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Cryptocurrency (Coins)

Will Tether (USDT) Kill Bitcoin? Evidence, Transparency & Future Outlook

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Trading cryptocurrency can be both rewarding and soul destroying, especially considering the recent bloodbath in Bitcoin. Searching online for reasons as to the sharp decline in the BTC price yields fascinating results. “Hodlers,” investors, and speculators have come up with a multitude of factors that contributed to the crypto crash of 2018. Governments, regulators, whales, futures have all taken the blame for conspiring to crush the decentralized currency.

What if it was all a lot simpler than that? What if the recent 65% drop in BTC was merely the work of a few bad actors controlling a large segment of the market? Trying to make sense of Tether and its impact on the crypto marketplace will raise a lot of FUD (Fear, Uncertainty, and Doubt) on forums and social media if you wander down the wrong thread.

The Conundrum of Trading Crypto on Exchanges

Trading cryptocurrency requires a few steps; register with an exchange, open an account, download software and place your first order. To cash out of the trade and realize profits as fiat currency in a bank account, customers need to send the exchange identity documents and proof of address verifying their details, to satisfy KYC and AML laws.

Two types of exchanges operate in the crypto markets, those that offer cryptocurrency trading in USD pairs and settle client accounts in USD, and those that do not provide USD pairs and USD redemption on trades. Coinbase/GDAX, Kraken, and Gemini are examples of exchanges that meet the requirements of the financial regulations needed to trade and cash out customer accounts for USD.

Bitfinex, Bittrex, Poloniex, and Binance are examples of exchanges that do not settle in USD but allow withdrawals in cryptocurrencies such as USDT, ETH, and BTC. This circumvention strategy allows the exchanges to avoid the hassle of complying with regulatory laws while legally operating a cryptocurrency exchange.

What is Tether?

Tether launched in mid-2015 as a solution to two underlying problems in the cryptocurrency trading world. First, Tether solved the problem of trading and settling customer accounts in USD by the non-compliant exchanges. The second problem Tether cleared up was aimed at the traders themselves. In periods of high price volatility, traders can cash out their crypto balances into Tether to escape swift adverse price action. When traders feel confident to enter the market again, they may convert their Tethers to the cryptocurrency of their choice and begin trading.

The reason this “Stablecoin” business model works is that Tether Limited guarantee that it would peg the price of Tether to the dollar at a rate of 1:1. Tether enforce this peg with open market operations between the non-compliant exchanges. All cryptocurrency pairs available on these non-compliant exchanges trade against Tether (USDT) trading pairs and accounts are settled in USDT (Tether), not USD.

Blind faith in the fact that Tether Limited will redeem USDT for USD at a rate of 1:1 is what keeps bots and traders arbitraging USDT between exchanges, thereby balancing the peg with their trading operations. As long as the non-compliant exchanges can keep the USD/USDT peg at the guaranteed ratio, the price of Bitcoin and other cryptocurrency's will be equal in both USD and USDT.

Shady Start-up and the Bitfinex Connection

Tracing the history of Tether and Bitfinex leads to some suspicious activity and a connection between the companies that was previously denied by the company's founders.

2012 sees iFinex founded in Hong Kong to become the parent company for both Bitfinex and Tether. Bitfinex incorporates in Hong Kong during 2013 and is run by CEO Jan Ludovicus van der with the help of Phil Potter and CFO Giancarlo Devasini.

Potter and Devasini decided to establish Tether Limited in the British Virgin Islands, while publicly stating that Bitfinex and Tether are entirely separate entities. Tether began trading on February 25, 2015, however; USDT circulation and issuance experiences very little growth in 2015 and 2016.

The second half of 2017 was challenging for Tether and Bitfinex. The “Paradise Papers” were leaked on November 7, 2017, proving that Bitfinex and Tether are owned and operated by the same people.

Bitfinex Hacked

On August 2, 2016, the second-largest digital currency exchange heist in history took place as hackers stole nearly 120,000 Bitcoin, worth around $75 million. This event was the most significant crypto hack of an exchange since the infamous Mt. Gox fell in 2014. Bitfinex did not disclose the full details of the hack. However, BitGo, the security company responsible for signing off on all transactions, issues a statement saying its servers were not involved in any security breach or compromised in any way.

Tether Hacked

On November 19, 2017, theiFinex group experiences its second hack as cyberthieves get away with 31 million USDT. Hackers breached the security of the Tether treasury wallet, sending the bitcoin to an unauthorized wallet address. To quarantine the funds from being spent by the thieves, Tether initiates a hard fork to the Omni chain.

Bitfinex Accused of Manipulation Tactics

As if two hacks and a sensitive document leak wasn't enough bad news for Tether and Bitfinex, in August of 2017 a Twitter user named @bitfinexed begins to blog. The blogs start to expose price manipulation tactics used by Bitfinex and Tether to move the Bitcoin market in the desired direction. The first blog introduced “Spoofy” a trading bot similar to the “Willy” bot that manipulated prices on the Mt. Gox exchange before its failure.

The @bitfinexed Twitter account and Medium blog collected an impressive amount of evidence against Bitfinex that included manipulation strategies such as “Quote Stuffing,” “Flash Orders,” “Wash Trading,” “Spoofing,” “Painting the Tape,” “Front Running,” and even trading against their own book.

Recent allegations against tether have suggested that they do not have the USD reserves to back the USDT held in their reserves and circulating through the crypto marketplace. If this is the case, then Bitfinex have created a money printer in Tether Limited that allows them to purchase Bitcoin with free money.

Bitfinex allegedly buys up the Bitcoin with freshly printed Tethers that are not backed by any USD and then proceeds to dump the BTC on real USD exchanges. Should this fraud be proven to be true, then Bitfinex and Tether would be at the center of one of the biggest financial scams in history.

The Audit That Never Was

When Tether Limited launched, they announced that they would be undertaking an annual audit of their finances. The nature of the audit was to provide transparency to their clients and the market, creating confidence around USDT and its legitimacy. It was not long afterward that Bitfinex experienced the second most extensive hack of all time with hackers stealing $75 million worth of BTC.

On August 17, 2016, Bitfinex announced that it had contracted a blockchain forensic firm, Ledger Labs, to investigate the hack as well as conduct a financial audit of its USD and USDT assets. After months with no update on the audit or the theft, Bitfinex states that it had never contracted Ledger Labs to conduct an audit.

Over the following year, Bitfinex loses Wells Fargo as their last tie to the international banking system in the United States. Shortly after that, Bitfinex also has their Taiwanese banking accounts closed, and they are forced to take deposits through shell company bank accounts incorporated in the BVI and other tax havens.

There was no further mention of an audit until Bitfinex engages Friedman LLP to audit their balance sheet on May 5, 2017. The 2017 bull run in Bitcoin takes off around this time as prices accelerate to new all-time highs on announcements of Japans acceptance of Bitcoin as legal tender.

At the peak of the Bitcoin bubble mania on December 2, 2017, Bitfinex announces in a quarterly report that it will stop serving U.S. customers. The move starts an investigation by the SEC and CFTC into price manipulation, and fraudulent ICO's, resulting in a subpoena served on Bitfinex on December 6, 2017. This news was kept from public knowledge and did not have any effect on the popping of the Bitcoin bubble only two weeks later.

In a shock move, Freidman LLP withdraws from the Tether audit on January 27, 2018. They remove all mention of the Bitfinex audit from their website and make a public statement that says they are unable to complete the audit. Tether has since not attempted to engage other auditors in the big four group of accounting firms.

While all of these facts do seem scandalous, there is no physical proof of these allegations at the time of this writing in mid-February 2018. Those that have chosen to question Bitfinex and Tether, such as the @bitfinexed account, experience ad hominem attacks from the Bitfinex PR team and network partners. It appears that Tether and Bitfinex will continue to side-step the audit and blame technical difficulties related to the nature of the crypto business for the delay.

Tethers Market Impact

Those that are aware of the Bitfinex and Tether scandal often state that Tethers portion of the total crypto market cap is only a drop in the bucket. This statement is true since all 2.3 billion of USDT printed represent about 0.6% of the total crypto market value. This small portion of the crypto ecosystem could not therefore possibly have any impact on asset pricing should it be proven to be a fraud.

This thesis does not take into account the trading volume, liquidity, and trading velocity of the USDT supply. Tether is the third most traded cryptocurrency, by volume, making a substantial contribution to trading volumes across all major exchanges. The current money velocity of USDT is around 57. Considering that real USD only has a money velocity of 4.4, it's apparent that USDT is changing hands in the marketplace at a frenetic pace.

If Tether disappeared from the marketplace due to a hack or lost its USD peg for various possible reasons, the results could be disastrous. If everyone tried to redeem Tether tokens for real USD, even if that were possible, there would most likely be a liquidity crunch where exchanges would be unable to fill sell orders as the price declines. With Tether now accepted on most major exchanges for a range of cryptocurrencies, “hodlers” and traders face the possibility of losing money in the event of a price crash.

Piecing together the Puzzle

All of the allegations against Tether and Bitfinex yet to have been proven with concrete evidence. Until Tether Limited can produce an independent third party audit, they will remain under suspicion with a large part of the crypto community. 2018 is shaping up to be another exciting year for Tether and Bitfinex. The results of the CTFC and SEC investigations and the ongoing audit saga combined with the popping of the Bitcoin price bubble are sure to keep crypto enthusiasts and investors glued to their newsfeeds. Trade and hedge accordingly.

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Ethereum (ETH)

Ethereum Price Analysis: ETH Approaching Significant Support Area

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Ethereum Price Analysis ETH Chart

There was another rejection noted near $265.00 in Ethereum vs the US Dollar. ETH/USD is currently declining and approaching towards a couple of important supports near $254.00 and $250.00.

Key Takeaways: ETH/USD

  • Ethereum price formed a short term top near the $264.4 level and declined against the US Dollar.
  • ETH/USD is currently approaching the $254.00 support and a bullish trend line on the 2-hours chart (data feed from Bitstamp).
  • Bitcoin price remains in an uptrend and it could accelerate gains above the $8,300 level.

Ethereum Price Analysis

Recently, bitcoin price gained momentum and broke the $8,100 and $8,200 resistance levels. However, Ethereum price failed to gain traction and formed a short term top near the $264.4 level.

Looking at the 2-hours chart, Ethereum price started a downside correction from the $264.41 high and declined below the $260.00 level. There was a break below the 23.6% Fib retracement level of the last rally from the $236.89 to $264.41.

Ethereum Price Analysis ETH Chart

Besides, there was a break below the $258.00 level, but the price found support near $255.00. Moreover, the price is approaching the $254.00 support and a bullish trend line on the 2-hours chart.

Below the trend line, the main support is near the $250.20 level and the 50 simple moving average (2-hours, purple). The 50% Fib retracement level of the last rally from the $236.89 to $264.41 is also near the $250.65 level to act as a support.

If there is a downside break below the $250.00 support, the price could extend losses and decline towards the $243.50 zone. The 76.4% Fib retracement level of the last rally from the $236.89 to $264.41 is also near $243.40.

Conversely, if the trend line support holds, the price is likely to start a fresh increase in the coming sessions. An initial resistance is near $260.00 and a connecting bearish trend line. A break above the $260.00 barrier might start a strong rally in Ethereum price above the $265.00 level.

Overall, ETH price is trading with a positive bias as long as it is above $250.00, and it could rise again above $260.00 and $265.00.

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Bitcoin (BTC)

Bitcoin Price Analysis: BTC Setting Up For Another Bull Run

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Bitcoin Price Analysis BTC Chart

After a major decline, bitcoin price started a solid upward move above $7,750. BTC to USD gained momentum above $8,000 and even spiked above the $8,250 resistance area.

Key Takeaways: BTC/USD

  • Bitcoin price formed a strong support above $7,550 and recently climbed higher against the US Dollar.
  • BTC/USD broke the main $7900 resistance and a couple of bearish trend lines on the 2-hours chart (data feed from Bitstamp).
  • Ethereum, ripple, and bitcoin cash also gained momentum and moved into a positive zone.

Bitcoin Price Analysis

After testing the $7,500 and $7,520 levels on multiple occasions, bitcoin price finally started a fresh increase. BTC started an upside reversal after it successful broke the $7,600 and $7,850 barriers.

Looking at the 2-hours chart, bitcoin even broke the main resistance near the $7,900 level to move into an uptrend. Finally, there was a break above the $8,000 level plus a close above the 50 simple moving average (2-hours, purple).

Bitcoin Price Analysis BTC Chart

During the rise, the price even broke the $8,150 resistance and a couple of bearish trend lines on the same chart. A new swing high was formed at $8,266 and the price is currently correcting lower.

It broke the $8,150 level and the 23.6% Fib retracement level of the recent wave from $7,903 to $8,266. However, the price is currently finding a strong buying interest near the $8,060 level.

The 50% Fib retracement level of the recent wave from $7,903 to $8,266 is also acting as a decent support. The main support is near the $8,000 level and a connecting bullish trend line on the same chart.

Therefore, bitcoin price is gaining pace and it remains in an uptrend as long as it is above $7,980 and the 50 simple moving average (2-hours, purple).

On the upside, an initial resistance is near the $8,100 level and a connecting bearish trend line. A successful close above $8,100 might start a strong rise in the coming sessions.

The next major hurdle for the bulls is near the $8,250 level, above which the price might start a rally towards the $8,500 level.

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Price Analysis

Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH) Price Analysis June 10th

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Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH) Price Analysis June 10th

BItcoin BTC/USD Forecast

Last Friday the price of Bitcoin came up for interaction with the first significant horizontal resistance at $8140. As the interaction ended as a rejection the price was propelled in a downward trajectory and came down to the levels of the prior low at $7576 which was a decrease of around 6.7%. From today's open which was around the mentioned prior low level, the price has increased by 5.43% with strong bullish momentum as the majority of the increase occurred in only one hour but we are now seeing the price struggling to keep up the upward movement slightly lower then on the prior high.

BTC-USD-Market-June-10

Click to see a full size chart

On the hourly chart, you can see that the price encountered resistance, indicated by the wick from the upper side of the last hourly candle and is now likely to keep interacting with the current level as it's retesting it for resistance further. If the price manages to keep up the upward movement we could see a breakout to the upside from the first significant resistance point and to the next on at around $8500.

This would be unlikely if the found resistance proves to be stronger then the currently seen bullish momentum as a rejection at the current levels would likely lead to a lower low below the one made on 5th at $7506. The price spiked to those levels on today's open but a proper interaction with a lower spike would likely occur if the increase was seen would be stopped out at the mentioned first significant resistance as it would mean that from last Thursday we have been seeing the development of the five-wave move to the downside out of the starting downtrend.

Litecoin LTC/USD Forecast

Last Friday the price of Litecoin increased by around 9.6% coming from $109.96 to $120.47 at its highest which has pushed the price above the first significant resistance level at the descending channels resistance. The price came down for a retest of support at the broken level over the weekend and as it found support it continued moving to the upside above the prior high level, coming to $126.8 at its highest point today.

LTC-USD-Market-June-10

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The price came above the 0 Fibonacci level which was the ending point of the prior high and above the next highly significant horizontal level at $122.32 above which it is considered to be the sellers' territory. I was expecting the price to start moving to the downside after an interaction with the first significant resistance at the descending channels resistance but as the price continued increasing further past the other significant resistance point we have likely seen the development of another five-wave move to the upside. As the move looks finished or near completion and especially considering that the price has entered the seller's territory I will be shortly expecting the start of the impulsive move to the downside.

Even though we have seen a five-wave increase I don't believe that its the starting upside wave, but is more likely the second correctional structure after the first one currently labeled as a WXYXZ correction ended. The price did make a higher high but this can also be seen on a corrective move usually ending as a running flat. If we are soon the see the start of an impulsive move to the downside the first significant support zone for the price of Litecoin would be at around $83 area.

Ethereum ETH/USD Forecast

The price of Ethereum has increased from today’s open at $228.8 by 6.59%, coming to $243.4 at its highest point today but has encounterd strong resistance there and is currently being traded slightly below those levels.

ETH-USD-Market-June-10

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On the hourly chart, you can see that the price came down over the weekend below the prior low at around the vicinitly of the 4th wave’s ending point from the previous upside move where it found support as the price immediately started moving impulsively to the upside again.

The rise has been stopped out at the previous horizontal support which now serves as resistance but since a breakout occurred to form the descending triangle which was formed from 30th of May we are likely to see the increase continue for a bit longer before the price continues moving to the downside again.

If the descending triangle was the first structure out of the starting downward move, the increase seen from today could be viewed as a correctional upside move in which case it cannot exceed the 258 level which is around half range between the last Thursdays high and today’s open.

Bitcoin Cash BCH/USD Forecast

Over the weekend the price of Bitcoin Cash has decreased by 8.2% as it came down from $409.2 to $375.6 at its lowest point. From today’s open around the mentioned low level we have seen an increase of 5.36% to $395.7 but the price has encountered resistance as the rise has been stopped out.

BCH-USD-Market-June-10

Click to see a full size chart

On the hourly chart, you can see that the price decreased slightly above the last week’s low at $366.5 made on Wednesday which is why a lower low before the completion of the downward move would be expected if we are seeing the development of the five-wave move to the downside out of the starting downtrend.

If we are seeing the development of the 4th wave it cannot go above the $413 which the price interacted with over the weekend and found resistance there which makes this possibility higher. As the 4th wave is corrective in nature it could mean that today’s increase is still its development which we are to see from the currently encountered resistance interaction.

Conclusion

Over the weekend the prices have continued increasing to their first significant resistance point and have gotten rejected with the price going to the levels from which the increase was made. This movement could have been the end of the first wave from the starting downtrend but a more likely outcome would be that another lower low is coming before we see some major upside correctional movements.

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