know of the very real possibility that you can lose every penny. Cryptocurrency investments are not insured. They're hardly even regulated. So while it's exciting that Public has added crypto I highly recommend checking out the sources I provided and educating yourself on exactly what is going on with this situation before jumping in. As with every post I make I'm only interested in giving you information so that you can make a more informed decision. I'm not suggesting you take any action or do anything other than read the information.
Sources
Bloomberg Article
https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether
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Full NY District Attorney findings
https://www.jdsupra.com/legalnews/the-new-york-attorney-general-s-office-9385268/
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My Post from June
https://public.com/p/zed9NBc4YOPFrUAf9WINrYgesmGV2ETu
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Research on the Bitcoin whale
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066
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Bitcoin’s Price Was Artificially Inflated, Fueling Skyrocketing Value, Researchers Say https://nyti.ms/2l49aN0
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#tcardizzle #crypocurrency #tether
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Great post, thank you for putting all this in one place and sharing sources @tcardizzle
MrWiggles@wiegelman
@tcardizzle wow Todd, this is eye opening and scary to learn that a few executives could scar the entire crypto world. Then again, I am not surprised at all since it appears that the more power some people have, the more they get away with until it finally catches up and we all realize we have been duped, most times too late…
WB
Geez, man! And thank you once again! I appreciate your posts. You always bring great information. At least, it seems that way to me. (I haven’t double-checked a lot, but if it strikes near my investing, I would double check those items.)
For now, I have no crypto. I decided early on to follow the relevant Buffet Rule: if I don’t understand how it works, I’m not buying it. Besides, it s…See more
WB
“For now, I have no crypto.” (Oddly enough, reading your excellent post, didn’t change my mind on that.)
@tcardizzle
BH
How long to it take to verify my deposits
Shaun McAlpine@GeneralGowk
This is so important, especially now with crypto on the platform. Thanks for posting and taking the time to distill it down mate
BH
How long does it take for me to verify a deposit to my bank
I wish that NY didn't settle. The amount of evidence they had was overwhelming. I'm honestly not even sure how settlement was an option on what easily could have been multiple felony charges. My only guess is that the Federal Government told them they wanted to take it because they have charges they can file that State governments cannot. If you listen to statements from the NY district attorney s…See more
Patty Lynne@ed8hamks
❤️
Enzo@enzo
I’ve seen a few crypto experts talk about this Tether issue being the largest risk in the crypto space. Once it all blows up, the price of $BTC and other crypto assets is expected to crash considerably for months, maybe even years. However, a significant portion of the crypto community claims that the US dollar is a weakening, inflationary currency that will eventually be worthless in the long-run…See more
Let's put it this way since March of 2021 tether minted 49 billion coins. They have refused any audit of their books. Seeing as the NY district attorney revealed that they had been creating tethers out of thin air to then trade for Bitcoin driving up the price to cover hundreds of million dollars in losses it seems probable that after they believe they won the battle against the NY district attorn…See more
T
Tom@hellofromhere
No systemic risk . Too Big to fail . .. More important - they won't let it fail . -----its Globalization ( not a bad term ) . ---Defi is a key aspect of bringing our world together economically . Kind of an ironic paradox really . .. bout the 3rd inning of this transition towards digitization . ... 5G 6G - Metaverse... Its all coming .
MA
Shiba 💎 🙌
T
Tom@hellofromhere
Ray Dalio is wrong .... He says there is no way we will allow decentralized currency when India and China are outlawing it .... Not yet , for maybe a little while ... The Dollar will convert to digital . And somehow within the parameters of current crypto currencies as a form of trade ....
😎 Great read! Huh! Flashes of the rumors in 2018. It been reported by in-depth researchers like you @tcardizzle that USDT scare ..Was one of the Reasons for the sell off! I learned what a dead Cat Bounce was(bought it 3 times in ZRX-OX! Went to .20 ish ?? Power House , Decentralized Market Maker. Stake Ox on Matcha. Buy/Sell . I guess anything ? It’s Decentralized.
@hellofromhere Ray Dalio: One of the most successful investors in history. Runs the largest hedge fund in the world. . His fund has averaged 12% return and has been positive for each of the last 18 years. You'll notice that covers 4 years when the entire market produced negative returns for the year.
You: Haven't done any of that.
Hmmm.. who to trust who to trust..
Darcy@1Dar
Thank you good info to read