Crypto Coin Tether Defies Logic on Kraken’s Market, Raising Red Flags
bloomberg.com
bloomberg.com
I'm a small time automated trader, and I've made many thousands of orders that extend out to 5 or more decimal places. There's nothing unusual about this to me. My code will take a single uneven dollar amount and make X equal trades out of it. Every few days I add an uneven amount of profit back into the original amount and then I'm trading a new 5+ decimal place dollar amount.
>On May 9, eight sell trades for 13,076.389 Tethers each occurred in succession over 16 seconds, yet Tether’s price was unchanged at 0.999. The next trade—for just 75 Tethers—pushed the price up 0.0001.
Is this not just the bid-ask spread? Of course sell trades and buy trades execute at different prices, that's how a limit order book works.
The concern around Tether may well be justified, but some of the things I've seen presented as evidence suggest a lack of understanding about what normal exchange activity can look like.
MOST of the concerns I've seen about Tether are based on a lack of understanding about how most markets work.
Its funny to me because the reasons I don't use Tether have to do with it being centralized in general, (with the assumption that they are full reserve). The systemic risk fractional reserve fear is why other people are concerned about Tether, and it doesn't really matter? That company is a huge target either way! If they seek to prove their reserve by an accountant, then their banking partner gets exposed and will close Tether's accounts, or that bank will be cut off by other banks.
This is what has happened in the past, when Wells Fargo cut them out of their international wires route.
Yeah, even if this is code vs. human, it's just as easy for the code to round or vary the amounts.
There is just not enough liquidity on Tether for it to follow the USD so closely. It has been very difficult to sell Tether for USD to Bitfinex AKA Tether over the past year. For awhile, any normal user had no option to withdraw USD from the platform at all. Their banks were completely shut off from the system.
You can argue there were people who were on the inside with Tether / Bitfinex and were able to sell Tether to them. I think there may have been some individuals / organizations that had the ability to send and receive fiat to Bitfinex, but I highly doubt they do enough volume to fully stabilize Tether 1:1 to the USD.
Look at Bitcoin over the past 1-2 years. It is completely common for it to trade at a 3-5% spread between USD exchanges. Don't get me started on exchanges in other fiat currencies. The spreads have been known to reach 10%+. These spreads can also be arbitraged by anybody, but they still appear. So I strongly doubt that Tether is a special case.
If Tether was trading on a real market, it would certainly not follow the price of USD 1:1.
If that trust is ever lost, or there are questions about solvency, I'd expect the price of Tether to drop very quickly.
That person might be an insider (they know tether is legit, so any deviation from $1 is a moneymaking opportunity), or it could be an outsider who believes the hype.
This happens all the time in the stock market. Look at the SPY stock which tracks the S&P 500 index. At everypoint in time, anyone can compute exactly what value this stock should have. Any deviation from this consistent and known price point is immediately traded away by arbitrators.
Does Tether actually hold one real United States Dollar for every USDT they issue? If so, they sure haven't convincingly demonstrated it by continually lying about being regularly audited (they have never published a real audit) and refusing to allow anyone to redeem their USDT with Tether to get back a USD.
> Kraken is among very few markets worldwide that let investors trade U.S. dollars for Tether and vice versa.
Same goes for buying it. In my experience, it only rises above $1.03 when liquidity is low and the BTC/USDT price diverges from BTC/USD enough to make arbitrage possible.
This has not been the case for a long time.
Consider, why do some bonds trade at negative interest rates?
The point wasn't that a trade containing that number happened to pop up. It was that the specific number 13076.389 was in the top 50 traded amounts on the exchange.
You'd expect there to be on average the same number of trades for 13076.388 and 13076.390 as there were for 13076.389, but that's not what the numbers show. Unless there is something special about the number 13076.389.
Could be that for USD-USDT algorithmic trading is dominant, vs, human trading being dominant in USD-BTC, in which case arbitrary amounts like 1, 0.1,.. would be less common for the USDT case. I'm not sure how to assess this though.
We get it, your one of the people who’ve been loosing tons on crypto the last couple of months. But maybe you can reverse the course by arguing away all clear signs of market manipulation with silly stories. Or maybe it would be good to get the spotlight on the bad actors of the market so they can be exposed and the space can move forwards. Mtgox didn’t end crypto, neither will the fall of tether.
So you are suggesting that the experts who were cited in the article, whose field of expertise is this very thing, do not understand how markets work?
Meanwhile you don't seem to understand why it is remarkable that the market can absorb a huge order that should move the market because of its sheer size while much smaller order have a much larger impact. When a buy order of quantity 37.5 moves the price by 0.0002, but the following buy order of quantity 13,076.389, that is almost 350 times the size of the previous order, moves the market by half of that, something is very strange about the liquidity situation.
> Meanwhile you don't seem to understand why it is remarkable that the market can absorb a huge order that should move the market because of its sheer size while much smaller order have a much larger impact.
Is the concept of an orderbook so foreign to non-finance/math people? Firstly, 13k is not a "huge" order. Secondly, someone clearly just had a somewhat large maker order placed at $1 for the example cited which absorbed a few orders, and the book was thinner for a subsequent price movement (liquidity vacuum). Explained by the market being low volume, low volatility, likely dominated by a handful of traders/algos, and plain old random variation (individual players' orders have a more significant effect in low volume markets like Tether/USD). It's also important to note that psychological price levels (like 1.0) tend to accumulate larger walls as a result of human nature. For Tether in particular, it makes sense that the price never breaches 1.0. It's an easy short above 1.0, as it is impossible for Tether to ever become worth more than the price it is pegged at, whereas it could become worth less if it were insolvent. So there is probably a huge wall sitting there on every exchange.
I used to write trading systems for market makers, and still have friends in the business. I also have friends who are professors, including a finance professor. Trading is not really about market knowledge; it's a skill and an orientation. Being a professor is much more about knowledge, but it's also about skills and orientation. They're different kinds of people, doing very different work.
Your "the only people who can possibly understand this are the ones who agree with me" approach is essentially religious thinking. You're making an argument from authority, except the only cited expert is you, an anonymous person with no credentials and no provable experience.
This applies to journalism at large, but for market and trading analysis in particular, professors fit into this category much more than in other fields (such as engineering, where there is still a disconnect between academia and industry). In trading, anyone who truly understands the market at such a powerful level is using that knowledge to make money. It's a complex adaptive system, so publishing financially actionable research in the field is usually pointless because the market adapts. In my anecdotal experience, even engineers / employees of quant funds like yourself do not often really understand the market when they were focused on some specific piece of infrastructure / a part of someone else's larger design. When left alone without the infrastructure and systems they were used to, breaking even is often their best case scenario.
But this is all beside the point. Instead of personal attacks, getting defensive, and bowing to credentials, consider thinking for yourself and addressing the content, if you reply.
Source: I'm an anonymous professional trader who beats the market.
Everything they have highlighted in the red and green graphs in the latter half of the article can be explained by a completely ordinary order flow. Much weirder stuff happens in the order books every day: iceberg orders that appear small but are bottomless, giant walls that retreat as soon as they're touched, spoof orders that are placed and canceled repeatedly. None of that funny stuff is in evidence here.
Let's focus on one particular error from the article and I'll explain the misunderstanding behind it. Take a look at the diagram titled "Tether-USD Trades on May 9 From 20:59:13 to 21:01:00 GMT." If you don't understand the two prices of a limit order book, you might think that diagram shows 7 different price movements. But in fact, there are only two price movements: when the Ask price moves from .9991 to .9992, and when the Ask price moves from .9992 back to .9991. Something to remember about limit order books: market buy orders will execute at the Ask price, which is at least one increment higher than the Bid price. Market sell orders will execute at the Bid price, which is at least one increment lower than the Ask price. Why can't the Ask and Bid prices be the same? If you had a limit buy order on the books at $100 and a limit sell order on the books also at $100, they match to each other, cancelling each other out until only one type of order (buy or sell) is left at the contested price. When looking at a price history graph like this, what is actually plotted is the Last Executed Price. If the Bid and Ask prices are completely static, the price history will show oscillation between the Bid and Ask prices as market buy orders and market sell orders are executed in turn. The gap between the Bid and Ask prices at a point in time in the order book is called the Bid-Ask Spread. An important point is that when the Bid and Ask are not moving, the Last Price graph will still show oscillation across the Bid-Ask Spread.
So now look again to the diagram caption: "Multiple sell orders of exactly 13,076.389 are executed, and the price didn’t budge..." What this means is that there was more than 183,076.46 in buy limit orders at the Bid price of $0.9990, which is fairly typical to witness. Certainly not evidence of manipulation or even out of the ordinary. The second caption "...but a buy order of just 75 moved the price up .0001" is more problematic. Neither the Bid price nor Ask price has actually moved in response to the size 75 order, this is just the normal oscillation across the Bid-Ask Spread. Furthermore the minimum price increment on Kraken is 0.0001, so the minimum any buy order following a sell order can move the Last Price is 0.0001 (barring a simultaneous drop in the Ask price.) Let me repeat: Unless the Ask price drops, any and all buy orders following a sell must move this price graph upward by at least .0001 by definition. This appears to be lost on the authors, who highlight the .0001 move upward as something notable, an outsized price move for such a small order. They might be shocked to discover that a size 0.01 order would also move the price graph upward as much as the size 75 order.
It's disappointing that Bloomberg, an ordinarily reputable news source when it comes to financial writing, missed the mark by so much on this topic.
I was also disappointed that this article made it to publishing on Bloomberg for the same reason.
If you are almost 100% certain that Tether are USD-backed, then your operation is easy. You put bids/asks just 0.x% from $1 and you sell/buy Tether back and forth providing liquidity.
Market making is a competitive operation so the margins get smaller. Some people need to pay fees, some don't. So it might not be profitable for everyone. The fee on Kraken reduces to 0% for market makers if they make enough volume.
The volume on Kraken could be dismissed as too small comparing to other actors. Tether is mainly used by binance, hitbtc, okex, huobi... as a trading pair for crypto. They are dealing hundreds time more volume than Kraken.
This is not an acknowledgement that Tethers are safe. But that this study is rather not very informative and not well researched.
Historically, price pegs like this break at some point.
Think of Tether as a trading convenience. It's needed only because Bitcoin "exchanges" are so difficult about wire transferring money out. (With real stockbrokers, cash can be wire transferred out within hours with no nonsense. A firm that can't do that goes bankrupt within days.) Don't keep money in Tether for long.
I've sold and 'cashed out' of gdax in the morning and had they money in my credit union account by about noon for no fee.
Most exchanges use NBBO-like mechanisms.
"National Best Bid and Offer (NBBO) is a regulation by the United States Securities and Exchange Commission that requires brokers to execute customer trades at the best available ask price when buying securities, and the best available bid price when selling securities."
So even if you wanted to sell your Tether for $0.50 each, it'll execute at ~$1.
>>"They are confounded that the data (USDT and USD have parity in value) doesn't fit their narrative"
What is your narrative? USDT I agree in principle does have some value, but it certainly doesn't afford to be given the benefit of doubt. In my experience Occam's Razor does not apply to Finance, where the incentive is to employ complexity and opacity to gain any pecuniary advantage possible. I am sure you agree that the set of circumstances Tethers operators find themselves in dealing with unsophisticated counter parties is rich for asymmetric abuse.
Some of the assertions made in the article are misguided; but taking a step back, simply they have produced NO commercially reasonable or acceptable audit of their holdings. Caveat Emptor.
I'm skeptical of any stable coin. Doubly so when they're pegged to U.S. dollars.
Banks holding U.S. dollars follow American AML rules. Those include requirements around tracing beneficial ownership. Since nobody knows who beneficially owns a stablecoin, there is nobody who can vouch for those dollars' beneficial owners.
https://www.trusttoken.com/trueusd/
I was at a talk by them last week and they talked through the process they used to stay compliant.
It appears TrueUSD has set up a "legal framework [which] enables you to exchange USD directly with escrow accounts" [1]. When cashing out, you "receive USD from one of the escrow accounts in [their] network of fiduciary and banking partners to purchase or redeem TrueUSD." (You also need to pass "a standard KYC/AML check."
This is much better than Tether. But I'm still skeptical. If a TrueUSD token is frozen as part of a bankruptcy or divorce case, or is involved in criminal proceedings, is the token frozen or the entire escrow account? How do the escrow account managers certify they know the beneficial owners of their escrow accounts? "Know your customer" is a basic American financial principle, and one stable coins of any stripe inherently butt up against.
[1] https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-...
Not sure how significant permanent drop in price would be handled, as I understand it would cause cascade liquidation and massive loss for all parties involved (issuers and holders of DAI).
I'm also struggling to understand the incentive for people to overcollateralize to receive tokens notionally equivalent to dollars and how that's convenient
There are financial incentives to create and destroy DAI. A user of DAI doesn't need to collateralize, he just buys DAI.
DAI demand will grow, if the use cases grow. It is also a good safe heaven for crypto traders.
To your second point, the collateralized loan allows for very very low interest margin investing. You can use the DAI to invest in something, sell it at a higher price, repay your loan, and make money on the difference.
I love how we've come full circle to uninsured fractional reserve banking.
It's analogous. (More accurately, it's a carry trade.) If Ethereum crashes more than 33% (given 150% overcapitalisation) the token breaks the buck. Betting your less-liquid assets won't fall below your more-liquid liabilities is maturity transformation and presents the classic risks of fractional-reserve banking.
And the positions are set up to where you can borrow less than the maximum amount of DAI per ETH, to make your position more resistant to price drops.
The same thing happens with banks. It turns into a run when this forced liquidation drives prices down further which in turn fuels further redemption requests. It’s very possible to start the day 150% capitalised and end 20% because you sold 10% which tanked the market.
DAI is really borrowed against collateral (right now it's Ethereum, but there are plans for muliple forms of collateral), and these collateralized debt positions are public info. If the underlying collateral's value falls too far, the position is automatically liquidated and the underlying collateral is sold to pay for the debt before returning the remainder to the borrower.
Those two mechanisms are the only means of DAI creation, which means that it can never get in an undercollateralized position without everyone knowing. Everything about it is transparent, there are no hidden beneficial owners really. Their names may not be known, but all financial positions are known.
Is the idea that someone will guarantee me some basket of consumer goods (or some amount of another currency which can readily be exchanged for said basket) if I give them 1 DAI?
I think there are fundamental problems with Schellingcoins / other smart-contract-based coins which try to dynamically adjust the supply to maintain a peg; the underlying economics seems pretty shaky (e.g. see http://hackingdistributed.com/2017/06/19/bancor-is-flawed/).
I don't think that the same problems exist with fiat-backed coins though, IFF the full reserve is held. The problem with pegs is when you don't have enough reserve to prevent the peg being broken.
Tether is supposed to be full backed like this, but the fact that they broke up with their auditor suggests that they are not being honest about their reserves.
Although, if your USD-coin is issued by Bank of America, and they apply the same fractional reserve rules that they do to their normal deposits, is there any difference at all?
There's nothing in principle preventing a blockchain from tying wallets to KYC'd individuals, thus resolving the UBO for a given payment/settlement; Stellar and Ripple both have KYC protocols built in.
If you are implying Tether is backed by total assets/liabilities, then some people might be OK. On the other hand, some people might be concerned if it was backed by cryptocurrencies which are rather volatile. The volatility of the cryptocurrencies could then result in volatility in Tether.
I hypothesize three reasons for this:
(1) The skills behind hype often do not intersect with the skills behind actually building great stuff, or at least rarely do in the same individual.
(2) Every individual and team only has so much time. You either spend that time building stuff or spend that type hyping. If you spend that time hyping you're not building. If you spend your time building there's no hype because you're not out hustling and blowing hot air.
(3) More knowledgeable people are skeptical of hype and tend not to spread it even for things that deserve it. Less knowledgeable people are more likely to both believe hype and spread it. Hype for things that wow the ignorant has better virality than hype for things that wow the knowledgeable since even when 'wowed' the knowledgeable tend not to spread hype.
Even in cases where there's a lot of hype around someone or something with substance (e.g. Elon's ventures) hype still tends to far outrun substance. I just take all Elon's time estimates and multiply them by 2-4 and I discount the more extreme stuff as likely just hype. "Oh that's cool, I'll believe it when I see it." But Elon's companies do actually deliver cool stuff and I try to judge them objectively on that as if the hype didn't exist.
It's really bad in the cryptocurrency world. Below the top two or three many of the highest market cap coins and other crypto systems are half-baked things that don't work, mere clones of Bitcoin that have been heavily pumped, or even outright scams. Stuff that works and is novel is relegated to pages two and onward on coinmarketcap. Case in point: Filecoin raised massive amounts of money on nothing but a white paper while Sia had a working system (though still not good enough to displace Backblaze or S3) and raised a tiny fraction of this and got nowhere near the hype.
Edit: Considering all of the above I consider hype a contrarian indicator. Without a whole lot of substance just under the fold (e.g. SpaceX) it's a powerful contrarian indicator.
So congratulations on all your smartthoughts, but you've just taken a long walk to where you started.
However, hype does solve the most difficult part of sales process: customer's willingness to pay. And it solves it way beyond perfect. After 15 years learning in the market, it's the mindset I found I need to learn and adapt to. I don't like the feeling of being dragging to most likely opposite directions. But sales seems more important to a lot of market participants.
I wish so many people weren't trying to make money off the technology now while it's obviously not mature enough to supplant actual currency or some other sector (like storage with Sia and Filecoin). It would also be nice if new features/improvements on a coin were implemented by creating a new blockchain rather than be asking the community to fork.
1. https://prestonbyrne.com/2017/12/10/stablecoins-are-doomed-t...
2. https://prestonbyrne.com/2018/01/11/epicaricacy/
3. https://prestonbyrne.com/2018/03/22/stablecoins-are-doomed-t...
But the eventual idea is to hold reserves (allow people to borrow using collateral) in multiple forms, like tokens tied to ownership of things like stocks, bonds, gold, etc. as well as other cryptocurrencies.
And despite what this guy says, DAI has remained pretty stable: https://coinmarketcap.com/currencies/dai/
The problem, I guess, is that these are still derivatives of the USD. They can collapse if the crypto market goes through a rough bear. They are still not the real thing.
Bitfinex is working on a decentralized exchange. It is the first step to get the scheme working.
There is no possible mechanism by which these tethers can actually be redeemed for US $. The Tether company does not offer this service, which is incredible.
For someone to exchange their tethers for dollars requires them to have an account at an exchange that uses tether, with US dollar services, who reliably will let customers withdraw said dollars.
As far as I know, there are no such entities who are willing or able to provide such a service.
This alone should cause the tether peg to break.
It seems like this lack of liquidity (is that the right term?) would enable a dollar peg to be maintained at a much lower cost, through wash trading or other trading on an exchange like Kraken.
It's incredible to me that people are willing to entrust significant amounts of hard cash to this house of cards.
I guess some people have money to burn.
Kraken offer such a service, this article is about kraken and it specifically mentions USD/usdt trading on the exchange.
Kraken offers an exchange between USD and USDT. When you perform an exchange, you are trading USD for another user's USDT, or potentially for USDT issued directly by Tether. The exchange is performed at market rates, which can fluctuate.
Tether claims on their web site that USDT can be redeemed, which would presumably be a process by which one USDT is destroyed and the holder receives exactly one USD in return. However, this process does not appear to actually be available to anyone.
>However, this process does not appear to actually be available to anyone.
Tethers have been redeemed by exchanges and burnt, this is visible on the omni chain explorer. Theres only a handful of actual customers allowed to buy and redeem directly with tether.
How does sending to a Bank Account work, then? Do banks take Tether now?
A fundamental problem, in the entire “crypto” market is that it’s hard to get dollars to crypto exchanges. As far as I can tell, this difficulty is asymmetric: it’s harder to get dollars out of exchanges than it is to deposit.
In either case, it is hard to get an account with an exchange that can handle dollars, if you are not willing able to jump through the hoops of AML and KYC regulations.
Even if you are, exchanges like Coinbase (regulated, in US) or Bitfinex (unregulated, located god knows where) present significant friction in actually transacting with dollars. (See the relevant reddit forums).
In addition, transferring dollars internationally is costly. So, somewhere, people exchange their dollars for bitcoin, or whatever. They can then easily transfer these digital tokens to any exchange, even those that don’t use dollars (which are many).
When such a user wants to avoid exposure, they can sell their bitcoin for tethers, which they can hold or transfer between exchanges.
The question is where this Tether comes from. It enters the system via Bitfinex, who generates the tether token (their sister company manages the network and creation/destruction of tethers).
What people are suspicious of, is that Tether is generating tokens at will. They can then use these tokens to exchange for real bitcoins. They then avail themselves of whatever actual points of exchange they can to obtain real currency. Or they can just trade the bitcoin.
The point is, in a panic sell situation, the exits are very blocked. If you hold your own tokens (off exchange) you will be that much more screwed, as these blockchain based networks breakdown under load.
In some ways, maybe this lack of liquidity helps stabilize prices.
But the total crypto “market cap” is at least an order of magnitude greater than the total dollars invested. (This is a hard concept to grasp, essentially it is the sum of the last price paid for all tokens in the market place.)
If tether is being is being generated without dollars to back it, that means there is even less real liquidity in the market, and “Tether Inc” is scamming everyone buy siphoning of some of the real demand for crypto coins.
These digital “currencies” have so far only shown utility as a pure commodity for speculation.
This is all mathematically trivial to see. The thing that many skeptical market observers wonder is why the “bubble” hasn’t totally deflated. Bitcoin has shown surprising price stability between $6-8k for a few months.
There is speculation that market manipulation is the thing providing the support, including the shenanigans of Bitfinex and Tether.
Bottom line is that this is a (sub) zero sum game. Any dollars won have a balancing loss from another player. It seems highly likely that this already highly risky game is being “games” by entities that play dirty.
Have you seen their Transparency[0] page?
Here's some relevant context on how Tether works:
> A traditional asset-backed stablecoin is simple to describe, and only gets complicated in practice. The issuer sells tokens for $1 each, and holds all of the dollars from those sales in reserve in a bank account. Any time someone wants to, they can redeem tokens for dollars with the issuer. This design is best with a trustworthy audit mechanism, like Trust Token is using for TrueUSD, in order to reassure holders that the money is there.
> This means that the issuer can maintain a buy wall equal in size to 100% of the circulating supply of the stablecoin at all times. If it’s a trustworthy actor and does in fact maintain that buy wall, it can implement a perfect currency peg. This system is a lot like Hong Kong’s currency board, which has classically maintained very high USD reserves, and had no trouble weathering the storm in the Asian Financial Crisis we referenced earlier, in which many exchange rate pegs broke.
There's a very, very, very large difference between an issuer that actually "holds all of the dollars from those sales in reserve in a bank account" and an issuer that only makes unaudited claims that they do so, like Tether. In the absence of reasonably expected evidence, you should assume that such claims may not be true.
I think seed capital of people who funded tether is used for that.
How else could you have stable price of anything durable and tradeable? Even if you have some control over supply you'd still be lagging behind demand and won't be taking into account supply that private holders will provide.
What they seem to prove is that on this particular market, a wash trader is active, that fakes volume. There is little benefit in this for the gorilla, and a lot of benefit for Kraken itself.
By keeping the price volatility extremely low, they discourage speculators from trading, since they don't stand to make a profit without price movement.
I'm surprised so many on here are defending or semi-defending Tether. All of this smells of manipulation yet people on here seem to be defending them.
I'm not an expert on any of this but if there's been no credible excuse for not having an audit, and part of the whole attractiveness initially of Tether was "full audits" how can you possibly continue to trust them unless you have significant money sunk into it?
Wouldn't the price of BTC take a big hit if the suspicions of Tether prove to be true? I suspect there may be some unconscious cognitive dissonance going on for those who may be holding BTC if not Tether.
It is interesting to me that there is any substantial demand for a Tether, when $1 is always worth $1. If Tethers are actually worth $1, why not convert them to dollars and avoid the counterparty risk entirely?
The price of tether will likely never reach 1.1 unless there are solvency concerns. Any price disparity between BtC/usdt and BTC/USD has historically disappeared, so you can pseudo-arbitrage these pairs across exchanges even though they are technically not the same. Kraken's USD/USDT pair also makes this bridge easier.
Secondly, AFAIK many exchanges including Bitfinex had trouble letting people withdraw USD. I am not entirely sure if that has changed recently.
So, in both cases Tether acts as a counterparty to BTC trades. In most cases, the BTC/USD pair is not actual USD but TUSD.
Tether should only be issued based on the amount of USD that Tether has in its bank account / vaults (they have released a 'audit' by a law firm but not by an official auditor). Since each Tether represents exactly $1, market forces should handle the pegging. Assuming people trust that Tether does have the USD, then any price < or > $1 represents an arbitrage opportunity.
The demand for Tether comes from the fact that many exchanges are not licensed to operate in USD. Tether is used in place of USD on those exchanges, and the counterparty risk you mention is likely balanced by arbitrage opportunity.
It's not clear if tether can really be "redeemed".
But in practice I don’t know enough to be confident that a tether is always going to be $1.
That difference can indicate that the suggestion that they are backed by USD is bullshit. For example, they are likely avoiding hitting 1.10 on purpose so they can avoid scrutiny on re-issue.
And how does someone trading to themselves have any effect on price whatsoever? If there was real liquidity on Kraken and the price actually hit 1.10, then Bitfinex/Tether could simply print tether and arbitrage the difference themselves, essentially creating the tether out of all the money they made arbitraging, meaning it is fully backed.
If the accusation is wash trading I just don't see how that would matter.
There is zero chance that all of these markets are manipulated.
This lacks the imagination of market manipulators from even the 19th century. For more modern context, see penny stocks. These are traded OTC at a variety of venues. Manipulation is trivial given (a) prices on one venue are broadcast to others, thereby letting one bad apple spoil the bunch and (b) electronic trading makes overseeing dozens of accounts easy.
Not necessarily. All it takes is one. (But it does take at least one.) See my comment elsewhere in this thread [1].
Ok, sure.
> To make this economical, they would need an in with at least one exchange. Their trades on this venue (let's call it ShadyBit) would be free, or close to it. This is where the majority of their wash trades happen. If one naïvely averages volume across the market, this will do the trick.
Do what trick, exactly? What does your hypothetical manipulator get out of this?
> But the jig will fall apart if another exchange starts sharply diverging. So you set up sock puppet accounts there to soak up excess demand. As long as you keep the confidence game balanced, there shouldn't be too many people looking to sell at unusually low prices.
"Sock puppet accounts to soak up excess demand". See, right there, you're saying something, but I don't think you're following it through to its logical conclusion. Saying you just "soak up excess demand" hides the fact that this requires enormous amounts of capital, not to mention paying the transaction fees on the exchanges you aren't colluding with.
What you are supposing here is that someone is artificially propping up the price of Tether. What that means is that they are taking real US dollars and exchanging them for an asset that they know is not worth its current price, en masse. If you want to posit someone is doing that, you need to provide an extremely compelling motive for so doing. A motive that would generate more money than it costs them, and I don't see any way that could be happening, with the possible exception of Bitfinex themselves doing it. But...of course, if Bitfinex is propping up the price of Tether by exchanging them for USD 1:1 then....isn't that the point of Tether in the first place?
> In the meantime, you can continue using your inflated-value tokens as collateral for borrowing or to buy appreciating assets or to sell or whatnot.
You're really handwaving here. You're saying they're taking real money, USD, and buying Tether tokens so that they can prop up the price of Tether because they have a lot of Tether that they can exchange for other stuff?
Play this tape all the way through. Let's say you have 100M Tether and 1M USD. You want to prop up the price of Tether so that you can buy sweet cool stuff with your Tether tokens. So you use your 1M USD to prop up the price of Tether, and you starting buying shiny new Bitcoins with your Tether. Now you've bought 10M USDT worth of BTC, so now there is 10M more Tether out there in circulation. You've created massive selling pressure that you now need to balance with real USD. What you are proposing here just fundamentally violates equilibrium principles and so cannot, on its own, be what's happening.
So you’ve exchanged 10m tethers for Bitcoins to users who can’t sell them back for dollars, which will greatly diminish selling pressure.
If you are wash trading, you are not giving up valuable dollars for questionable tethers, that’s the whole point of wash trading! Kraken could can just provide heavy discounts to the wash trader to minimize slippage to trading fees (which I think they do).
Skeptics of the conspiracy, scam theory about tether basically use as their main argument a variation of yours: the bottom line being the market, as it is, believes Tether is not a scam, or the peg would simply not hold.
The reasons individuals believe one thing or another is inscrutable, but the key to this scam is opacity by the entity that creates the tokens. As long as Bitfinex can maintain the belief that they are backing each tether with a new dollar, there is no way to tell if the 50million new tethers were printed from “thin air” or purchased by millionaires.
Once the house of cards is built up, the holders of these related assets have a strong motivation to maintain the belief that tether is a real dollar backed asset. That really helps keep the peg at unity, until it doesn’t.
One of the most absurd things about this, is that tether says they are under no obligation to redeem tethers for dollars. That alone is as serious red flag.
Right now there seem to be enough suckers who are willing to play this game of “musical chairs” and do whatever they can to keep the music from stopping.
No it isn't. Bittrex has both a real USD pair and a TrueUSD (audited, US-based) pair. Binance has a TrueUSD pair.
> It is not trivial to be an active trader on Kraken who can freely move in an out of tether and USD.
Yes it is. I have a kraken account. I've traded Tether/USD plenty. I have no special privileges.
> Most of the holders of Tether don’t have access to a market to exchange for dollars.
Yes they do. See, first two answers.
> If you are wash trading, you are not giving up valuable dollars for questionable tethers, that’s the whole point of wash trading! Kraken could can just provide heavy discounts to the wash trader to minimize slippage to trading fees (which I think they do).
Ok, and this accomplishes what?
> Skeptics of the conspiracy, scam theory about tether basically use as their main argument a variation of yours: the bottom line being the market, as it is, believes Tether is not a scam, or the peg would simply not hold.
I'm not actually making that argument. The argument i'm making is that this 'wash trading' theory is stupid, because there is no reason to wash trade. The only entity that would have any interest in wash trading Tether is Kraken itself, to make the market appear more liquid, and attract real trading activity. But if that were the case, that has no bearing on the Tether-Bitfinex conspiracy theory and just isn't all that nefarious an activity.
Nobody has provided any compelling reason why anyone would be interested in falsifying trades on this Tether market. In the absence of any motive, i'm skeptical both that it's happening at all, and that if it is, it has any meaning whatsoever.
That being said, Tether itself may or may not still be a conspiracy. These things are unrelated in my mind. Though, on balance, I think I lean towards thinking it's not a conspiracy, though for other reasons than this.
Bittrex does not have a USD-USDT pair available for regular traders. They are literally just testing this service this week with a limited pool of users.
Here’s what they are said in what is the most recent post on their news blog, May 31, 2018:
https://support.bittrex.com/hc/en-us/articles/360004397871-B...
>During this first phase, fiat trading will be limited to approved corporate customers in the United States located in Washington State, California, New York and Montana. Qualified international customers may participate in the market as well. Like all customers who want to be active on Bittrex, fiat customers will be required to submit to both the standard registration process --including proof that they are operating in qualified U.S. or international regions -- as well as other specific fiat terms and conditions.
You are trippin’
As to who might have a vested interest in maintaining the appearance of the dollar-tether peg, come on. That’s not too hard to figure out.
Yes, and I stated why I thought that was relevant. Feel free to provide a counter-argument. You realize that any supposed 'USD' pair is equivalent to a promise to pay you USD by the entity that issues it, right? Which means that a USD pair and a USD-backed token are literally the same thing: Promises to pay USD. How meaningful they are is contingent upon the trustworthiness of the issuing entity. TrueUSD is a regularly audited US-based company with real VC backing and transparent accounting. TrueUSD is much more meaningful than a Bittrex or Kraken USD pair.
> Bittrex does not have a USD-USDT pair available for regular traders. They are literally just testing this service this week with a limited pool of users.
They've been testing it longer than that, and a decent number of people have access to it.
> As to who might have a vested interest in maintaining the appearance of the dollar-tether peg, come on. That’s not too hard to figure out.
I didn't say that. I asked why someone would be interested in wash trading. Re-read what I actually wrote, and feel free to respond to literally any of the substance of it.
No, you're making an assumption which is easily proven wrong. Here is what Kraken's USDT/USD book looks like on the bid side:
Volume Price
125.000 $0.9988
121.898 $0.9987
535.315 $0.9985
871.893 $0.9984
147,258.063 $0.9983
Former algorithmic trader. You're right–the ceiling isn't particularly unusual. That prices never cross through is weird, but not inexplicable.
What is inexplicable is the downtick inelasticity. Large sell orders should burn through more book than small orders. As the top of the order book is burned, lower bids are revealed. Even in the presence of lots of arbitrageurs, there will be transactions at those newly-revealed lows.
That isn't happening. Instead we see a stable harmonic evocative of wash trading.
Let's assume a third-party manipulator (i.e. they can't print new Tether).
To make this economical, they would need an in with at least one exchange. Their trades on this venue (let's call it ShadyBit) would be free, or close to it. This is where the majority of their wash trades happen. If one naïvely averages volume across the market, this will do the trick.
But the jig will fall apart if another exchange starts sharply diverging. So you set up sock puppet accounts there to soak up excess demand. As long as you keep the confidence game balanced, there shouldn't be too many people looking to sell at unusually low prices.
In the meantime, you can continue using your inflated-value tokens as collateral for borrowing or to buy appreciating assets or to sell or whatnot.
You’re responding to an allegation of fabricated volumes by quoting volumes.
And its not like USD-USDT hasn't become uncoupled before. It's been as low as .7 in the past.
You're describing a shallow order book. This happens quite frequently in less-liquid markets. The transaction signature of a shallow order book is large orders prompting a pause in trading, as the order book is drained and refilled.
Contrast that to a hyper-liquid market like that for on-the-run Treasuries. You'll have a mix of price and time preferences, with some people wanting immediacy and others willing to provide it for a discount/premium.
The presence of continuous, non-volatile trading--particularly on the downticks, given a pegged asset--is very unusual. Enough so that I've never seen anything like it before in a properly-functioning market. Which is suspicious.
The catch, of course, is whether that promise is true and if it's even possible to convert your USDT to actual USD, and the answer to both seems to be "no"...
Having concluded I can cash out tomorrow, I won't try to cash out today. Which would be the point.
But seriously, why does the financial press get away with constantly inventing causation?
"Bitcoin tumbled following the report."
Great insight there. And also the Earth continued spinning.
I guess the customers of financial press would not find "Market did some random fluctuations with no cause whatsoever" that valuable reporting after repeated about a hundred times in row - even if that in many cases would be more accurate reporting than the invented causations.
The fact that the market doesn't behave like any "normal" market for a good that isn't expected to have a tightly "tethered" price is not particularly weird in my eyes.
Google "numbers stations'. It's the cold war all over again, updated for 2018.
See also; conspiracies are everywhere (TM)
>discover behavior perfectly explained by an automated arbitrage of a redeemable token
>was the assumption wrong?
>impossibru
"it could be a signal"
What's being delta hedged?