Bloomberg has topped Tether’s skirts and glimpsed some very ugly junk:
- Essentially, it is a stack coin that takes your money in exchange for itself so you can trade crypto. It is a composite central bank that then invests your money in securities in US dollars one-on-one.
- Certainly, that is, by a former child actor who starred in The Mighty Ducks and a disgraced Italian plastic surgeon previously fined for selling counterfeit software.
- In short, Tether has a huge embedded liquidity risk. If run by BTC loons who want their money back, or the value of Tether security falls, or both at the same time, the entire crypto universe will implode.
- A former Tether banker says it’s not a stack coin, it’s an offshore hedge fund with its owner’s money dollars on very high-risk securities, while pretending to be AAA-rated. No one even knows if the reserves exist at all.
- No one running this shit show has a license or any regulations.
- Half of the Tether reserves are in short-term commercial paper, but no one has ever seen it buy anything.
- Management is as dodgy as hell.
In short, Tether is a digital ponzi scheme that will either fall by itself sooner or later or if it is regulated. Here is the cash shot:
After returning to the United States, I received a document detailing Tether Holdings’ reserves. It said they include billions of dollars in short-term loans to large Chinese companies — something money market funds avoid. And that was before one of the country’s largest real estate developers, China Evergrande Group, began to collapse. I also learned that Tether had provided billions of dollars worth of loans to other cryptocurrencies with Bitcoin as collateral. One of them is Celsius Network Ltd., a giant quasi-bank for cryptocurrency investors, its founder Alex Mashinsky told me. He said he pays an interest rate of 5% to 6% on loans of about 1 billion Tethers. Tether has denied any Evergrande debt, but Hoegner, Tether’s lawyer, declined to say whether Tether had any other Chinese trading securities. He said the vast majority of its trading paper has high ratings from credit rating agencies and that its secured loans are low risk because borrowers have to put up Bitcoin that is worth more than what they borrow. “All Tether tokens are fully backed up, as we have consistently demonstrated,” the company said in a statement posted on its website after the story was published.
Tether’s Chinese investments and cryptocurrencies are potentially significant. If Devasini takes sufficient risk to even earn 1% return on Teter’s entire reserves, it would give him and his partners an annual profit of $ 690 million. But if these loans fail, even a small percentage of them, a Tether would be worth less than $ 1. Any investor who owns Tethers will then have an incentive to redeem them; if others did it first, the money could dry up. The bank runs would be on.
The officials gathered in the Treasury in July are discussing regulating Tether as a bank, which would force Devasini to finally show where the money is, or even undermine it by issuing an official US stablecoin. The strange thing is that at least at the moment, most participants in the crypto market, including some very large and sophisticated operators, do not seem to worry about any of the risks. Just last month, dealers bought $ 3 billion in new Tethers, presumably sending billions of perfectly good US dollars to Inspector gadget co-creators Bahamian bank in exchange for digital tokens enchanted by Mighty ducks fired and run by leaders who are the target of a U.S. criminal investigation.
Tether’s HY Chinese debt is likely to include real estate developers, as they make up the bulk of China’s $ 600 billion debt market. The same property developers are currently standardizing left, right and center. No wonder Bejing is happy to let foreign creditors carry the bag. This is the lowest form of hot money on earth.
That Tether and its many crypto -spawn are sold to punters as hard currency or digital gold is so bizarre that one can only look at complete wonder and amazement.