Author's update, December 11, 2017: follow-up article with additional support of fraud
I remain a Bitcoin (GBTC, COIN, RIOT, OTCPK:BITCF, BTSC, BTCS, OTC:MGTI) skeptic as I believe that the fundamental value of the cryptocurrency is zero (read Why Bitcoin Is Worthless). However, I cannot deny that it has market value. That value has been increasing, which means that some people somewhere are buying. But who? I believe that question can be answered by Tether. Through a very clever scheme, the people behind Tether can continue to send Bitcoin into the stratosphere until it reaches a not-yet-known breaking point.
What Is Tether
Tether is a cryptocurrency controlled by Tether Limited. Unlike Bitcoin, Tether is issued (not mined) and seeks to maintain a stable exchange against the dollar (i.e. tethered). This is accomplished through a reserve based model, whereby each Tether is backed by one US dollar in the company’s bank. One can acquire Tether directly through the website or trade through an exchange. One can convert Tether to USD at Tether Limited, though Tether Limited has the right to refuse for any reason. The mechanism of the reserve-based model means that the Tether/USD pair will hover around 1:1 on the market, because there would be an opportunity to arbitrage otherwise (i.e. buy/sell on the market, convert at Tether Limited, or vice versa).
Traders like tether for its portability across platforms as it is a digital token whereas transacting in USD would require much more hassle involving banks.
Surge In Supply
Now that we know how Tether works, let’s examine its supply.
Source: coinmarketcap.com
Source: coinmarketcap.com
Pretty amazing stuff. The supply of Tether has increased from virtually nothing prior to 2017 to 845 million as of the time of writing, corresponding to 845 million USD. That’s the asset size of a large community bank.
