Teather is unique cryptocurrency, it’s like a bridge between crypto and fiat. The idea behind Tether is for every 1 Tether that exists there is 1 USD to back it up, sitting in reserves somewhere in Tethers bank accounts, always ready to be redeemed at 1:1 ratio.
This makes Tether basically digital cash bypassing financial institutions and regulations, money build for internet is perfect for traders and individuals trading cryptocurrencies, exchanges, and blockchain companies.
So far so good, but here is the tricky part, they started to print a lot of new Teather without proof of US dollar backing it. If in the near future it is found out that the newly printed tether doesn’t have 1:1 USD backup there will be a major problem.
How can this effect Bitcoin and crypto market?
Tether sends minted USDT directly to Bitfinex. While it’s unclear what exact transactions take place with them after, what was observed is that once these USDT enter the Bitfinex exchange, the price of bitcoin jumps, as has happened multiple times recently. That means it’s likely the new tethers are used to buy bitcoin. As demand for bitcoin surges, its price goes up, investors see that and want to get in on it, more bitcoin is bought, and the cycle continues. If there is no real USD backup of Tether these prices are pumped artificially. That means that when people find out about that there will be a massive dump in a price ob bitcoin from 30 – 80% and the whole crypto market will be crashing as well.
Bitfinex and Tether are essentially sister companies with overlapping ownership between the two
It was confirmed via the Paradise Papers — confidential electronic documents relating to offshore investments that were leaked to the public in Nov 2017, that Bitfinex and Tether are essentially sister companies with overlapping ownership between the two.
This confirmed long-held suspicions that a relationship between the two existed because whenever new USDT is printed out it is often sent straight to Bitfinex.
Summary of Tether investigation report
- Author’s opinion – it is highly unlikely that Tether is growing through any organic business process, rather that they are printing in response to market conditions.
- Tether printing moves the market appreciably; 48.8% of BTC’s price rise in the period studied occurred in the two-hour periods following the arrival of 91 different Tether grants to the Bitfinex wallet.
- Bitfinex withdrawal/deposit statistics are unusual and would give rise to further scrutiny in a typical accounting environment.
- If there is questionable activity, the author believes a 30-80% reduction in BTC price could be forecast.