#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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Let me know 👇below if y’all like these longer form posts and I’ll keep them up ; if y’all want I might even start MegaBytes and go over the whitepapers for the available cryptos, making them a little more digestible
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Thanks for the breakdown. I agree it won’t drop to $1k. I think it’s important to know what type of risk you’re dealing with! Still long term on crypto
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Victor@victor
This is really interesting. Going to have to read that last article as I also missed it.
@tcardizzle what do you think?
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Kameron Reynolds@ayokam
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KM
Kimberly Mosley@Krazycash
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TC
You're omitting so much in that analysis. More than 70% of all Bitcoin trading volume is USDT. They've been printing billions of tethers every month, using those to buy Bitcoin, then selling to get actual money. Just like the stock market has deflated significantly since the start of tapering ($120 billion down to $105 billion. Total S&P market cap $38 trillion vs $70 billion USDT marker cap and c…See more
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@tcardizzle I really appreciate the feedback; thanks for taking the time to respond to little old me. It is not an exhaustive analysis; I meant it much more of getting an idea of what a collapse would actually look like, but I think that it’s very likely their “commercial paper” is Chinese and that, yes, the bank run problem is the most significant issue. What happens when people discover it’s back…See more
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Serpentius@serpentius
Appreciate the post, thank you. Would love it even more if you explained what certain terms are for those newbies among us (e.g. QAD)
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@mom1023 I'm just glad to hear someone else on Public pointing people towards this huge huge problem. There's this view by enthusiasts that it's not there if you ignore it but it is very much there. It's driving price action and the music is about to stop. My only question is which agency is going to be the first to take them down. I'm placing my bets on the justice department.
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@tcardizzle thank you so much for the kind words; I’m uncertain the DOJ will intervene, particularly if the commercial paper is largely Chinese and the repercussions could be global. It would also help to explain why some court documents have been so hard to acquire, even for big names like CoinDesk. It feels quite unprovable/conspiracy theory-ish, but I do give a lot of credit to Bloomberg for acc…See more
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@serpentius QAD is “quick and dirty” ; I apologize for not expounding on that one. @tcardizzle has a really good post regarding USDT, and there are also some coffeezilla videos that are good over the topic up on YouTube
Yes, Coffeezilla has excellent videos re Tether. Bottom line is the crypto market is very risky, so it's cliche but true, don't invest/bet what you CAN'T afford to lose. And cash ain't trash. Keep some handy so that when things go belly up, you can make some trades of a lifetime.
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@gevdarg all good advice ; and I say that the crypto space is risky as someone who is heavily in that space. I do have traditional investments as well, but crypto is a significant portion of my portfolio. It’s there with the knowledge of the risk, though.
That risk won’t be for everyone. I say that neither to disparage people who decide it’s too risky for them nor to disparage crypto for it’s inhe…See more
@mom1023 Amen.
This is so awesome @mom1023 , thank you very much on the information and throughput, very informative and detailed and exactly as I expected of crypto (long term investment) as the high volatility and the fact that it does not close with the market. Being a new personal investor myself (only investing I've done is employer backed 401k lol). Also, that I am very late to the $BTC $ETH game but in the p…See more
Enzo@enzo
Awesome research, thank you for sharing! 🙌Definitely enjoying these longer form posts, would love to see more in the future! 🔥
I'm wondering how long it'll be until the Tether collapse happens... 🤔
Enzo@enzo
@mom1023 It definitely seems appropriate for the situation... I worry that that longer it takes for the crash to come, the worst it'll be. Just hope it doesn't take 30 years 😅
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Serpentius@serpentius
@mom1023 . thanks for the follow up!
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@mom1023 but to your point I think the reason WHY they've been allowed to settle without any long lasting penalty is because unraveling them will have huge implications on not just the crypto community but the entire financial system. $70 billion is getting into an area where they've got their fingers in the regular economy. Just like I believe the SEC is aware of naked Short selling but if they ac…See more
TC
And lastly if anyone wants to know some detail about which exchanges are in this the deepest I've got you covered
https://public.com/p/0HvyVrGKmlrnqZnZohA1SdcmYcXorAHm
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@tcardizzle 100% sometimes the cure is worse than the illness. I’m medical so my analogy is medical: sometimes when people have a derangement in their blood sugar that is severe, you have to change it very slowly or else you’ll kill them. I think similarly with tether, it will be unwound quietly, slowly, in the background, likely by one or more intelligence agencies. Also, thank you for the post re…See more
Emma@emmaz
Interesting analysis, thanks for sharing! And thank you for the articles so we can read more
