A Severe Warning to All Cryptocurrency Holders...
We've seen a crazy run up in the price of Bitcoin (and many other cryptocurrencies) in the past few months. Although the mainstream press has largely attributed the increase in the price of Bitcoin to increased interest from "institutional investors," there is a growing body of evidence that the price of Bitcoin has been manipulated by a single entity, Bitfinex.
Please note - I will post more about this in the future, with further evidence, but wanted to get the core message out there as soon as possible to make you aware of the enormity of this problem to enable you to protect yourself and your holdings.
An Oversimplified Explanation of Bitfinex
Bitfinex is the largest futures market in the world of cryptocurrency, offering derivatives trading on a wide variety of cryptocurrency pairs, including all of the major cryptocurrencies. In essence, this means that investors can use margin trading to place large "bets" on the direction that any cryptocurrency price moves, in a very similar fashion that options and derivative trading works in the "real" stock market.
If you don't understand how derivative trading works, it basically means this: you can place large market orders using only a fraction of actual order value that you have in your account.
Keep that in mind as I explain further.
The Bitfinex Hack
On August 2nd, 2016, Bitfinex reported that one of their wallets was hacked, resulting in a loss of 120,000 Bitcoin. At the time, this was approximately 30-40% of their reserves, and they could not afford to pay back users in full.
To "make amends," they issued BFX tokens to users based on how much they had lost. They then bought back the tokens over time in order to pay back their users in full at current Bitcoin prices, and Bitfinex users were happy.
Someone got the memo about how well this worked. I suspect it was someone leading Bitfinex.
Then came Tether.
What is Tether?
Tether is one of the top cryptocurrencies by market cap, and claims to be backed by a 1-to-1 reserve of USD so that it can "redeem" each Tether issued with 1 USD if necessary. It's very odd for the cryptocurrency community - which generally enshrines decentralization - to jump in feet first to a centralized cryptocurrency such as Tether that is "backed" by one company.
Worse yet, no one knows who "owns" the company behind Tether. They claim to have a staff of over 50 people, and we don't know the identity of a single one of those people...
Despite this, major companies and exchanges like Bittrex, Poloniex, Kraken and...yes...Bitfinex...fully endorse Tether, and even seem to encourage the use of it. For example, Kraken offers zero fee trading for those who transact more than 1 million USD in Tether on their exchange, which is a noticeably lower threshold than any of their other cryptocurrency pairs.
OK...so what's the problem?
With zero fees, this enables something called "wash trading." When you can trade cryptocurrency pairs endlessly back and forth with yourself, you can conduct a lot of devious activity:
- You can create fake transaction volume, making a cryptocurrency seem a lot more popular than it is.
- You can place VERY LARGE buy walls and sell walls to manipulate the price of cryptocurrencies one way or another, without penalty. (If your wall is "penetrated," you can simply pull all your orders.)
- The fake transaction volume can attract investor demand and add legitimacy to an otherwise illegitimate currency.
With me so far? Because it gets worse.
Tether Begins Excessive Money Printing
Over the past several months, Tether has begun printing their own cryptocurrency at a crazy, alarming rate. The rise in Bitcoin correlates with the amount of Tether being printed. We're talking about multi-millions of dollars worth of a "currency" being printed on a whim.
You might say that it's impossible for a "mere" hundreds of millions of dollars worth of Tether to single handedly heavily influence the price of a multi-billion dollar cryptocurrency such as Bitcoin.
Now keep in mind the margin trading enabled by Bitfinex and the fact that the creators of Tether literally have the ability to print new Tether at will. They print new Tether...then send it to Bitfinex for margin trading.
They literally have an unlimited supply of Tether they can use to prop up cryptocurrency markets.
Tether Is Pumping The Price of Bitcoin
In order to "back" the amount of Tether that is being printed, the company behind Tether purchases Bitcoin on the open market using the Tether they just printed.
Really think about that for a second.
Think this is absurd? Think there's no way this is happening? Take a look at this, an "official" Bitfinex account (that is obviously directly related to Tether):
To Be Clear, Here's What's Happening...
1.) The "company" behind Tether (Bitfinex) prints Tether and sends it to their wallet.
2.) They send it from their wallet to an exchange of their choice...Bitfinex, Kraken, Bittrex, Poloniex, etc...
3.) They purchase Bitcoin (and likely other altcoins) with their Tether...
4.) They sell off portions of their Bitcoin/altcoin reserves for "real" USD wherever possible at the higher prices... (if their banking institutions even exist or allow it...despite their claims, there have been no audits whatsoever to prove the money exists that they claim)
5.) Viola! Like magic, their issued Tether is now "backed" by Bitcoin/USD...
At the same time, they're keeping some of their reserves in Bitcoin so they can "profit" as the price is pumped upwards. Investors keep the price of Tether propped because they believe they can redeem their Tether for 1 USD at any time, making it "profitable" to purchase Tether anytime the value drops below 1 USD (...due to printing and oversupply.)
So What's The Problem?
If you're a Bitcoin holder, you might be thinking this isn't much of a problem. But when people lose faith that Tether is a real store of value and that their holdings of Tether are effectively worthless, the public will be left holding the bag. Just this week, Tether was "hacked" and simply printed more money to make up for the losses.
(Sounds familiar to the Bitfinex debacle, does it not?)
It will immediately crash the price of Bitcoin and all altcoins. Think Mt. Gox but on a level where all major exchanges are involved, especially Bitfinex, which has the largest influence on Bitcoin price right now. I suspect the price of Bitcoin could drop back down to $1,000-$2,000 - perhaps lower - when shit finally hits the fan and the market realizes what's happening.
You just need to look at the correlation between the price increase of Bitcoin and the printing of Tether to see the writing on the wall.
When Will This Happen?
It's really, really hard to say.
It could go on for months more, and the price could be pumped up several $1,000's more, but the $10,000 price point for Bitcoin by all accounts is extreme, overvalued, and attracting a lot of attention...which is why I think the breaking point will come very soon.
In addition, the "company" behind Tether has been printing money at a maddening rate (look at the market capitalization see how much has been printed in the last year alone). They will continue printing Tether until they can't anymore to support the price of Bitcoin and to acquire as much as they possibly can before the scheme collapses in on itself.
Just like every other major financial crime, the executives will get away with millions of dollars worth of USD, Bitcoin and other cryptocurrencies while the average cryptocurrency investor suffers the consequences of a damaged reputation in their product and a severely deflated price.
How Will This Effect STEEM?
There's no doubt that the price of STEEM will also be effected if a major collapse occurs. But because STEEM Dollars (SBD) are "backed" by the STEEM Blockchain, they offer a reasonable degree of protection in USD terms for the cryptocurrency investor.
Have you seen lately that the price of STEEM Dollars is substantially higher than the price of STEEM itself on the internal market exchange?
SBDs are trading at a crazy premium right now, 20-30%+ above open exchange prices. This isn't a coincidence.
Although bidding bots have been publicly blamed for the scarcity of SBDs, it's very possible that SBDs are being bought up by "insiders" who know what's about to happen and want a hedge against the upcoming collapse. What hedge is better than being able to print STEEM using the SBD conversion feature at a guaranteed price of $1... even if the price of STEEM collapses to pennies?
I can't think of one.
Watch out for the upcoming storm...if you found this article useful, please upvote and let me know by commenting below, and consider warning your followers with a re-steem.
I'll be talking more about this subject soon. Thanks for reading and trade wisely. Graphics are courtesy of @bitfinexed on Twitter...who has been trying to warn people about this conspiracy for months.