> He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.
This is perhaps a reasonable inference to draw based only on the information in the article, but it is incorrect. Without going into too much detail, the missing context is that I have effective long exposure to certain markets through my ownership of founder stock in a startup that operates in those markets. And while I place a high expectation value on that stock, it's also illiquid and can't be easily hedged. For reasons I didn't go into in the piece, I believed Bitcoin would also serve as a partial hedge for that market exposure, which justified a higher allocation than one might naively expect.
(I'll also observe that portfolio rebalancing isn't the right decision in all situations. Startup founders rationally concentrate their net worths into their companies, which is justified by their overwhelming informational advantage.)
> He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.
I agree with the first sentence. I would strongly dispute the second. It's precisely because I don't think I can predict what will happen next that I've zeroed my exposure to this entire ecosystem.
> He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.
I'm aware of these claims — there are rumors of wash trading by the big unbanked exchanges that I consider quite credible. I didn't include those in the piece because I wasn't able to find confirmatory evidence in the time I'd allocated to research it. I would be extremely interested if you could share any evidence you may have collected about these claims.
I like your style. Off topic question: why are you so absolute in your investment decisions? Can’t predict what happens so you totally exit? Thought you had figured out some inflation dynamics so you all-in BTC?
I’ve lately decided I need to be more moderate in my investing to avoid quagmires of conflicted indecision.
I think I agree with most of your points. I actually wrote an article about Tether in 2018 on a major investment site.
I believe Tether is organized crime and would love to see a deep investigation into the lifestyle and finances of everyone involved.
Thing is, right now, we know that more bitcoin are being purchased with REAL dollars than are being minted. So, the market has support. Yesterday, Grayscale bought 5132 bitcoin. They hold those in cold storage, so, they really bought them. I'm sure paypal, cashapp, square, also bought some.
But NO ONE in the industry has any motivation to question Tether.
The question becomes, how much bitcoin has been purchased by people that might sell it if Tether implodes. I am not sure it is a significant enough amount. Perhaps.
The current chart for bitcoin is extremely bullish. I would guess it moves up from here.
Author here. I agree that past inflation has been minimal; what I was referring to was the expectation of future inflation after the pandemic has materially ended. It would have been rational (or so my thinking went at the time) for investors to buy into Bitcoin in anticipation of this shift.
There are explicit contracts for such things (based on TIPS, so it's not some small shady market). Inflation expectations are still low, though materially higher than even in May:
In particular they do not go outside of the 3.0% range where we've been stuck for decades (the US CPI itself hasn't printed anything above 2.5% year-over-year since the 90s).
Inflation will come one day (one year? one decade?), but sure as hell isn't here yet.
Author here; I agree this is a valid objection and that one should be very cautious when extrapolating cause-effect relationships. Systems like these also often have multiple embedded feedback loops in them, which can make it impossible to identify a single cause once the flywheel gets going.
It's when you combine the USDT/BTC correlation with the available evidence for Tether's unbacked issuance that the problem becomes clearer, in my view. When issuance is unbacked, it can be decoupled from real demand — and that's a degree of freedom that allows Tethers to be injected arbitrarily into the system. Coinbase's stablecoin is backed by audited reserves, so USDC is constrained by demand — making it more plausible that USDT is the causal factor rather than USDC.
Author here; this is the correct answer. The larger number refers to all banks. Deltec is known to be a domestic bank, so we can use the smaller number to get tighter uncertainty bounds on its currency flows.
Author here. I really appreciate your kind words about the post - thank you!
I'm also broadly in agreement with your conclusions as to what this means for a crypto trader or holder. I've zeroed my net exposure to this ecosystem myself, both in anticipation for such an event, and out of recognition that I frankly understand it far less well than I originally thought.
I am not a Bitcoin holder, but Ethereum. I zeroed all my Ethereum except the ones locked due to staking (32 ETH, but I bought them when they were $600) because of these Tether news lately. I will wait for more clarity before jumping back in.
It is kinda sad that in this technology there are so many frauds like that.
>I will wait for more clarity before jumping back in.
Probably wise given how correlated ETH and BTC prices are.
>It is kinda sad that in this technology there are so many frauds like that.
It is, but it is also unavoidable.
As the author correctly points at towards the end, many of the properties of cryptos (high liquidity, non-reversible, pseudo-anonymous), while very useful to legitimate users, are a wet dream for crooks.
As a matter of fact, Bitcoin has been used to scam people for its entire existence, e.g.[1][2], sometimes even in new and innovative ways.
There is one aspect of Bitcoin that many people entirely overlook, especially newcomers: [3]
Long ago I spent $100 on a graphics card, and mined 1 Bitcoin over the course of a year... then lost it on MtGox... that was a cheap lesson compared to what appears set to happen.
Thanks for taking the time and effort to put this together. I'm sure it'll help some people avoid a costly lesson.
I remember reading the first announcement of Bitcoin on Slashdot over a decade ago, and every time I begin to feel regret over not having downloaded it then, I realise that I would almost certainly have lost anything I had from one of a thousand ways its possible to lose your coins - MtGox being a major one in the early days!
> Money isn't created primarily because governments print it; whenever a bank creates a loan money is created, and when they call in loans money disappears.
Yes this is right, and I am in fact aware of this mechanism. As I say in the post: "[...] anticipated high levels of lending and consumer spending post-pandemic, seemed likely to fuel substantial USD inflation in real terms through the end of 2021."
Velocity-of-money and the M2 money supply weren't that relevant to the main story I wanted to tell, so I went into no more than superficial detail here.
Even if inflation were to occur at the levels you anticipated, I would find it hard to justify crypto being a safe hedge against the dollar. Dollar backed productive assets are largely much safer.
> He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.
This is perhaps a reasonable inference to draw based only on the information in the article, but it is incorrect. Without going into too much detail, the missing context is that I have effective long exposure to certain markets through my ownership of founder stock in a startup that operates in those markets. And while I place a high expectation value on that stock, it's also illiquid and can't be easily hedged. For reasons I didn't go into in the piece, I believed Bitcoin would also serve as a partial hedge for that market exposure, which justified a higher allocation than one might naively expect.
(I'll also observe that portfolio rebalancing isn't the right decision in all situations. Startup founders rationally concentrate their net worths into their companies, which is justified by their overwhelming informational advantage.)
> He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.
I agree with the first sentence. I would strongly dispute the second. It's precisely because I don't think I can predict what will happen next that I've zeroed my exposure to this entire ecosystem.
> He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.
I'm aware of these claims — there are rumors of wash trading by the big unbanked exchanges that I consider quite credible. I didn't include those in the piece because I wasn't able to find confirmatory evidence in the time I'd allocated to research it. I would be extremely interested if you could share any evidence you may have collected about these claims.