In the times like these when Bitcoin and other cryptos are crashing hard one can be very tempted to move into Tether, which is almost like owning fiat USD. However I would strongly advise against it and I'll explain why.
If I was offering to sell you monopoly money that I issued myself, while telling you that you shouldn't consider it as real cash and that I might not give you your money back should you ever wish to redeem the tokens back; would you trust me?
I don't think so.
But that is just what is happening with the Tether USD. Unlike other cryptos trying to grow a technology or a monetary ecosystem Tether is basically nothing more that a monopoly money, false cash designed for you to play with… as long as there is anyone willing to play along. It is basically a 380 million dollar worth ticking bomb threatening to detonate hard in the crypto world.
What are Tethers?
In short Tethers are digital tokens pretending to be US dollars. On their webpage they claim to be stable and transparent currency 100 percent backed in real dollars (it is worth noting that Terms of service also claims Tether is not a currency - go figure).
They are definitely not transparent because even though they claim that they are professionally audited no external audit has ever been made public. Therefore it is next to impossible to know if they are really backed 100 percent in fiat currency, and as a matter of fact there have been some serious doubts about discrepancy between their reserves and the circulating tokens.
It is further worth noting that their market capitalization has grown 19 times since then, from around 20 million to 380 million dollars. And it is still growing unbelievably; for an example I started writing this text last week but had to do some stuff in the mean time, so I left it for couple of days before finishing it, so when I was finishing it I checked the market cap once again just to update my info. During last week it grew 70 million dollars.
So how stable are they? So far they have been relatively stable although the price has at one point slipped to 0.91 of a dollar. The problem is that there are only two places where they can be exchanged for real money; one is Kraken, an exchange which takes preposterous fee of 7 percent for that (thus invalidating the peg), and the other being Bitfinex exchange, which is the sister company of Tether that, just like Tether, has serious banking issues and have for a long time been rumored to have liquidity problems. Bitfinex has also been a target of various hacker attacks. The biggest one happened little over a year ago (on August 2 2016) when 120 thousands of Bitcoin were stolen from the exchange, at the time worth 72 million dollars.
Banking problems
Most users of Bitfinex (and hopefully Tether) are probably familiar with the banking problems those business entities (one being iFinex, registered on British Virgin Islands and other being Tether) have been having since April this year, but let us summarize them anyways. First they were denied of services from the American banking giant Wells Fargo, which basically disabled any wire transfer to and from USA. In an inexplicable move iFinex sued the bank and then withdraw the lawsuit just one week later. By the middle of April Bitfinex further announced that Taiwanese banks were also refusing wire transfers, thus disabling all the other fiat currencies on top of already disabled dollar. Since then Bitfinex was announcing several time that they are searching for other solutions and let's see some of the phrasing; In late April they announced:
"We are developing alternative channels to address these delays, but this takes time", then in May they said: "We believe that by the time we are able to get to the smaller withdrawals, other, less cumbersome withdrawal solutions will become more widely available", then in one of their August announcements they wrote: "While we have been able to normalize banking for some corporate customers and individuals in certain jurisdictions, compliant banking solutions for U.S. individuals remain elusive. We have been slowly and selectively inviting users in particular jurisdictions who meet set criteria to start using banking channels that have come online. This process is ongoing".
So long story short they have not solved any of their banking problems but have added a new layer of user inconveniences on top (like the suspension of US Individual Verification Requests). Of course same thing applies to Tether as well. Yet money keeps pouring into the Tether.
But where is it coming from?
Bitfinex claimed that "there are Institutional Tether customers that have their own bank accounts in Taiwan that are able to make an internal transfer to their Tether accounts, hence the new Tethers created", but there are those that disagree suggesting instead that iFinex started making millions of new Tethers unbacked by fiat currency.
Basically it would mean printing their own monopoly money and using it to suck as much money from the system before shit hits the fan. Until company can provide proof that real money is pouring into Tethers, and explanation about the channels it is using to finance new tokens I will not buy or own any Tether and would strongly advise all of you against doing it.
Instead I prefer advising you to go back and read Tether Terms of service once again.
You don't own s..t
Actually you don't need to because I'll use this opportunity to point out the only part you should be interested in. It goes like this: "The Site is an environment for the purchase and redemption of Tethers. Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency.
There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers."
If you're still not sure what it means I'll translate it for you; Those who own tether are in possession of a monopoly money that has value only as long as there is somebody dumber to take it off their hands. And since we've seen that new Tethers seem to be produced at unprecedented speed it might mean that the party is about to end very soon. And when it does those paying the bill are gonna have a very bad time.
Stay smart, trade safe and don't say I didn't warn you.
Links in the text:
http://www.newsbtc.com/2017/03/21/tether-balance-sheet-unveils-large-discrepancy-usdt-usd-reserves/