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I am a former <a href="http://mashable.com/2018/01/17/hodl-cryptocurrency-lingo-beginners-guide-bitcoin-crash/#1rUj3JFO6mqw">HODLer</a>, present <a href="https://www.urbandictionary.com/define.php?term=nocoiner">nocoiner</a>, and perpetual Bitcoin bear, so take that for what you will. Well, the nocoiner part is a bit of a lie: I have a <a href="https://github.com/jpcoin/jpcoin">JPCoin</a>.</em></p> 186 187<p><a href="https://svbtleusercontent.com/ap9qcwiapjgavq.png"><img src="https://svbtleusercontent.com/ap9qcwiapjgavq_small.png" alt="WhichIsTheCause.png"></a></p> 188 189<div style="text-align:center;width:27.5%;margin:0 auto;">Figure 1: If we correlate the declining murder rate with web browser usage, we can deduce that <a href="https://gizmodo.com/5977989/internet-explorer-vs-murder-rate-will-be-your-favorite-chart-today">Internet Explorer was the major causal factor in homicide rates</a>
189. Thank you Mozilla and Chrome Team, you are doing Godâs work.</div> 190 191<p>Bitcoin has certainly been on a roller coaster ride over the past several months, with several people questioning <a href="https://www.express.co.uk/finance/city/906772/Bitcoin-price-news-why-BTC-going-up-cryptocurrency-value-should-buy">âBitcoin? Is it good? Should I buy it? The price keeps going up like magic and never crashes, at least for long anyway. Buy the dip, and HODL!â</a>. Where Bitcoin bulls say <a href="https://www.cnbc.com/2018/01/16/bitcoin-headed-to-100000-in-2018-analyst-who-forecast-2017-price-move.html">itâs on track to hit $100,000 in 2018</a>, I kind of look at the whole thing as if itâs teetering on the brink of disaster.</p> 192 193<p>For some context, we can look to this quote:</p> 194<blockquote><p>âThe blockchain has a certain stark logical completeness, but it doesnât address all of the actual human uses required of it. And so it has become encrusted with other human institutions. And those institutions turn out to be unsurprisingly human.â</p> 195</blockquote> 196<p>(From <a href="https://www.bloomberg.com/view/articles/2017-08-02/bitcoin-exchange-had-too-many-bitcoins">Matt Levineâs âBitcoin Exchange Had Too Many Bitcoinsâ</a>, a story about a cryptocurrency exchange which is also central to this post: Bitfinex)</p> 197 198<p>Bitcoinâs maximalists claim it will save us from the tyranny of the printing press of central banks. But what if, in some gesture of supreme irony, Bitcoinâs undoing was actually the very same problem it set out to solve: namely the fiat currency âprinting pressâ, except this time it was being used to prop up the Bitcoin bubble from its inevitable collapse?</p> 199 200<p>Will this be the trigger event that causes the house of cards to come crashing down? I donât have a crystal ball that can tell me that, but I can tell you this much:</p> 201 202<p><strong>I, and many others, suspect Tether is being used to effectively counterfeit hundreds of millions of dollars of perceived value, which are being immediately reinvested into Bitcoin to keep it from collapsing.</strong></p> 203 204<p>But to explain this, letâs first start at the beginning: what is Tether?</p> 205<h1 id="what-is-tether_1">What is Tether? <a class="head_anchor" href="#what-is-tether_1">#</a></h1> 206<p>The alleged goal of <a href="https://tether.to/">Tether</a> is to create a <a href="https://thecontrol.co/stablecoins-a-holy-grail-in-digital-currency-b64f3371e111">stablecoin</a> which can be traded like a cryptocurrency but whose value is pegged to the United States dollar:</p> 207 208<p><a href="https://svbtleusercontent.com/mukkhwpg3wxea.png"><img src="https://svbtleusercontent.com/mukkhwpg3wxea_small.png" alt="Tethered.png"></a></p> 209 210<p>Well letâs hold up for a bit. <a href="https://i.imgur.com/I2Rt4fQ.gifv">This isnât decentralized! This isnât what users crave!</a> Itâs a centralized system, traded like a cryptocurrency, whose value is allegedly backed by equivalent âlegacy inflationary fiatâ US dollar value sitting in a bank account somewhere. From the Tether web site:</p> 211 212<p><a href="https://svbtleusercontent.com/8x8r9uluhofcw.png"><img src="https://svbtleusercontent.com/8x8r9uluhofcw_small.png" alt="1-to-1"></a></p> 213 214<p>Okay, great, so at least according to Tether every one of their tokens, or âUSDTâ, is allegedly backed by actual US dollars sitting in âreservesâ somewhere, or so the story goes. Can we trust someone else besides Tether to back up that claim? Tether says yes, so surely we can trust Tether that someone is keeping tabs on Tetherâs âreservesâ, right?</p> 215 216<p><a href="https://svbtleusercontent.com/sf1jhvxyistw.png"><img src="https://svbtleusercontent.com/sf1jhvxyistw_small.png" alt="Screen Shot 2018-01-18 at 10.51.25 PM.png"></a></p> 217 218<p>Frequent professional audits! Well as long as those are actually happening, surely everything will work out okay. If anything is amiss, the auditor will certainly alert us to problems, because Tether says they will. Great!</p> 219 220<p>So why might we actually want to use Tether?</p> 221 222<p><a href="https://svbtleusercontent.com/gxvvegvnkw9oq.png"><img src="https://svbtleusercontent.com/gxvvegvnkw9oq_small.png" alt="Screen Shot 2018-01-18 at 10.56.32 PM.png"></a></p> 223 224<p>Now you can use a centralized fiat cryptocurrency to âBe the custodian of your own funds and eliminate exchange custodial riskâ. Instead of FDIC insured funds backed by the United States government (but subject to those pesky <a href="https://en.wikipedia.org/wiki/Know_y
224our_customer">AML/KYC laws</a>), you can instead use⦠a cryptocurrency run by people who totally swear every $1 USDT of funny money has a corresponding $1 USD of real money sitting in âreservesâ somewhere, and auditors are totally keeping tabs on things. Allegedly! According to Tether!</p> 225 226<p>Well, the <a href="https://medium.com/@bitfinexed/the-so-called-tether-audit-that-isnt-an-audit-at-all-5a40cfcc2a75">Tether audits tell a different story</a> (you can read the <a href="https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf">redacted report directly here</a>), and despite claims theyâre being audited regularly I can find only one (heavily disputed) audit report, but I digress. They also got <a href="https://www.coindesk.com/tether-claims-30-million-stable-token-stolen-attacker/">hacked a few months ago and allegedly lost $30 million worth of USDT</a> but that is chump change compared to the massive volumes of Tethers they have printed in the past few days.</p> 227 228<p>So this whole thing sounds super shady. Why would anyone take it seriously in the first place? How can we actually tie its value to fiat currency and ensure the price remains stable?</p> 229 230<p>There are a lot of ways you could possibly accomplish this. Some of them potentially have merit. <a href="https://paulbutler.org/archives/stop-dragging-hayek-into-bitcoin/">Hayek had thoughts on how this could be done right</a>. However, if youâre new to Tether and looking to give it the benefit of the doubt, let me take you through Tether from its inception and then compare it to how it exists today.</p> 231<h2 id="tether-the-dream_2">Tether: The Dream <a class="head_anchor" href="#tether-the-dream_2">#</a></h2> 232<p>Letâs say Tether has actually built something which is truly intended to hold its value at least as well as the US dollar (please hold your guffaws regarding USDâs sinking value and please direct your energies towards Americaâs Shithole President). There are a lot of good ways we could do this, and then thereâs the way Tether originally did it, which is not how Tether works today. So how did Tether originally work?</p> 233 234<p>Initially, you could use a Legacy Bank technology called a âwireâ which provides a faster-than-ACH bank-to-bank transfer mechanism. You could buy Tethers and take advantage of their remarkable ability to âbypass financial institutionsâ and their pesky AML/KYC regulations by buying âUSDTâ funny money with cold hard cash. Originally Tether would also send outbound wires too, so if you held USDT you could, in theory, cash it out as actual USD at any time.</p> 235 236<p>By bridging the gap between legacy systems and fancy new cryptocurrencies, you can have the best of both worlds: a self-sovereign crypto-asset whose value is âtetheredâ to the value of the dollar, redeemable at any time for the equivalent in cold hard cash. Awesome! Tether is setting our USD free of the evil legacy financial system.</p> 237 238<p><a href="https://www.cnbc.com/2018/01/16/cryptocurrency-sell-off-tether-faring-better-than-rest.html">A few days ago CNBC noted that in an almost universal downturn across cryptocurrency, Tether was the only thing that was holding value</a>. Great! Pump $USDT, surely it is the future of cryptocurrency.</p> 239<h2 id="tether-the-reality_2">Tether: The Reality <a class="head_anchor" href="#tether-the-reality_2">#</a></h2> 240<p>Soooo⦠thereâs this funny little notice hiding on the Tether home page, ostensibly there since April 2017:</p> 241 242<p><a href="https://svbtleusercontent.com/d1hhqflytz4fg.png"><img src="https://svbtleusercontent.com/d1hhqflytz4fg_small.png" alt="Screen Shot 2018-01-18 at 8.07.40 PM.png"></a></p> 243 244<p>I like news! Whatâs hiding behind there? Letâs have a look-see:</p> 245 246<p><a href="https://svbtleusercontent.com/ocllxyti4uapfg.png"><img src="https://svbtleusercontent.com/ocllxyti4uapfg_small.png" alt="Screen Shot 2018-01-19 at 12.24.16 AM.png"></a></p> 247 248<p>(from <a href="https://tether.to/announcement/">https://tether.to/announcement/</a>)</p> 249 250<p>Thatâs a lot of words. Whatâs the tl;dr? As of approximately April 2017, you could not buy or sell USDT for USD. Itâs as if it became⦠un-Tethered. Whatever legitimate uses of Tether as some sort of cryptocurrency proxy for USD ceased to exist in any form that day, and Tether became âa cryptocurrency we believe holds a dollar value because Tether claims they have the dollars in their bank accountâ.</p> 251 252<p>At the time this announcement was originally made, <a href="https://coinmarketcap.com/currencies/tether/historical-data/?start=20170119&end=20180119">Tetherâs market cap was approximately $50 million. Its current market cap is $1.7 billion</a>.</p> 253 254<p>Why does anyone bother using Tether anyway then? Well, one angle is itâs a scam to confuse users of exchanges, primary, most obviously, and most notoriously <a href="https://www.bitfinex.com/">Bitfinex</a> (with excellent from-the-trenches twitporting by the <a href="https://twitter.com/Bitfinexed">@Bitfinexed</a> Twitter account). The ties between Bitfinex and Tether run deep, with Bitfinex refusing to do actual USD exchanges, but instead settling in âUSDTâ, ostensibly in hopes of duping naive users and forcing them into a sort of âTether trapâ:</p> 255 256<p><a href="https://svbtleusercontent.com/m3qjyw6zydwhpq.jpg"><img src="https://svbtleusercontent.com/m3qjyw6zydwhpq_small.jpg" alt="RuhRoh.jpg"></a></p> 257 258<p>(from the ever-reputable <a href="https://www.reddit.com/r/Buttcoin/comments/7r712n/so_who_buys_tether/">/r/buttcoin</a>)</p> 259 260<p>Okay, so perhaps Tether is a scamcoin used to deceive users into cashing out into it instead of real money. Still, things could be worse, right?</p> 261 262<p>As of January 19th, 2018, <a href="https://coinmarketcap.com/currencies/tether/">Tetherâs daily volume is $3.9 billion USD</a>. Thatâs right, <strong>Tethers are moving nearly $4 billion worth of value each day</strong>. These are allegedly mostly inter-exchange transfers between cryptocurrency exchanges, which if you buy Tetherâs own marketing material are deliberately intended to skirt AML/KYC laws. But have we hit rock bottom yet? Oh my, no.</p> 263<h2 id="tether-the-present_2">Tether: The Present <a class="head_anchor" href="#tether-the-present_2">#</a></h2> 264<p>True to at least some of their words, Tether does provide <a href="https://wallet.tether.to/transparency">transparency into their USDT issuances</a>. But if we actually scrutinize them, we find a sort of transparency which is no better than Donald Trump Jr tweeting incriminating emails. Sure, itâs great if they publicize their suspicious behaviors for all to see, but that should not squelch your alarm bells!</p> 265 266<p>So how many USDT tokens has Tether issued lately? Letâs check out the <a href="https://twitter.com/tetherprinter">@tetherprinter Twitter account</a>:</p> 267 268<p><a href="https://svbtleusercontent.com/eygjeigfnjomw.png"><img src="https://svbtleusercontent.com/eygjeigfnjomw_small.png" alt="TetherTetherTether.png"></a></p> 269 270<p>Thatâs $450 million dollars in a little less than a week, highly correlated to a <a href="https://www.marketwatch.com/story/a-bitcoin-bloodbath-highlights-these-defensive-cryptocurrency-strategies-2018-01-16">âBitcoin bloodbathâ</a> where the cryptocurrency lost nearly 50% of its value since December. $450 million is a roughly a 40% increase in Tetherâs previous $1.2 billion market cap, bringing the total to approximately $1.7 billion USD worth of âUSDTâ. Now letâs keep in mind that Tether insists that they have this much in equivalent USD value their âreservesâ, and that they are âsubject to frequent professional auditsâ. But is any of that actually true? I canât tell you, but if it is Iâm curious where they got nearly half a billion dollars in cash this week and would be very interested in the results of a new Tether audit.</p> 271 272<p>I canât tell you why the price went down⦠some people <a href="https://www.bloomberg.com/news/articles/2018-01-17/bitcoin-watchers-running-out-of-explanations-blame-slump-on-moon">apparently suspect the Moon is the culprit</a>, but in examining how the price got back up from sub-$10,000 levels to, as of the current time of writing, the $11,000 range, a point it has somewhat curiously fluctuated around, with just enough headroom to make you think >$10,000 Bitcoins are here to stay.</p> 273 274<p>Over the course of the past few days, when Bitcoin appeared as if it was almost about to crash but at the last minute recovered, we saw an awful lot of buys that look like this, many of which are suspiciously timed shortly after those $100 million Tether issuances:</p> 275 276<p><a href="https://svbtleusercontent.com/veeiiehxmmp5yg.jpg"><img src="https://svbtleusercontent.com/veeiiehxmmp5yg_small.jpg" alt="DT46KLHW0AYrw0S.jpg"></a></p> 277 278<p>â âNo fraudulent activity going on here.â <a href="https://twitter.com/Bitfinexed/status/954264130835369984">via @Bitfinexed</a></p> 279 280<p>In the middle of a massive selloff, suddenly out of nowhere we see buys for $500 above market value. And this isnât just an isolated incident, but <a href="https://twitter.com/Bitfinexed/status/953509726402367488">part of an ongoing pattern where a downward trend in Bitcoinâs price mysteriously reverses shortly after new Tether issuances</a>.</p> 281 282<p>I canât prove this sort of buying pattern is directly related to Tether issuances. I have no idea who is making these buys. But I can say this absolutely reeks of price mani
282pulation, with timing highly correlated to Tether issuances.</p> 283<h2 id="where-do-we-go-from-here_2">Where do we go from here? <a class="head_anchor" href="#where-do-we-go-from-here_2">#</a></h2> 284<p><a href="https://svbtleusercontent.com/0gkpricidqing.jpg"><img src="https://svbtleusercontent.com/0gkpricidqing_small.jpg" alt="DT1sgZKVMAAepPM.jpg"></a></p> 285 286<p>I have âcried wolfâ about Bitcoin crashes several times in the past, and been wrong. Perhaps I donât know what Iâm talking about. Or perhaps the price was being manipulated.</p> 287 288<p>I have no concrete evidence of anything I am saying beyond what is easily reachable via my web browser. This is all speculation. Conjecture. <a href="https://www.youtube.com/watch?v=zN-GGeNPQEg">I could be wrong⦠I could be right.</a></p> 289 290<p>I still think the cryptocurrency ecosystem has tremendous potential value for society, but I look at whatâs happening and see a cesspool of corruption worse than anything Bitcoin hoped to replace. Bitcoinâs attempts to âdrain the swampâ seem to be working out about as well as Trumpâs.</p> 291 292<p>I dream of a cryptocurrency ecosystem thatâs truly a moral good and delivers real value to humanity. Instead I feel we have something where âPonzi schemeâ wasnât to far off: it appears we may have found Bitcoinâs Ponzi and its name is⦠Tether (or perhaps Bitfinex).</p> 293 294<p>To anyone at any sort of regulatory body who happens to be reading this: I implore you: this space needs much more regulation. I think it is ripe for collapse and a lot of people are going to lose a lot of money, which from the sound of things is often times borrowed. Long after the âcrypto-rushâ, people are going to be paying credit card bills for digital assets which are now worthless. Fortunately <a href="https://www.sec.gov/news/public-statement/joint-statement-sec-and-cftc-enforcement-directors">it looks like some regulatory bodies are making moves in the right direction</a>.</p> 295 296<p>To any reporters: please look into this! There is a very bad smell here, but no smoking gun⦠yet. There are questions that demand answers though: who is executing those Bitcoin buys, and what is their relationship to Tether? And finally the billion dollar question: per Tetherâs own claims, their reserves should now number $1.7 billion in USD, sitting in a bank account or some other form of generally recognized liquid currency. Do they?</p> 297 298<p>In either case, I would love to hear from either reporters or regulators on this matter.</p> 299 300<p>If this whole thing leaves you wondering if you should sell your Bitcoins, well I would need to consult my non-existent crystal ball. That said, donât take this as investment advice, but I donât expect this will end well.</p> 301 302<p>However, there is one bit of precedent for a massive Bitcoin price increase followed by a massive crash: <a href="https://www.wired.com/2014/03/bitcoin-exchange/">the original 2013 Bitcoin bubble and subsequent collapse which occurred as a result of the collapse of the Mt. Gox exchange</a>. But where Mt. Gox was billed at the time as a â$460 million disasterâ, well, thatâs worth just about as much as the Tethers printed in the last few days. Is this a multibillion dollar cryptocurrency exchange disaster in the making?</p> 303 304<p><em>NOTE: This blog post series continues with <a href="https://tonyarcieri.com/preview/dXZCFKzZKZH68aUQis8unu/">The Tether Conundrum Part 2: The Plot Thickens</a>.</em></p> 305 306 <figure class="postend kudo able clearfix" id="kudo_9fm2CuuzcwEoHWacYYxqfW"> 307 <a href="#kudo"> 308 <div class="filling"> </div> 309 </a> 310 <div class="num">974</div> 311 <div class="txt">Kudos</div> 312 </figure> 313 <figure class="side kudo able clearfix" id="kudo_side_9fm2CuuzcwEoHWacYYxqfW"> 314 <a href="#kudo"> 315 <div class="filling"> </div> 316 </a> 317 <div class="num">974</div> 318 <div class="txt">Kudos</div> 319 </figure> 320</article> 321 322</section> 323<section id="readnext"> 324 <a href="https://tonyarcieri.com/cream-the-scary-ssl-attack-youve-probably-never-heard-of"> 325 <h4 class="readnext_header">Now read this</h4> 326 <h3 class="readnext_title">
326CREAM: the scary SSL attack youâve probably never heard of</h3> 327 <p class="readnext_content">2014 was a year packed full of the discovery of new SSLâ attacks. First we found Java was vulnerable to a new type of âBleichenbacherâ attack. Appleâs SecureTransport, used by both iOS and OS X, went down next with the âgoto failâ... <span class="continue_btn">Continue →</span></p> 328 </a> 329</section> 330<footer id="blog_foot" class="cf"> 331 <ul id="foot_links"> 332 <li><a href="https://x.com/bascule">@bascule</a></li> 333 </ul> 334 <figure id="user_foot"><a href="/">Svbtle</a></figure> 335 <h5><a href="https://tonyarcieri.com">Tony Arcieri</a></h5> 336</footer> 337<footer id="foot"> 338 <figure id="logo_foot"><a href="https://svbtle.com">Svbtle</a></figure> 339 <a href="https://svbtle.com/terms" style="color: #ccc; margin-left: 25px;">Terms</a> <span style="color: #ccc;">â¢</span> <a href="https://svbtle.com/privacy" style="color: #ccc;">Privacy</a> 340 <span style="color: #ccc;">â¢</span> <a href="https://svbtle.com/promise" style="color: #ccc; margin-right: 15px;">Promise</a> 341 <br/><br/> 342</footer> 343 344<div id="lights"> </div> 345<div id="app-data" data-name="svbtle" data-version="8.5-legible" data-magicNum="2572031820.15"></div><div id="px-data" data-ax="posts" data-sx="show"></div><div id="user-data" data-here="false" data-state="logged-out"></div><div id="blog-data" data-title="Tony Arcieri" data-blogname="bascule" data-extid="fJiAxF2UHd1p2iJNCU7MMp" data-color="C0362C" data-color-rgb="192,54,44" data-color-rgba="(192,54,44,0.5)" data-blog-tracker="UA-34484635-1"></div>
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