Last month, $ 600 million was donated to “Tethers“, A cryptocurrency allegedly linked to the dollar, embossed in existence. Apparently in tandem, BitcoinThe price has increased from $ 8,500 to $ 11,000. Are the two events related?
Absolutely, said Will Harborne, the founder of Ethfinex, a decentralized exchange based in London. A subsidiary of Bitfinex, Tether’s sister exchange, Ethfinex has insight into the relationship between Tether, Bitcoin, whales and bull markets.
When you see a big tether “print,” Harborne said, it means that a handful of wealthy customers have essentially pre-ordered batches of tethers days in advance to bring them to market – often before the surge begins. Tethers are useful for these large holders to trade – paired with Bitcoin, ether, Litecoin and other coins – on exchanges with high liquidity that do not accept fiat currencies.
This early communication between Tether and its investors, who must spend a minimum of $ 100,000 to buy directly from the Tether website, creates the big round numbers that can be seen in public prints – say: last weekThat’s $ 100 million, Harborne said. To respond to the “rough, forecasted demand” from these investors, Tether must create a new batch of Tethers, which requires key members to log out with their public keys; this takes time and is apparently the reason why investor claims are aggregated in large quantities.
Then when the wires come through for the pre-orders, Tether – according to Harborne – sells or “spends” the newly minted tether straps to the pre-buyers for a dollar a piece, and the buyers use them in the market to buy Bitcoin, Litecoin whatever. (The output is said to be different from printing, in which tethers are embossed but not distributed.)
The lay speculators see the price go up, they pile up and … the number goes up.
“[Tether] essentially just “created” the blockchain tokens based on a rough forecasted demand, “Harborne said. “Typically, customers don’t just send $ 5 million without notifying Tether in advance. So that Tether can know it’s going to take roughly [for example] $ 250 million in the next few days. But as soon as the money arrives via transfer, the actual Tethers are sent to the customers. “
The story goes on
Take what happened in the last month. Between May 25 and June 25, 600 million tethers were minted by Etherscan. Initially, the coins were released slowly at the end of May, which was accompanied by a gradual increase in price. Then three more large tranches of tethers were minted and released in quick succession, which coincided with the parabolic rise in Bitcoin price from $ 8,500 to $ 11,000.
Some of these tethers, according to Harbourne, have just migrated from the Bitcoin-based OMNI network to the Ethereum network to meet demand. But still, the correlation – and the research in the prints – make it clear; When the shackles flood the market, speculators tend to follow suit. The crypto markets, it seems, live and die on tether printing.
So what exactly is “rough forecast demand”? Who will buy and how does Tether measure it in advance? According to Harborne, some of Tether’s largest customers are over-the-counter trading desks who privately sell large quantities to investors or wholesalers. “An OTC desk could do a big deal in BTC to a big buyer in the US and then convert the dollars into tether to split the other side of the order through Bitfinex and Binance where there is more liquidity,” he said.
Harborne won’t reveal any further details about Tether’s mysterious investors, but it could be traders looking to suppress leveraged short sellers on derivatives exchanges like BitMEX, where a sudden spike in prices liquidate the traders’ positions and send money straight to those who bet against them – that is, the whales themselves. Or maybe recent investors were excited about the prospect of Facebook’s Libra and decided to make some quick money.
(It wasn’t like that before. Until recently, Harborne said, Bitfinex and a handful of enigmatic “corporate clients” were the only direct buyers of Tether – the rest had to buy from Bitfinex itself, which at the time treated both Tether and US dollars as “one to one”, which means that Bitfinex’s dollar balance includes Tether. Now the two currencies are separate.)
Some would describe this close collaboration between Tether and its dealers as a form of market manipulation. “Nobody ‘buys’ Tether,” said the pseudonymous blogger Bitfinex’ed, who has been researching Tether for several years, in a DM Decrypt. “Bitfinex gives its traders Tether for market manipulation, pump and dispose of market manipulators and then ‘pay’ later for the Tethers.”
Harbourne said this was wrong and that investors will only receive tether straps if they forked. Blogger Bitfinex’ed denies this, saying that Tether failed to disclose its clients’ purchase orders during the New York Attorney General’s ongoing investigation into Bitfinex – which was accused of borrowing from Tether’s allegedly “fully covered” reserves of around 850 million US dollars to cover hole in his finances – looks lazy.
“If it was [true], Bitfinex could have provided this documentation and avoided a lawsuit, ”he said. “You could have shown that we issued 10,000,000 tethers to Mr.X here, and here is a 10,000,000 transfer from Mr.X just before we issued it.”
But they didn’t, said Bitfinex’ed.
Harborne disagreed, insisting that this type of game, in which big investors telegraph their intentions to buy up enormous quantities of tethers, is neither tether exclusive nor a form of market manipulation. He pointed out that the transparency of Tether’s blockchain simply reveals the practice in broad daylight. Other exchanges, he said, receive cash inflows similar to Tether Tether; but these transfers in fiat currency are hidden from prying eyes. In fact, a large leash order could be a sign that the other whales are mobilizing elsewhere.
Why these investors tend to place large tether orders at once, Harborne said it was more bull-run optimism than cynical market manipulation.
“Now that people think we’re in a bull market again, they want to buy a lot of Bitcoin and have to put money on the exchanges,” he said. “I think the reality is that it would be incredibly difficult to coordinate across so many people and that overall market forces are stronger than any group of traders.”
It’s a “chicken and egg” scenario, he thought.
But if you look carefully, in this case you can see which comes first.
Note: We asked Bitfinex / Tether for a comment and will update with every response.