#KiloByteSizedCrypto #KBSizedCrypto At some point, Tether (USDT) will break; that is a foregone conc

• 12/13/21

#KiloByteSizedCrypto #KBSizedCrypto At some point, Tether (USDT) will break; that is a foregone conclusion. The question that remains is how bad will that collapse be, and when will that happen? There have been people predicting the imminent collapse for at least 3 years now, and Madoff pulled off his shenanigans for THIRTY YEARS, so I shall not attempt to guess how long it will take for Tether to collapse. What I will consider is… what will crypto look like after the collapse of Tether, were it to happen tomorrow? USDT’s 24 hour volume is basically the same as the entire crypto market, which is concerning. Specifically, CoinMarketCap lists their 24 hour volume as $72B as compared to a $107B volume for the entire market. This implies that 67% of all transactions have one side as USDT. Now, some of those transactions may be legitimate. Let’s assume that they actually have the userbase of USDC, which I think is unlikely, but let’s give them the benefit of the doubt on this one. $5.7B is then legitimate ; this would lead to a 62% rate of false transactions. So the first thing that occurs is a 62% volume loss from most of the market. The volume - and by extension, the liquidity - problem may sound really alarming, but I took it upon myself to go and hunt down some instances of market volume loss, and a 50% reduction in volume correlates to a 10-15% price action loss. So, we would immediately see a 12% price action drop across the board. Nothing new, sounds like last week. Honestly, even in the worst case, where there’s an outsized effect on the market, because USDT hits so many different transactions and cryptos, let’s say it has a 25% immediate dump… that’s not unheard of in the crypto space. Here’s another problem, though: that immediate drop will trigger stop losses, it will lead to margin calls, and it will cause liquidations of positions people took for trading (as opposed to investing). Good example was last week’s flash crash. One massive event triggers a wave of events, and at least for the margin calls, that will get played out over 2-4 days or longer (unless there’s a significant rebound). This will lead to what looks like a waterfall on the chart, with a nice long red bar every couple of days. How long this margin call waterfall goes on will depend on many factors outside of the scope of this QAD analysis. The margin call waterfall, that’s where it gets really serious in a Tether collapse. The initial collapse may hit with only 10-30%, but then others getting liquidated will make 12/4 look like a tickle. Then, a third domino: Bitfinex will fall. This is where we need to discuss not just the volume loss, but the value loss. USDT won’t simply be a volume suck; it will also erase existant vlalue from the market. Sure, USDT in terms of market cap is only 3% of the crypto market - because it’s paired to other coins, let’s call it 6%, but then we add in Bitfinex, which thankfully appears to only handle 2% of crypto holdings. All in all, to answer the question of what a post-USDT crypto space will look like: a 10-30% immediately loss, the collapse of bitfinex, and a week of losing ground. Which to some sounds mortifying. Opening your app and seeing that instant loss; or seeing it live even, will be rough. Yet the pullback will not be anything new to the crypto space, which has seen major pullbacks as it has seen incredible growth. That’s why we consider it highly volatile. Honestly, it’s also not as bad as I initially thought, and nowhere near as bad as the NYAG documents make it out. I don’t think we’d see a $1k BTC out of it. Maybe a $20k BTC, if it gets the brunt of everything. Maybe you’re wondering why I went down this particular rabbit hole today. Well, there’s a lot of fear and uncertainty over this topic. I propose we focus on what we know; the volume suck will be profound and trigger two major catalysts. Yet overall, I think this should be a fairly normal crypto pullback. Optimistically, 10-20% ; worst case, or perhaps for those cryptos worst hit, 30-40%. I sincerely doubt BTC would “crash to $1k”. I don’t think the crypto market will disappear. I think it will be just another volatile day, in a volatile market. If, knowing that any given day, that 3000% yearly return might turn against you and you might catch the ugly side of it makes you think twice about wanting to invest in crypto, that’s ok. That means this asset class is probably not in line with your risk tolerance. Now here’s todays addition, because apparently I missed this: https://www.bloomberg.com/news/articles/2021-10-07/can-you-trust-stablecoin-tether-5-takeaways-from-bw-s-cover-story in October. It’s very likely that Tether’s “commercial paper” is Chinese assets. Which means two things: one, it’s unlikely Tether would fail entirely, so the impact on the crypto space would be less severe. Two, tether has put everyone in a no-win scenario. Because when it inevitably comes to light, the Chinese economy will be inextricably tied to Tether. The Chinese will lose their ability to manipulate a major part of their own economy, the US will lose major international ground, and Tether won’t be viewed as pegged to the USD or synonymous with the USD. No one will win. Yet also… the market will not die. #projections #liftasyourise

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