Is tether a scam? Tether has been receiving a lot of negative publicity lately. Tether is actually a cryptocurrency which is digitizing the US dollar. It is present on many of the biggest cryptocurrency exchanges.
The main aim of this cryptocurrency is to:
- Reflect the volatility in dollars
- Work as a substitute for dollars in the cryptocurrency space
- Provide a gateway to change the currency in Fiat as well as other cryptocurrencies
Problem with Tether:
The main claim against this cryptocurrency is that it is artificially increasing the value of Bitcoin. According to one of the reports, the price of Bitcoin increased significantly after the delivery of Tether to Bitfinex. The founder of Bitfinex is also the creator of tether.
According to the report, Tether is actually being used to manipulate the Bitcoin prices. Even though there is no technical or fundamental evidence of the same but the report states that every time, this particular cryptocurrency has delivered to Bitfinex, there is high volatility in Bitcoin prices.
Clarification: statement says Tether's relationship with Friedman "has dissolved." Statement is vague about who broke up with who. Story coming $USDT
— CoinDesk (@coindesk) January 27, 2018
According to the report, at least 80% of the total value of Bitcoin is due to this manipulating. However, this is not the 1st report which is alleging that some of the exchanges are actually manipulating in the prices of Bitcoins.
According to the Tether developers, it is backed by US dollar. The problem is tether worth the $2.3 billion is in the circulation currently. According to the developers, it is backed by US dollar. This means that there should be somewhere US$ 2.3 billion stored as a backing for this currency. The problem is that many of the people are of the opinion that such a lot of money cannot be held without anyone’s knowledge. This is one of the main reasons why many of the investors believe that this cryptocurrency actually a scam.
Only the future would tell whether this cryptocurrency is genuine and can be backed by US dollar or whether this is just a false claim by the developers of this cryptocurrency. For now, however, most of the investors are actually not trusting this cryptocurrency and using the real Fiat currency that is US dollars in order to buy the cryptocurrencies or to withdraw in the form of US dollars whenever they are selling their cryptocurrencies.
With that being said, it is high time that the developers of this cryptocurrency actually come out in the open stating clearly whether it is backed by US dollar or not. If indeed, they continue with the claim that it is backed by US dollar, they should opt for an audit so that the confidence of the investors in the cryptocurrency increases once again. source / finder
The coming crash of Tether/USDT will cause the crash of Bitcoin as the former was used to manipulate the latter https://t.co/dTaqim5RSW
— Nouriel Roubini (@Nouriel) January 28, 2018
‘Without this bitcoin price would collapse’
Fears grow over tether ‘printing press’ as auditors part ways
BITCOIN’S price could crash by up to 80 per cent if this scheme unravels, experts have warned. And the signs aren’t looking good.
Tether, a so-called “stablecoin” which aims to maintain a value of one US dollar per tether, has been described as the “ticking time bomb” of the cryptocurrency world which could trigger the next “bloodbath” similar to the 2014 collapse of the Mt. Gox exchange.
And while Japanese exchange Coincheck on Friday confirmed it had lost up to $US530 million in a hack worse than the $US450 million Mt Gox theft, it’s the “tether situation” which has the market on edge.
“Everyone in crypto is very worried about the tether situation, and if these really count as dollars,” said David Gerard, author of Attack of the 50 Foot Blockchain.
A key critic of tether and its owner Bitfinex, a cryptocurrency exchange registered in the British Virgin Islands, is a blogger going by the handle Bitfinex’ed, who has published a series of detailed blog posts, tweets and YouTube videos outlining the scheme.
In effect, Bitfinex has been accused of creating tether out of thin air, without corresponding US dollar deposits, in order to pump up the price of bitcoin. While Bitfinex insists all new “USDT” are backed by real dollar deposits, new tether issuances have coincided with dips in the price of bitcoin.
Last week, an anonymous analyst backed up those claims in a report titled “Quantifying the Effect of Tether”, which concluded that it was “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,” concluded the report, which compared bitcoin price movements before and after new tether issuance, as well as analysing publicly available tether transaction statistics using forensic accounting techniques.
“48.8 per cent 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,” the report said.
“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 per cent reduction in BTC price could be forecast.”
Bitfinex has repeatedly promised investors it would produce a full audit of its books to prove it has US dollars on deposit to calm fears, but no audit has taken place.
Over the weekend, Bitfinex confirmed speculation it had severed ties with its auditor, Friedman LLP, which had earlier scrubbed all references to Bitfinex from its website. “We confirm that the relationship with Friedman is dissolved,” a spokesman told industry website CoinDesk.
“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of tether, it became clear that an audit would be unattainable in a reasonable time frame.
“As tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”
Mr Gerard said the market was worried that tether didn’t complete its audit. “They say they’re fully backed, but they haven’t done a full in-depth audit,” he said.
“People don’t seem to be able to redeem tethers for US dollars at all. The tether web page says they’re ‘subject to frequent professional audits’ — so they need to release those audits, and calm the market.”
Meanwhile, criticism of tether and Bitfinex is growing.
Julian Hosp, co-founder of cryptocurrency payment service TenX, has listed tether as one of four big risks, with a 10 per cent likelihood of a crash this year which could pull the market down by 15 per cent.
“Tether gets issued out of thin air through a very complex system, supposedly whenever $US1 is deposited in return,” he wrote on CNBC.
“At the moment, tether is priced at around $US1.6 billion, which supposedly means $US1.6 billion actually went into that cryptocurrency.
“According to some reports, however, there isn’t actually $US1.6 billion backing up the token. Since many exchanges and other cryptocurrencies are connected to tether, any finding that its stated value is untrue would send the market into a significant decline.”
Professor Nicholas Weaver from UC Berkeley’s International Computer Science Institute has warned of a “bloodbath” in cryptocurrency prices if the “Tether printing press ever breaks”.
“At current prices, net new bitcoin requires $US18 million of net new $ flowing in to maintain the price,” he wrote on Twitter. “Yet there is a net $US100 million per day of fake $s in the form of tethers.”
New York University professor of economics Nouriel Roubini agreed. “Indeed tether/USDT used to manipulate bitcoin prices,” he wrote.
“Without this bitcoin price would collapse by 80 per cent. Regulators asleep at the wheel while $US2 billion of fake $ created, half of it since December. Not even North Korea created so many fake $ backed by nothing.”
Tether and Bitfinex have been contacted for comment. In a recent statement, the company rejected online criticisms as “misinformation” spread by “a small group of individuals”.
“We have also read online about many outlandish conspiracy theories suggesting that tether is not backed 1:1 by currency on deposit with banking institutions,” the statement said. “Any such claim is unequivocally false, and the audits will bear that out.
“The company considers all tethers outstanding to be liabilities for presentation on the balance sheet for which there is always an equivalent amount (or greater) held in assets to back those presented liabilities. Full stop.”
In December, Bitfinex threatened legal action against Bitfinex’ed.
“To date, every claim made by these bad actors has been patently false and made simply to agitate the cryptocurrency ecosystem,” the company said in a statement at the time. “As a result, Bitfinex has decided to assert all of its legal rights and remedies against this agitator and his associates.”
A little-known token may be fueling Bitcoin’s rise. Critics say it’s a scam
According to Mashable, Bitcoin has been on a run. Despite its recent dip, the cryptocurrency has impressed skeptics and believers alike in its monumental rise in value since its creation nine years ago. But all that could be on the verge of change.
Because while the argument rages on as to whether Bitcoin is in fact a currency or a store of value, one question looms large over all: Just what, exactly, is driving its price growth? Well, a consensus answer is slowly forming among critics, and it doesn’t look good for the world of cryptocurrency.
In fact, it looks so bad that those same critics are predicting Bitcoin could take as much as an 80 percent hit in value. That would mean BTC, which at the time of this writing is worth around $11,085, would drop down to near $2,200.
To understand why Bitcoin could be due for an imminent reckoning, one must first look to so-called stablecoins. The idea behind them is simple enough: peg a cryptocurrency coin, or a token, to something like the U.S. dollar. This would allow for many of the benefits of digital currency without the wild price swings rendering it less than ideal for real-world transactions.
One purported stablecoin in particular has dominated the space: Tether.
“Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account,” the company claims on its website. “Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.”
According to Tether, as of Jan. 29 the company has $2,278,090,823.52 and €14,487,093.99 in liabilities.
“If there is questionable activity, the author believes a 30-80% reduction in BTC price could be forecast.”
Founded in 2015, Tether is connected to the online exchange Bitfinex. While the founders of that exchange had long insisted Tether was a separate entity, The New York Times reported in November that the Paradise Papers suggested otherwise.
Those leaked documents showed that Bitfinex’s Chief Strategy officer, Philip Potter, along with its Chief Executive Officer, JL van der Velde, had worked with the law firm Appleby to established Tether in the British Virgin Islands sometime in 2014.
What does any of this have to do with Bitcoin’s price? A pseudonymous report released on Jan. 24 alleges that Tethers “may not be minted independently of Bitcoin price and may be created when Bitcoin is falling,” and that it’s possible the company is “printing in response to market conditions.”
The author of the self-titled Tether Report is not alone in his or her suspicions. Tony Arcieri, an independent cybersecurity expert who formerly worked at Square, released a detailed look at Tether on Jan. 19 which came to similar conclusions and took it a step further.
“I, and many others,” wrote Arcieri, “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.”
As in, Tether may be creating value out of thin air. And that value, legitimate or not, is being pushed into the cryptocurrency world — allegedly artificially driving up Bitcoin prices in the process.
What’s more, the aforementioned Tether Report alleges that “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.” Meaning, again, that according to the pseudonymous author, Tether looks to be driving increases in the value of Bitcoin. “If there is questionable activity, the author believes a 30-80% reduction in BTC price could be forecast.”
It’s not just random critics and cybersecurity experts making this claim. Nouriel Roubini, an economist and professor at New York University’s Stern School of Business, is right there with them.
“Indeed Tether/USDT used to manipulate Bitcoin prices,” he tweeted on Jan. 25. “Without this scam Bitcoin price would collapse by 80%. Regulators asleep at the wheel while $2 billion of fake $ created via this scam, half of it since December.”
That Tether may not in fact have the billions in cash reserves to back the billions of Tether tokens issued could be easily disproved by an auditing of the company’s books suggests a simple solution: release an audit. And yet, while long promising such an audit was forthcoming, the latest hope for such an accounting was dashed Saturday when CoinDesk reported that Tether and its supposed auditor were parting ways.
In conversation with Mashable on Friday, Rafael Cosman, CTO and cofounder of the San Francisco-based TrustToken, put the problem succinctly. “Tether claims that they do regular audits, but there hasn’t really been evidence of that.”
Tether did release a document in September which was supposed to prove it held cash reserves equal to its Tethers, but that didn’t convince skeptics. In a conversation with The New York Times, Lewis Cohen — a lawyer who works with virtual currency in his role at the law firm Hogan Lovells — noted that due to its wording the Tether document failed to prove Tethers are backed by dollars.
Meanwhile, hundreds of millions more Tethers — known as USDT — continue to be issued. Specifically, over 850 million worth have been “minted” since the beginning of 2018.
This doesn’t sit well with Tether’s numerous critics, who have taken to Twitter and YouTube to call out what they view as “a complete ripoff” and “a complete scam.”
To make things even murkier, the ability to withdraw your Tether to your bank account in the form of USD has not always been guaranteed. As recently as December, Bloomberg reported that Tether’s Terms of Service read as follows: “There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money.”
Importantly, a search of the company’s current TOS page shows that language has been removed. Now, the company states that “Absent a reasonable legal justification not to redeem Tether Tokens, and provided that you are a fully verified customer of Tether, your Tether Tokens are freely redeemable.”
The Terms of Service go on to note, however, that “residents of certain U.S. states are not permitted to be customers of Tether; are not permitted to cause Tethers to be issued or redeemed; and, are not permitted to hold Tether Tokens.”
A recent Reddit post highlighted the confusion surrounding this. Titled “Has anybody here actually had USDT deposited to their bank accounts as tether.to claims is possible on their website,” the thread seeks to find someone that has successfully withdrawn their tokens for cash to their bank account. The silence in response is deafening.
“Without this scam Bitcoin price would collapse by 80%.”
Mashable reached out to Tether for comment on these claims, and will update this story when and if we hear back.
In the meantime, what does all this mean for Tether, Bitcoin, and cryptocurrency in general? Well, if the critics are correct, likely nothing good.
“If one were to assume the worst case scenario,” the aforementioned pseudonymous author of the Tether Report writes, “that Bitcoin’s price has been artificially pumped up by Tether issuance, one would expect the market price of Bitcoin to be closer to $2,000 based on the trendline before April 2017 and the marked growth in Tether issuance.”
In other words, if this alleged house of cards ever comes crashing down, it may bring down Bitcoin’s price with it with such force that the January crash will look like a walk in the park. And when and if that time comes, Tether’s critics will be there to remind you that you were warned.