Opinion: Will Tether blow up? [Dec 2017 Archive]

There is an elephant in the room in the cryptocurrency world and it’s called Tether.

The concept of a cryptocurrency that is tied to the world’s reference fiat currency is very interesting indeed. But it has a very expensive requirement: for every unit of this cryptocurrency, there must be an equal unit in the reference fiat currency deposited somewhere.

The big question bein asked about Tether right now is whether there is exactly one U$1 bill deposited somewhere in a bank account for every USDT in circulation.

According to CoinMarketCap.com, there are currently ~ U$ 1 billion USDT coins in circulation. The official Tether website has a transparency section where they publish the following financial data:

If we are to take this data at face value, then there is a little over U$ 1 billion dollars cash deposited in a bank account somewhere. It’d be great if the Tether backers could provide the community with information about the bank branch and account number so that an independent party could confirm its existence.

We must then ask the age old question: what is in it for the investors? Why would any group of people lock up U$ 1 billion cash in order to guarantee a virtual coin with tiny transaction fees being collected in return? How much ROI is actually involved here?

The Curious Case of the Missing Warrant Canary

A recent Twitter discussion sugests that Mr. Chris Ellis, a entrepeneur who works with Bitfinex (who are allegedly the company behind Tether), may have been served some form of government subpoena and thus had to remove two warrant canaries which were earlier posted to this profile:

The field is ripe with speculation as to the reason for these latest developments, but the explanation most people are agreeing upon is that he was ordered by someone to remove those signs from his public profile, most likely due to a court order.

Something else everyone seems to agree on is that, if there is any law enforcement involved here, it must be from the USA. That would likely mean the FBI or, if fiat currency foul play is suspected, then the Secret Service or IRS could be involved in this investigation as well.

Although Mr. Ellis has denied all the speculations in messages published using his profile in chat rooms, these denials are precisely what one would expect if a serious Federal investigation were indeed taking place and he were subject to a gag order. Remember, Feds can see a profile warrant canary too.

So, what now?

We must stick to facts in order to protect ourselves and cryptocurrency investors from any possible consequences of an eventual Tether collapse.

First of all, although we know that most cryptocurrency market cap isn’t real, we can use the same measurement to compare cryptos (if it’s fake for one, it’s fake for the other as well). The total Tether in existence right now (~ $1 billion) is only 0,18% of the total cryptocurrency capitalization (~ $552 billion). This likely means that an eventual Tether collapse would not be catastrophic.

But what does it all really mean?

Well, we can only speculate at this point, but the fact of the matter is there is U$ 1 billion floating out there which can be used to pump and dump several altcoins and Bitcoin itself. A U$ 1 billion volume is enough to drive Bitcoin up several percentage points, and can likely be a tsunami in a low volume altcoin. We’ve seen heavy pumps on many altcoins recently. The chat rooms and Twitter are packed with speculation of Tether being the main tool for these huge recent P&D’s.

Colophon