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Tether's Credibility And Its Impact On Bitcoin

Feb. 04, 2021 8:47 PM ETBitcoin USD (BTC-USD), USDT-USD43 Comments
Richard Durant profile picture
Richard Durant


  • Tether represents a significant risk to the cryptocurrency ecosystem and if Tether is significantly underfunded it could damage the reputability of cryptocurrencies.
  • Tether has been underfunded as the result of reserve mismanagement, but more concerning are claims of unbacked Tether being issued to speculate on cryptocurrencies.
  • Studies indicate that unbacked Tether may have been used to drive up the prices of cryptocurrencies in the past but it is uncertain if this is ongoing.
  • There have been problems with Tether that should concern investors but evidence of outright fraud is weak.

Tether represents a risk to cryptocurrency prices as there are serious concerns about its reputability and it is one of the primary means of buying Bitcoin (BTC-USD) globally. Tether and the Bitfinex exchange are both controlled by iFinex and have a well documented history of problems but it is not clear whether these issues have been due to mismanagement, a lack of access to the traditional financial system or are more nefarious. The questions surrounding Tether are likely to come to a head in coming months as the New York Attorney General (NYAG) investigates claims of losses.


Tether is a stablecoin (a cryptocurrency designed to maintain a constant exchange rate with a fiat currency) which was first introduced as RealCoin in 2014. RealCoin was later renamed Tether and began trading on the Bitfinex exchange in 2015. Stablecoins have seen fairly widespread adoption in the cryptocurrency industry as they are easier to transfer between exchanges and help circumvent the traditional financial system. Tether aims to maintain a peg against the USD by using cash and cash equivalent reserves equal in value to the total amount of Tether issued. Concerns have persisted over the legitimacy of this process for a number of years, although these concerns have not resulted in Tether trading at a discount for a significant length of time.

Figure 1: Tether Price

(source: Created by author using data from coingecko)

These concerns were at least partially validated in March 2019 when the claim of each Tether being backed by 1 USD was modified to include loans to affiliate companies. Then in April 2019 Tether's lawyer claimed that each Tether was backed by only 0.74 USD in cash and cash equivalents. Speculation about the credibility of Tether’s reserves has been further exacerbated by a lack of transparency and

This article was written by

Richard Durant profile picture
Richard Durant is the leader of Narweena, an asset manager focused on finding market dislocations that are the result of a poor understanding of a businesses long-term prospects. Narweena believes that excess risk adjusted returns can be achieved by identifying businesses with secular growth opportunities in markets with barriers to entry. Narweena’s research process is focused on company and industry fundamentals with the goal of uncovering unique insights. Narweena has a high risk appetite and a long-term horizon, in pursuit of stocks that are deeply undervalued. Coverage tilts towards smaller cap stocks and markets where competitive advantages are not obvious.Investments are driven by a belief that an aging population with low population growth and stagnating productivity growth will create a different opportunity set to what has worked in the past. Many industries are likely to face stagnation or secular decline, which counter-intuitively may improve business performance if competition decreases. Conversely, other businesses are likely to face rising costs and diseconomies of scale. In addition, economies are becoming increasingly dominated by asset light businesses, and the need for infrastructure investments is declining over time. As a result, a large pool of capital is chasing a limited set of investment opportunities, which is driving up asset prices and compressing risk premia over time.Durant has undergraduate degrees in engineering and finance from the University of Adelaide (Honors) and an MBA from Nanyang Technological University (Dean’s Honors List). He has also passed the CFA exams.Durant also publishes musings on technology and its long-term impact on economic development on Substack (http://richarddurant.substack.com).

Analyst’s Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (43)

Thoughts on the new developments in the last few days?
GROND profile picture
This is one for the history books: A shady firm invents 30bn (mostly from thin air) to facilitate leveraged speculation in maybe the most absurd bubble ever. And the best of it: Moronic retail traders do not even pull the plug after they got written confirmation that this is a fraud.

“Reserve problems” is outright fraud. Not some mistake.

And you make a pretty huge assumption that the next $28B was fully backed. There is much more to suggest it was far less backed and was “printed” from nothing.

I’m sure they have an exit strategy in the making.

How can one expect an unbiased view on tether from you if you are long bitcoin. Unfortunately Satoshi’s genius invention has become a gambling vehicle. 

Tether’s credibility doesn’t exist the moment after it admitted only 74% was backed at one point and yet you go on to speculate how much of the future issuances are backed like it is no big deal. The fact that tether is even allowed to exist after that shows the gaps we have in regulatory systems. That evidence alone is enough to show Tether is outright fraud. Now it keeps being used to trade and boost up BTC prices and I am shocked that this has not affected the recent developments with BTC that has driven its price up.

I'm amazed that almost nobody seems to be aware that Tether's bank (Deltec in Bahamas) does not have the reserves to back $30B USD". TOTAL Non-resident foreign deposits in ALL of Bahamas banks are *vastly* below the FULL market cap of Tether. Did it start out as a scam? Probably not. But it most likely did turn into one once mismanagement took hold. Classic ponzi scheme that can keep going for a long time.


@JosePuello how are big firms ignoring this with all this talk about wider adaptation of BTC when the trading mess with tether isn’t fixed? I can see how scammer Elon is using this as his new trump card to manipulate the market and keep up his absurd valuation.

BLIN8089 profile picture

The biggest irony is that the "prices" (exchange rates) or "values" of decentralized money such as BTC and ETH are based in ether USD or USDT - with USDT dominating the volumes on biggest exchanges such as Binance and Huobi. But USDT is a centrally issued by an organization that has opaque financial and governance with little public oversight. The last reserve audit report on Tether is dated in 2018 and it is a joke from a law firm that has dissolved it relationship with Tether. 


The major risk of Tether comes from China. Most of the tether user are based in China. And there's huge number of money being laundered via USDT. This apparently not sustainable (Since china has a very strict FOREX control).

Avoid holding USDT if possible.

@turtlejelly avoid holding BTC if possible as well since I don’t think it will be immune the exposure on tether, if and when that happens

jimbo162 profile picture
So your saying it's a fraud, so avoid it...i do, move on.

@jimbo162 but he is long BTC

jimbo162 profile picture

@freddrick but but but....everyone should be long BTC. The article as well as anyone in the crypto space has suspected problems with tether, that is what i meant to avoid. Besides the entire market cap trades every 24 hours, it is a revolving door. Most that have to use it only hold it a few minutes. There are better options, take them whenever possible. If you are staking with stable value coins, you don't want to use or hold this turd long term....i don't.



The last $30B flowing from tether into BTC was likely created from thin air and never existed. What happens when folks on exchanges try to exchange their tether for money that doesn’t exist?
BeneGesserit profile picture
If tether starts to implode there will be a mad rush into BTC. That's probably the #1 potential catalyst for a massive short term rally. I do agree over the period of months to years, it would be bearish.

@DagnyTaggart youre missing a important element. If what is alleged is true, tether wont be able to give people their money back because they minted tether without actually having the money.

in some cases, people took USD > Tether > BTC while Tether also bought Bitcoin on unbacked tether. If tether were to collapse, tether would liquidate large sums of bitcoin in order to have to cover the tether they issued driving the price down. not everyone would get their money back. and theyve printed 25+ billion dollars worth of tether this year without providing transparency if the USDT is even backed by anything
BeneGesserit profile picture

@samcolevan Whoever minted the Tether would need to own large sums of bitcoin to be in a position to liquidate. Assuming its a classic Ponzi, there wouldn't be anything to be liquidated. It would simply cause Tether holders to rush to exchange them for anything of value.

If they have indeed used the money received in exchange for bitcoin, then the coins would be backed well over 100%. Either way, since the 16th century, circulating script (and essentially that's what tether is) have almost always been backed with much less than the assets they represent a claim to.
GROND profile picture

Wrong. The leveraged BTC trades would be flushed out.
Kristian Johansson profile picture
Good article but just avoiding holding Tether (USDT) if something should happen to Tether is not enough - pretty much every cryptocurrency will be affected. Immediately Bitcoin, etc could shoot upwards in the short term but could fall massively later as those who sold USDT for BTC then transfer the BTC to Coinbase, etc to sell for real USD. Longer term though, once the dust settles, it could be a buying opportunity in Bitcoin.

Also the risk may not only be for USDT, but for USD Coin (USDC) as well as there is no December 2020 attestation still for USDC (see www.centre.io/... and normally the accounting services firm Grant Thornton LLP issues attestations in the 2nd of 3rd week of the month following the month to be attested - they are now two weeks late compared to their usual schedule. This is worrying considering that for the last attestation for 30 November 2020 (www.centre.io/...), the USD Coin held in custody accounts was 3,004,921,958 USD to back 3,002,021,340 USDC. However since then the market cap of USDC as per coinmarketcap.com/... has more than doubled to 6,177,111,478 USDC in the past just over two months.
NoahKaufmanMD profile picture
This has been debunked and refuted so many times I’m amazed it keeps rearing its ugly head. It’ll be nice when USDT is gone so that we can stop hearing this broken record.
Conaway1986 profile picture
@NoahKaufmanMD no doubt. Same old FUD. I want it to crash already. Vast majority of BTC trading in the USD-BTC pair, not USDT-BTC. This guy just wants cheaper Bitcoin.
sportscliche profile picture
@NoahKaufmanMD The false belief that Tether will damage Bitcoin has been around many years. Here’s a video that explains it:

Alan Geik profile picture
@NoahKaufmanMD not only has it been debunked many times but it also runs counter to the very simple common-sense understanding that large multinational corporations that have already put part of their assets into cryptocurrencies, especially Bitcoin, would not have fully investigated the possibility of a well known fraud claim that would affect their investment. For any corporation to make an investment in a relatively new asset it has to pass stringent regulatory hurdles within that corporation let alone with government regulatory agencies. Let's put this ridiculous tether fraud story to bed.
Nocturnian profile picture
Anyone knows when the NYAG will issue its findings/decision? Some have said mid Feb but not sure if that is reliable.
Thank you for the explanation. Does anyone know what Dogecoin is all about, as my kids have numerous friends that are all about it? I looked about on the inter web for an explanation, but not much out there. That I can understand.
@Johann Galt a coin that was created as a joke with no intention of a large market cap esp. with the amount of coins created. The creator of Doge was basically retired and not updating any future updates but more interest by owners changed his plans. Various forums and group members used these coins to "tip" for good advice / info on subject of forum. When Elon Musk tweeted about Doge the earth started shaking and the Robinhood crowd focused on "blowing it up to the Moon" as crypto traders like to say that one day their coin will be worth 100x or 1000x, etc.
@Johann Galt doge is a meme coin. Started as a joke between friends. Has no use case or real function. It's literally just a hype machine. Key to doge if you buy is just hold until Musk tweets about it, then sell with a large gain
BeneGesserit profile picture
@Johann Galt Doge is a pump and dump. It was created as a joke and used for tipping in the early days of crypto (people didn't want a BTC or two as a tip back then because of the association with silk road and other nefarious actors). Give it a month and it will be back down to under half a cent. At that point, buy some and wait for the next Musk tweet.
Nathan Gallo profile picture
Bitcoin survived Mt. Gox which was catastrophic and early in its life. The much more mature ecosystem would pretty easily brush off a tether collapse and there are plenty of other stablecoins ready to fill the void.

One note about the article claiming unbaked tethers are minted to prop up the market, you correctly identify this theory doesn't make a lot of sense but in addition, the paper pushing this was published by folks who do have credentials but with no knowledge of the crypto space and has been widely debunked by crypto experts AND some crypto skeptics

@Nathan Gallo aaah right. A paper published by professors from OSU on peer reviewed journal of finance was debunked by the crypto expert on his YouTube channel. Makes sense.

I have read through these reports going back a few years. It is a risk, but normally Ponzi schemes where people don't have the money to back up the real asset unravel during big downturns as we saw in Crypto during covid. That said, it is worth monitoring and I wouldn't own any tether. My gut says if Tether has a problem it will be a hit to the market but then people will switch to USDC.
herohero profile picture
Hahaha.... No. Learn about crypto before writing about what's supposed to kill the market.
@herohero Hahaha.... No. Learn how to read before you criticize an article. The author is making the point that the Tether issue will *not* kill the market, and he stated that any panic selling will create a buying opportunity. If you had the attention span to understand words, you would have noticed the disclosure that he's actually *long* BTC.
This is an old story and the article offers nothing new. Big institutions and the hedge fund community are fully is aware of this information. I would venture to say this ‘risk’ is already built into the price. Not to say if their fraud was exposed BTC price could take a hit. However, it would recover. People that got out of BTC several years ago because of this story are kicking themselves.
Excellent article. on the point of the claims of tether causing Bitcoin's rise, the ideas has been thoroughly dissected elsewhere, and proven to be possible, but not definitive causation.

Please see this thread for further explantations, if interested. twitter.com/...
TexasTurbo profile picture
I sold my BTC and ETH in January. Will wait to see how this plays out before I get back in.
Patrick5500 profile picture
@TexasTurbo probably up faster than you can time the market
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