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Is bitcoin on risky grounds?
26 May 2021 (406 views)

My friend sent me this article about tether

https://mishtalk.com/economics/investigating-the-charge-bitcoin-price-is-dependent-on-60-billion-accounting-fraud?

It is a long article. I extract the main points:

a)  It investigates the charge that "bitcoin price" is dependent on $60 billion accounting fraud. The charge relates to Tether, a stable coin allegedly fully backed by US dollars.

b) In 2018, Tether has represented as much as 80% of bitcoin trading volume, according to research site, up from 10% of bitcoin trading volume at the start of the year. Tether still accounts for 80% of Bitcoin volume today.

You can read the long article to know the issue with tether and its possible impact on bitcoin.

The following points are worrisome:

In 2020 the New York Attorney General investigated the US entity associated with trading Tether and indeed found massive amounts of misrepresentation in their findings. In the AGs words

"Tether's claims that its virtual currency was fully backed by dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated entities dealing in the darkest corners of the financial system." 

"Tether made false statements about the backing of the 'tether' stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses."

Last Wednesday [May 12], we finally got the court-mandated disclosures of what's actually in the reserves. And not surprisingly when the vault is opened, the money isn't actually there. 

What we see is a lot of "commercial paper". Which is a form of short-term debt, a company-to-company unsecured loan. It's put on the books for the face value of the loan, but in reality that value depends on the credit risk of the other counterparty to the loan.  

If the counterparty isn't good for the value of the paper then it's worthless, just an accounting trick. And we don't know who the other parties are. Every Tether is backed by a giant pile of IOUs to strangers. 


I do not know if this article is reliable. So far, many of the investors are still confident about bitcoin. However, this confidence could be shaken, if the points raised in this article turn out to be reliable.

Note - I am sharing a point of view. This is not investment advice to take any position on bitcoin.

Tan Kin Lian

 


Is bitcoin on risky grounds?
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My friend sent me this article about tether

https://mishtalk.com/economics/investigating-the-charge-bitcoin-price-is-dependent-on-60-billion-accounting-fraud?

It is a long article. I extract the main points:

a)  It investigates the charge that "bitcoin price" is dependent on $60 billion accounting fraud. The charge relates to Tether, a stable coin allegedly fully backed by US dollars.

b) In 2018, Tether has represented as much as 80% of bitcoin trading volume, according to research site, up from 10% of bitcoin trading volume at the start of the year. Tether still accounts for 80% of Bitcoin volume today.

You can read the long article to know the issue with tether and its possible impact on bitcoin.

The following points are worrisome:

In 2020 the New York Attorney General investigated the US entity associated with trading Tether and indeed found massive amounts of misrepresentation in their findings. In the AGs words

"Tether's claims that its virtual currency was fully backed by dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated entities dealing in the darkest corners of the financial system." 

"Tether made false statements about the backing of the 'tether' stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses."

Last Wednesday [May 12], we finally got the court-mandated disclosures of what's actually in the reserves. And not surprisingly when the vault is opened, the money isn't actually there. 

What we see is a lot of "commercial paper". Which is a form of short-term debt, a company-to-company unsecured loan. It's put on the books for the face value of the loan, but in reality that value depends on the credit risk of the other counterparty to the loan.  

If the counterparty isn't good for the value of the paper then it's worthless, just an accounting trick. And we don't know who the other parties are. Every Tether is backed by a giant pile of IOUs to strangers. 


I do not know if this article is reliable. So far, many of the investors are still confident about bitcoin. However, this confidence could be shaken, if the points raised in this article turn out to be reliable.

Note - I am sharing a point of view. This is not investment advice to take any position on bitcoin.

Tan Kin Lian