A thin tether to reality.
To the last crypto bull: please turn off the lights on your way out.
The first half of this year has been nearly as painful for crypto-currencies as the previous year was euphoric. Crypto standard bearer BitCoin has more than halved in value year-to-date and the vanguard has followed suit: ethereum, ripple and litecoin are down by, 35%, 75% and 55%, respectively, from their Dec. 31 levels.
However, one avatar of opacity remains buoyed, and as such deserves our attention: despite the sharp pullback in other cryptos, tether’s market cap has skyrocketed to $2.6 billion.
Think of tether as a grease that is lubricating the crypto market. It is referred to as a ‘stable coin’ and backed one-toone with the dollar. Tether is useful because many crypto-currencies cannot access the banking system since banks need to satisfy those steps most repugnant to the crypto-world: ‘know your client’ and ‘anti-money laundering’ rules. Many crypto-exchanges shirk this step, Bitfinex – probably the largest exchange – is one example. Bitfinex is of course a co-owner of tether.
So why has the CFTC and the DOJ launched investigations into the company? It would appear that tether might have been spun up 18 months ago not just as a regulatory workaround, but also as a means to prop up BitCoin’s price and generally manipulate the market upwards. A report by professors John Griffin and Amin Shams from the University of Texas at Austin show evidence that this might be the case. Bloomberg also reported recently that a lot of trading on other exchanges cannot easily be explained: in particular, trading out to the fifth decimal point (amounts that make no sense) which seem to push the price of those currencies up and not really push the price of tether up at all.
Tether Ltd. fired its auditor earlier this year, New York-based Friedman, LLP, offering the following explanation: 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.
Charlie Munger probably said it best at a recent Berkshire investor meeting: ‘trading crypto currencies is like trading turds’.
