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Comment by seppel | Hacker News Reader

Sorry, I'm slow and I really don't understand this.

> Retail people seeking to get into bitcoin in the middle of this bubble are getting scammed because tether is being used to artificially inflate its value.

But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?

I now have 18k USDT, but I can't spend them on blackjack and hookers. In fact, I can buy nothing with the 18k USDT except crypto!

So I have two options:

* I keep the 18k USDT. But why should I do that?

* I buy back my BTC. But then somebody else has the problem of spending the 18k USDT! Where do they eventually end up? I dont get that part.

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>But how? Let's say I have one BTC. You offer me 15k USD to buy it, I say no. You say, ok, what about 18k USDT (that you just printed)? I reconsider and say, yeah, ok. So you inflated the price ok, but then what?

It doesn't really work like that. It's more like: you see BTC being traded at 15k, and you refused to buy because that's ridiculously high. Two days later, the price pumps to 18k (which is, at least partially, caused by Tether printing). Now FOMO kicks in and you saw a tweet by some rando that says that Bitcoin will breach the ATH and get to 25k for sure due to his TA. You decided to buy in at 18k.

Notice that in this entire thought process, there's no difference between USDT price and USD price. They are considered one and the same, at least in the vast majority of traders, holders, miners and crypto media.

Now, you may have access to USD exchanges like Coinbase, but many people don't. For those, their only FOMO option is USDT exchanges like Bitfinex, which means they need to buy USDT first, which means the Tether ecosystme just got some new cash inflow and someone else got to cash out their USDT.

So for this to work out I am tether the company, you are an exchange that is in on the scam. So the initial denial of declining 15k USD doesn't even happen. What happens is I print a billion tether and use that to buy a bunch of btc from you. You willingly take tether despite knowing that tether is useless, because you know that this transaction will pump the value of btc and you benefit from that. We both benefit from btc going up. So it's in our best interest to keep the charade going.

The price of btc denominated in tether (BTC-USDT) goes up after our transaction. Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity. Now bitcoin's price in dollars has gone up and people notice this, and news articles are printed and people get FOMO.

But at the root of this pump is a fraudulent transaction. I printed tether that I know is not worth one dollar each, and you played along with me and we exchanged tether for btc, and we caused btc to go up in price so that we both benefit. Whomever buys btc (i.e. retail investors) after I've pumped the price is in great danger of being scammed because there was no real money behind the initial tether transaction. You, the exchange, might be holding a lot of useless tether, but it doesn't matter because you've already profited from the price increase in btc via higher trade volume and usage of your platform plus all the publicity you get from a media that is always happy to report insane btc valuations.

So you don't do anything with the tether, you don't care about it as the exchange. It's unclear if the tether in these exchanges, which is a lot, will be redeemed for dollars at some point in the future by coming back to me, the Tether company, where I would use some of my profits from selling btc high to trade some of your tether for USD and help maintain the appearance that tether is fully backed by USD.

> Now, arbitrage bots will look at this in crease in btc-usdt, and be mandated to buy btc with USD so that BTC-USDT and BTC-USD are in parity.

This is the bit that doesn't make sense.

Arbitrage bots trying to push BTC-USD up to match BTC-USDT will end up holding a lot of USDT. So what do they do with it? You can't just magically make USD markets go up; that needs actual USD to enter the system (as part of the arbitrage process, if nothing else).

Someone in this whole scheme is leveraged to the tits on tether, and newly minted tether is needed as an asset to back the old tether. And as long as nobody actually tests the convertibility of the currency too strongly, this can hold up.

But if arbitrage bots were pushing the BTCUSD price up to match BTCUSDT, they'd have giant piles of USDT. And they'd have to convert it back in large quantities, or else they'd go broke.

The world where no one tests the peg too hard is incompatible with the world where Tether caused huge BTC runups all on its own.

It's musical chairs. When the music stops, somebody's holding USDT: either because they were using it as in intermediary to trade into other coins, or because they believed that Tether is really backed 1:1 (lmao).

> Where do they eventually end up? I dont get that part.

Without a chair.

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