OSL Trader View — 6 May, 2019. Tether FUD galore following the New…
By: Sj Oh
Tags: Tether, Bitcoin, Cryptocurrency, Crypto, Gold

Tether FUD galore following the New York Attorney Generals damning report about the commingled state of affairs between Tether, Bitfinex & Crypto Capital. The press has been slinging mud left and right.

First the facts. NY Attorney General Letita James issued a subpoena to companies related to the three above for documents 24th April. The following day, we see a knee jerk reaction from the markets and stablecoin a.k.a. USDT subsequently drops -2.3%

Subsequently not only does USDT mean revert but powers on to punch in a +6.6% move to claw back to YTD highs.

A 29-pager memorandum from the NYAG is released 3rd May which interestingly, is preceded by a -1.2% move three days ahead of the release but again, USDT recovers ground.

This is not their first rodeo. Back in October, headlines of Tether losing their Noble bank account hit the tape and we subsequently saw over $1.1bn or 42% of total outstanding USDT redeemed.

There wasn’t a single complaint from anyone of not being able to redeem fiat for the stablecoin.

We’ve seen this movie before… Wells Fargo, Deltec, Taiwanese banks on top of the constant bashing of a lack of audits from trusted auditors.

I would agree that the Bitfinex-Tether-Crypto Capital complex appears to lack internal controls in capital management however, I do not read this as a Madoff situation but rather, a scapegoated team doing what they can to deliver fiat as regulators, banks (and the press) go at them. How many of you have had fiat on/off ramp issues? How many of you have tried to get audits from established auditors? These problems are endemic to anyone peddling in crypto. They’ve managed with the hand dealt and have tried to be as transparent as possible by engaging law firms and auditors that were willing to deal with them. And this is all public information.

Is there a legitimate counterparty risk in trading/warehousing USDT? yes. Is the team covering their tracks with malicious intent to swindle? no. People were losing it when they announced that USDT was not fully backed 1:1 by the greenback but rather 3/4’s in fiat, cash equivalents and such. This is a deviation from their commitment of 1:1 backing but sure beats the reserve ratios of established banks or the dollar.

What really irks me is the way in which these messages are delivered. Rewind back to 2008, bulge brackets were communicating that all was good right up until the day before defaults were announced. Richard Fuld, head of Lehman at the time felt the wrath.

And the regulators? They were definitely in the know. Bear Stears, Merrill Lynch, AIA… but they kept that fat lady singing by staying the course until these (and so many more) companies went belly up.

USDT pairs account for c.25% of all crypto turnover on any given day so any price action has significant ripple effects through the entire space. This is why the scrutiny they are subject to is that much. But the way they are portrayed is quite literally the polar opposite of how regulators treated the players during GFC (above) Caitlin Long nails it with this tweet.

and about USDT not being backed 1:1. Is that even factually correct? From an anonymous source below.

“It seems CoinDesk is in it to make flashy headlines and nobody has even bothered to read the affidavit attached in their post. I see a major bias in the way they’ve written their post.

Let me break it down, where am I wrong?

The document states (p.10 item 33) that Tether is 74% backed in cash or cash equivalents. Cash equivalents are typically assets with a maximum investment duration of 3 months.

It should be clear by now that bitfinex and tether swapped frozen funds and (equity as collateral), which is what the whole issue was about in the first place. The 851 million remember? P8. Item 28 shows its a 900m credit facility.

The terms of this credit facility include a 3 year repayment term (p.8 item 28). Which is longer than 3 months, and thus not to be counted as cash or cash equivalents. So it seems to me we have to actually add the amount currently drawn on on top of this reported number of 74%.

So what is the amount drawn under the facility? P.8 item 28 again provides the answer. 150m left to draw on the 900m credit line. So 750m in “non” cash or equivalents.

If 2,1b = 74% Then 2,85b = ?

100,4%. as I read it tether is officially backed 100,4%.

Tell me where I am wrong. I am just very skeptical after reading pretty negative report from CoinDesk, and then being presented with quite compelling arguments from the docs.”

After all, we are all in this to a certain extent because we believe crypto is the better alternative to government-issued inflation & central-bank-chairman’s-whim prone fiat. Let's give these guys a break and at least give them kudos for how they are dealing with a nightmare of a situation. At least they are not outright pillaging like others.

May the trend be your friend… Happy trading!