The amazing price increase experienced by Bitcoin took breath away from all types of analysts. As usual, many suspected that it was another bubble, but behind all the movements, the exponential rise and the subsequent free fall, was a strange financial creation, the Tether (USDT).
Bitfinex, the largest bitcoin market in the world, has issued more than 2 billion USD, which in practice are “Monopoly dollars” to inflate and sustain the prices of the cryptocurrency market, without knowing how far it can go. its effect
In theory, the Tether is a cryptocurrency with a fixed exchange rate of one dollar. Its reason for being is worrisome: Bitfinex lost its license to operate with US banks, so it is not legally authorized to receive or deliver income in dollars.
His answer was simple: create this kind of crypto-dollars through the company Tether Limited, a company in theory independent, but that shares CEO and directors with Bitfinex.
Thus, the solution is simple: users who want to invest dollars in Bitfinex must send the money to a third party, with whom the market has no legal relationship, and in return they receive Tethers, which Bitfinex and many other cryptocurrency markets recognize as equivalent to one dollar. However, the way to convert the Tether back to dollars is much, much more complex.
What to do with a Tether?
Since then, the company has decorated its speech with “unless there are legal reasons,” the Tethers can be exchanged for dollars, but only for “verified users” who do not live in the United States. All US users who own USDT have, in effect, Monopoly tickets, with no real value whatsoever.
What then do the small investors who receive Tether? The only option that is more at hand, buy more bitcoins. The Tethers issue has shot up from US $ 10 million to US $ 2,240 million.
Its effect is clear: a recent study found that half of the increase in the value of Bitcoin occurred in the two hours following each issue of USDT. Without them, the study says, the price of the cryptocurrency could fall “between 30 and 80%.”
Bitfinex guarantees, in theory, that it has a real dollar for every USDT issued, so that, if at any time it manages to recover its banking license, it could collect all the Tethers and deliver cash to all investors.
The risk is that a previous bank run would leave you without liquidity, that is, bankrupt, with the aggravated problem that the Tether, as Tether Limited itself explains, are legally worthless.
In September Bitfinex issued a “proof of funds”, in which the auditor Friedman LLP confirmed that there were 400 million, but with one big exception: he could not confirm that the money had not been borrowed that same day to pass the audit.
Since then, 1,800 million more Tether have been issued, and no new audit has been carried out. In fact, on January 27 both companies broke their relationships, so there will be no other audit in the near future.