Truth About Tether #85
Market Meditations | January 27, 2021
2017 called, they want their FUD back.
There has been a lot of noise around Tether recently and any possible consequences on Bitcoin and the cryptocurrency market.
In today’s article, we cut out the noise for our readers and focus on aspects of the debate that are critical for traders and investors to know.
If you enjoyed this letter, remember to share it with your network. Let’s all grow richer together.
WallStreetBets: The Big Short-Squeeze ?
A Reddit message board called WallStreetBets (WSB) is legally ‘manipulating‘ stocks in the market while being protected by the 1st Amendment (aka Freedom of Speech). The latest target of this Millennial & Gen Z driven trading blog has been GameStop (GME), which will go down in history as one of the biggest short-selling upsets ever. GME is up over 600% in 9 trading days. Short sellers have lost more than $6 billion on a company whose market value was only $1.2 billion two weeks ago. Read more.
‘Coin Signals’ Charged in $5 million Investment Fraud Case ?
On Tuesday, the U.S. Department of Justice said that Jeremy Spence — known as “Coin Signals” allegedly defrauded investors between November 2017 and April 2019. Specifically, Spence is charged with commodities fraud and wire fraud. “As alleged, SPENCE took cryptocurrency worth over $5 million from more than 170 individual investors after making false representations in connection with these cryptocurrency funds,” the DOJ said. Read more.
EY’s Paul Brody Expects Consumer DeFi Ignition in 2021 ?
EY blockchain lead Paul Brody’s predictions for 2021: “If I had to make a bold prediction,” Brody told CoinDesk last week, “I think by the end of 2021, at least one major financial institution will up the game on everybody else by offering some form of consumer DeFi, accessible through their single transactional window to a large consumer base.” Bold indeed, CoinDesk writes. Large institutions may be warming to digital assets, but DeFi, the surging bricolage of crypto lending platforms (with a total value locked of over $25 billion), is not for the uninitiated. Read more.
FTX Lists GME Stock for Tokenized Spot and Futures Trading ?
Crypto exchange FTX has listed the viral GameStop (GME) stock for tokenized spot and futures trading. Did you know FTX is one of our partners? That means you can use our ? link to get a discount. Within a few hours of listing, FTX’s GME spot volume is around $141,000, while the GME futures volume is about $1.3 million. As for why FTX has listed the stock, CEO Sam Bankman-Fried told The Block that it was “possibly the most ever requested listing” the exchange has received. Read more.
New Bitcoin Trust Goes Public in Canada ?
According to an announcement today, Ninepoint has completed an initial public offering for its Bitcoin trust for $230 million Canadian dollars, or roughly $180 million U.S. dollars. The investment firm said that it would be issuing three different classes of 17,990,491 units at a price of $10, more than 7 million of which are available for trading on the Toronto Stock Exchange under the ticker symbols BITC.U and BITC.UN for U.S. and Canadian dollars, respectively. Read more.
The Tethered Kingdom
2017 called, they want their FUD back.
Today’s article is about crypto’s most controversial topic: the stablecoin Tether.
A recent essay written by account ‘Crypto Anonymous’ managed to get under some investors’s skin and resulted in quite some market uncertainty.
For today’s article, I explain what stablecoins are, why they are important and why they saw exponential growth this year.
Once the basics are covered, I zoom in on Tether and the recent allegations by looking at opinions across the industry and question whether traders should worry about the recent allegations.
What Are Stablecoins?
A stablecoin is a cryptocurrency whose value is pegged to another asset, like the U.S. Dollar, Euro or even gold.
A stablecoin pegged to the U.S dollar should, in theory, always be worth $1.
Stablecoins are useful because they offer traders and investors a possibility to escape the inherent volatility of the crypto market and were one of the first products in crypto to find product market-fit and go through an exponential growth phase.
This was reinforced by the upcoming DeFi sector last year, where users could earn yield on their stablecoins by depositing their funds into one of the several decentralized protocols.
The ‘yield-farming’ craze was born and suddenly, trading and investing were not the only way to make very generous returns in crypto.
Some argue that stablecoins, whether they are algorithmic or issued by a private company, are not as risk-free as they are perceived to be. They draw on events such as the following:
DAI almost blew up and lost its peg during the March 2020 crash because of the extreme volatility.
USDC is a US-based private company and thus comes with censorship risk.
The company behind Tether (USDT) is under investigation by the New York Attorney General’s office. Naval expanded on this during his appearance on the Tim Ferriss podcast recently and we encourage interested readers to head over to that part of the conversation. Although it might seem that way, there are generally no free lunches, not even in crypto.
Is Holding Tether (USDT) Dangerous?
In the article that went viral two weeks ago, USDT is accused of being used to manipulate the crypto market.
The author references a tweetstorm from early January that claims that ‘Tether has been manipulating #Bitcoin’s price upwards for years now by printing unlimited, and unbacked $USDT’, indicating that prices would be substantially lower if Tether had not existed.
Truth be told, the fact that proof of Tether’s reserves have never been made public should make everybody using Tether at least a bit skeptical and have made many in the industry question its legitimacy over the last few years.
The article expands on Tether’s dominance writing that ‘over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers.’
It then proceeds with the fact that neither of the two most reputable USD-banked exchanges — Coinbase and Bitstamp — supported Tether trades at all while unregulated exchanges like Binance are heavily dominated by USDT, indicating that both Coinbase and Bitstamp realise dealing with Tether is a liability and best avoided to avoid unwanted attention from US-regulators.
The article is too long to summarize here but as an investor you should always remain open-minded and be aware of arguments that could invalidate your investment thesis.
Don’t forget to understand both sides of the coin and come to your own conclusions. Due diligence is important for any investment, so don’t be afraid to question your beliefs if evidence to the contrary cannot be provided.
The key point though that many of the ‘Tether FUD’ articles miss is that the company has never been under investigation for printing unlimited amounts of money to pump the cryptocurrency markets.
Although there are certainly questions that are unanswered, the above would’ve almost certainly be uncovered by now.
Market Reaction: Uncertainty Prevails
Because most of the uncertainty surrounding Tether has been answered or at least clarified, it surprised most of us that it still had a negative (short-term) impact on the market.
Ever since the article was released on Jan 14th, bitcoin failed to continue its bullish momentum. That is not to say it has caused the bearish price action but rather that it has been a contributing factor.
With a series of lower highs and multiple tests of the $29k-31ks support zone, prices have to move above the $34k resistance level to avoid a further breakdown towards daily support at $26k.
Why The Fear Could Be Overblown
Dan Held, a popular writer on Bitcoin and responsible for growth at cryptocurrency exchange Kraken wrote a long and thoughtful article and tweetstorm about why the whole issue seems unsubstantiated, pointing to some errors that were made in the recent article:
The author confused spot and derivative exchange volume and Tether represents a much smaller portion of the spot exchange volume.
Offshore and less-known exchanges are known to be faking volume, particularly with Tether to give the impression they are liquid and competitive.
Tether’s market cap is relatively small compared to Bitcoin’s. Even if some allegations turn out to be true, the impact Tether has on the market is smaller than it used to be.
Dan concludes there is not a single shred of evidence of actual market manipulation by Tether and that in the worst case scenario where Tether blows up, Ethereum and the whole DeFi ecosystem would likely be hit harder than bitcoin itself, because of the intermingled system of liquidity, lending, borrowing.
Last but not least, Deltec, the Bahama’s based bank where Tether Ltd holds its reserves, also claimed that Tether is fully backed in a podcast episode last week. Gregory Pepin, the company CEO stated: “Every tether is backed by a reserve and their reserve is more than what is in circulation“.
Lack of transparency or outright fraud? As discussed, the answer seems to lie somewhere in the middle. Whilst there is cause for some skepticism not all the recent allegations are compelling. Concluding actions / remarks: Don’t hold all your dollar in one single stablecoin, there are still uncertainties surrounding Tether so investors should realize the risks involved and uncertainty could result in a lower ‘buy the dip opportunity’.
Matteo Franceschetti: How To Improve Your Sleep
Matteo Franceschetti is an entrepreneur and biohacker. He is the founder and CEO of Eight Sleep, a well-funded startup that is focusing on improving the quality of our sleep through personalized temperature, smarter data, and patented technology.
Things I learned:
If you want to be on top of your game, you need to take care of yourself and your health.
Temperature is the big elephant in the room when it comes to sleep improvement. It is the biggest factor that can impact your sleep quality except for medical disorders.
Improving sleep is very individual. What works well for one person doesn’t necessarily work for everybody.
Building a company is like riding a rollercoaster. Some days there will be highs and other days will be incredibly tough.
The CEO is the doctor of a company. When things are going well, they don’t really need him. When things go bad, his job is to put out the fires until things return to normal.
If you don’t create the right environment and hire the right people, things will fall apart quickly.
Startups require speed of execution. You want to learn whether something is working or not as soon as possible.
The most successful recipe for speed is to do less.
When your core business is growing in a linear way, you always need to have a couple of moonshots that are attempts at improving 10x.
When it comes to aging and longevity, the key thing to avoid is inflammation.
Alcohol has an impact on your resting heart rate, heart rate variability (HRV) and sleep quality in general. If you decide to drink, try to drink 2-4 hours before going to bed so your body has time to digest the alcohol.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.