Bitcoin goes up! Can 5 billion unbacked tethers kickstart a fresh crypto bubble?

By Amy Castor and David Gerard

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“They all went to live in a bitcoin wallet upstate where there’s room to run and play and is at least 1000 feet from a school.”

— Agents are GO!

Bitcoin is over $44,000! In just the last week, the invisible hand of the market suddenly decided that bitcoins are really good now!

By complete coincidence, Tether has printed five billion USDT stablecoins in the past month out of thin air as “loans” — backed in the Tether reserve only by the “loans” themselves.

How high can you pump a number with five billion fake dollars to deploy?

We’re going to go through what’s actually in this pump: not much.

The financial press has been disgracing itself by reprinting crypto industry marketing points. As Dan Davies doesn’t say: when a number is going up much faster than it should, you should treat the red flags as celebratory bunting.



The visible thumb on the scale of the market

The number did not go up because of Wall Street interest, futile ETF filings, regulator signals, interest rates, the global economy, or sunspots. It went up because of shenanigans. It’s always shenanigans.

In just one month, from November 5 to December 5, Tether’s issuance climbed from 85 billion to 90 billion.

You would think, with that kind of totally genuine and organic market demand for stablecoins, USDC’s issuance would also be going up — but no. USDC’s issuance is 24.4 billion, having seen a steady decrease from 44 billion in March 2023.

So where is Tether getting all the dollars to back these tethers?

It isn’t. Tether’s printing press is not fueled by demand. This is Tether issuing loans to some of its biggest customers — printing pseudo-dollars out of thin air, with the only “backing” being the loan itself, counted as an asset. The loans are secured by cryptos held as collateral — not as reserves. No actual dollars flow into the system this way.

Tether spent years denying that they issued tethers from thin air as loans — then Alex Mashinsky of Celsius Network confirmed in October 2021 that Celsius had been taking out such loans from Tether. It came out in the CFTC settlement later that month that they had been doing this precise thing for a while.

Tether admitted in September that it was making “secured” loans again — after saying in December 2022 that it would reduce its secured loans to zero. [WSJ]

In mid-2022, after the Terra-Luna collapse, Tether bragged that it had “redeemed” 16 billion USDT. We would assume most or all of that was loans being canceled and the tethers burned. We certainly don’t know of any independently verifiable evidence that a single actual dollar was transferred in return.

For comparison, USDC reserves are held in short-term treasuries and cash in US bank accounts. A USDC appears to have an actual dollar backing it — and now that interest rates are up, Circle has been making a ton of money.

If Tether had billions of real dollars backing its tethers — as it claims — then the folks running Tether could also make a ton of money simply by putting the reserve into Treasury bills. They do not need to be making loans.

In late 2022, CZ from Binance was deeply upset that Sam Bankman-Fried from FTX might destabilize tethers by trying to cash out … $250,000 worth. That’s out of a supposed reserve in the billions. This brings into serious question how many actual dollars are anywhere near Tether — clearly not enough.

Crypto institutions — exchanges, hedge funds — use the tethers to buy leverage and pump the price. They post their inflated crypto as collateral to borrow more USDT and keep pumping. [Dirty Bubble]

A bitcoin ETF will totally be approved any minute now

Crypto has a vast array of promotional memes as to why number go up, which they recycle as often as possible. The current favorite is that the SEC is going to approve a spot bitcoin ETF in January.

A spot bitcoin ETF would hold bitcoin as its underlying asset and track the price of bitcoin. It would be a lot less messy to hold and trade than actual bitcoins. So the fantasy is that an ETF will open the floodgates for institutional and retail money to pour into bitcoin.

Crypto is claiming that the SEC will approve several of these Bitcoin ETF applications, including ones from Grayscale, Blackrock, and Bitwise, all at once. Coinbase, who desperately need a new business model, is betting that it will be a custody provider for all the bitcoin.

A lot of this optimism seems to stem from a court ruling in August that the SEC wrongly rejected Grayscale’s application to convert its Bitcoin Trust into a spot bitcoin ETF, and must review Grayscale’s filing.

The SEC has never approved a spot bitcoin ETF. In every rejection, it’s repeated the same concerns about market manipulation — including specifically manipulation by Tether. We doubt very much that that is going to change — especially now with all the tether printing.

Another common promotional claim is that all the crime is gone now. Binance has been busted, it’s all compliant going forward! Note that these guys were saying exactly the same thing straight after Sam Bankman-Fried was jailed.

Finance press stenography

The finance press is news about numbers going up. But they seriously need more interrogation of why — especially since the facts are extremely well-known and available by now.

This isn’t helped by only asking for commentary from the crypto pumpers themselves.

  • AP: It’s ETFs! They ask Kaiko Crypto Research. Also, Binance being busted so hard is good news for bitcoin. [AP]
  • WSJ: “A couple of coming events are fueling investor optimism,” according to some guy at “crypto market maker Auros.” This was removed from a later edition of the story, which doesn’t even offer a guess as to what’s going on — though it adds that the Coinbase stock price is going up because bitcoin is going up. [WSJ, archive of December 4; WSJ, archive of December 6]
  • Bloomberg: ETFs. They ask Moody’s, but also the Asia Crypto Alliance, a “head of digital asset strategy,” and Token Bay Capital. [Bloomberg, archive; Bloomberg, archive]
  • NYT: Grayscale says it’s ETFs, so that must be it. Points for asking John Reed Stark, though. [NYT]
  • FT: ETFs, according to a “crypto hedge fund manager” and a guy from eToro. [FT, archive]

We’ll credit the FT editorial that’s not at all convinced that bitcoin is coming back, despite the hype. [FT, archive]

We have yet to find one financial press story on bitcoin going up that mentions Tether. Every story on the recent bitcoin price rise that fails to mention Tether has failed at journalism.

We know that many of the finance journalists who read our newsletters are as frustrated as we are with the low quality of coverage. We feel your pain.

Why now?

The point of a pump like this is to get more retail actual dollars into the crypto economy so the whales can cash out — the early investors need fresh dollars from later investors.

We’re not seeing that happening this time. Data is scarce, but it’s useful that the largest actual-dollar crypto exchange, Coinbase, is a public company and isn’t allowed to lie in its SEC filings. So we know that retail is about one-eighth what it was in late 2021.

So why are the whales in such a hurry to try to create a pump when the fresh suckers just haven’t had a chance to grow back yet after the last time they got skinned?

We think crypto is very worried about US regulators. Despite furious lobbying, even crypto-friendly legislators like Cynthia Lummis are going in loud about Tether in particular. [Twitter, archive]

The SEC sued Coinbase in June. It sued Kraken in November. It also sued Bittrex in April.

We don’t expect crypto in the US to just get shut down — there are too many legislators in crypto’s pockets. But we do expect regulators, up to the top of the Treasury, to be profoundly jaundiced about this nonsense. Wally Adeyemo, Deputy Secretary of the Treasury, spoke recently of the trouble with “dollar-backed stable coin providers outside the United States” — he meant Tether. [Treasury]

Digital Currency Group is desperate — Genesis has a billion-dollar hole and DCG is likely to have to cover it. They need their Grayscale ETF approved — and not delayed even further. They are betting that if the price of bitcoin is high in January, that will pressure the SEC to approve a bitcoin ETF.

The bitcoin miners’ stockpiles of unsaleable cryptos are even bigger this year than last year. They aren’t selling into this price rise. We think they don’t trust that there’s liquidity there — not enough actual dollars for them to dump.

Starting … now

It’s been three years since the same moves worked to kickstart a bubble in late 2020, and six years since Tether pumped the price through 2017. Can it work again this time?

In 2020, Tether issuance went from 3 billion in March to nearly 21 billion by the end of the year. In December 2020, they finally deployed enough dubiously backed fake money — 300 million tethers on Binance and Huobi — to pump the bitcoin price over the previous 2017 peak of $20,000.

That was all it took for the press to breathlessly report the number going up, without interrogating it in any way. In February 2021, Elon Musk bought into bitcoin, and the consumer rush really got started.

Can crypto start the fire again? There were pumps all through 2018 and 2019 that got a lot of press attention with spurious explanations. These were all price manipulations to burn the margin traders. Nobody took it seriously until the bitcoin price went over the previous peak.

So for another bubble to take off, it’ll need:

  1. A price over the previous high of $69,000;
  2. Regulators not blocking a lot of the easy ways in for dollars;
  3. Tether and similar stablecoins not to be shut down;
  4. Enough ordinary retail suckers with the actual dollars to throw at the whales.

We don’t think all four of those are likely. But we could be wrong — never underestimate the enthusiasm of suckers.

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13 Comments on “Bitcoin goes up! Can 5 billion unbacked tethers kickstart a fresh crypto bubble?”

  1. With the evidence in the public domain about what bullsh-t tethers are, why is there no effort to sue them, regulate them or expose them? Surely pretending to inject liquidity with printed “dollars” backed ny nothing is illegal on many levels?

    1. there have been multiple attempts, including recent proposals of new laws. Hard part is Tether is better at keeping out of the US these days.

  2. The best bit of journalism regarding crypto, this is what the man/woman in the street needs to read and understand before they throw their hard earned cash into some obscure line of computer code , that they have no control over and hope to see a return on what they have invested in.

  3. So basically, the main reason it’s pumping right now is because crypto people are basically looking for a last “get rich” time before whatever happens next, and if for whatever reason the ETF thing does end up being rejected, expect the price to come crashing down?

    A related question: why is mainstream media so uncritical of crypto then, like mostly only interviewing pro-crypto sources instead of showing skepticism? Are they paid by crypto lobbyists, is crypto knowledge not deep enough among MSM, or both?

    1. You can in fact make money, so it’s legitimate material for the financial press to cover. But they tend to assume that the people in the crypto business are the best sources of good information, rather than making excuses for a pile of crooks. The financial press doesn’t often consider that the people it talks to are extremely incentivised to be massive f’in liars.

        1. The press consistently talk about crypto as if it works like the well-regulated markets they’re used to. When it is absolutely not the same sort of beast at all.

    2. A long time ago, there was Enron. Loads of people initially made money. Young, smart people worked there. People who questioned it (even at the highest levels) were told they were dumb and didn’t get it. Until the whole thing collapsed. I think crypto is the same way. People are either making money or afraid of looking dumb because they secretly fear they don’t get it.. More than a few finance journalists, I think, are more journalist than finance, and occasionally, it shows. (See, e.g. the piles of favorable Enron or Madoff coverage).

  4. Tether is the lit fuse, that will blow up all this nonsense eventually. It’s quite sobering, that alleged “journalists” can’t even figure out, what the crystal clear implications are, when Tether alone routinely has as much or more 24-hr trade volume as BTC and ETH combined ….

  5. A question.
    Why does Canada have a spot ETF (or a few?) and it doesn’t seem to be a problem?
    I know the regulatory scheme is tighter, and I know some of the worst players bailed out of the country, but how are they ok with the risk in a way the US isn’t?

    The price of bitcoin and whatever can be (and is) still being manipulated despite the Canadian regulations, right?

    1. Evidently Ontario was fine with it. But that ETF didn’t have a ton of money flood into it. So we think it’s likely a US one won’t have money flow into it either – there isn’t actually a lot of money waiting to be turned into bitcoin ETF shares.

      The reason Grayscale extremely wants an ETF is that if GBTC can be turned into an ETF, it would promptly come to par with bitcoin and help save DCG’s backsides.

    1. We heard bitcoin was good now and all our objections were answered, but that was only for two minutes yesterday afternoon. Oh well!

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