UnTethered: How The Entire Crypto Bull Run of 2017 May Have Been a Mirage (And Why Its Resurgence May Be Too)

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This story appeared in deBanked’s May/June 2019 magazine issue. To receive copies in print, SUBSCRIBE FREE

untethered coverIn 2017, college bros gathered at a bar in downtown Manhattan. As a journalist from deBanked approaches, a 5’10” young 20-something with long shaggy brown hair is vaping outside on the sidewalk while staring intently at his phone. I stop. He pauses and eyes me up and down. “You here for the crypto meetup bro?” he asks. My age, about 15 years his senior, apparently gives the impression that I’m here as an investor. “There’s a few dudes in there that are gonna change the game,” he says. “We’re talking 10,000x.”

“Sweet,” I reply as I step inside. I locate the others that have gathered here to talk all things cryptocurrency and dive in, but quickly find that I speak a different dialect. Bitcoin, the coin I grew up with, is the uncool parent in an era where Ethereum and ICOs (Initial Coin Offerings) are all the rage. Dozens of tokens and coins are “mooning” (soaring to the moon) in value and everybody that’s in the know, which this group believes themselves to be, is going to be filthy rich.

Here, as with other meetups I had been to, required no understanding of the technology. Who you knew and how rich you got off your crypto investments shaped your standing and identity in the community. If you weren’t achieving at least 100x (A price increase multiple of 100) on an ICO investment, well then, what were you even doing bro?

The across-the-board surge in value at the time was validation to crypto communities like this one. Nobody dared question how the rise in value kicked off or why it was happening 8 long years after the birth of Bitcoin (Bitcoin was created in 2009). All that mattered is that it was happening now and they were fortunate to be a part of it. They weren’t being reckless about it, or at least that’s what they told me. Every time these investment pros wanted to take money off the table and book a winning trade, they’d convert their crypto to dollars.

If only it were that simple.

I would soon learn that when they sold a crypto, like Ripple’s digital asset known as XRP, for example, into dollars, they weren’t actually receiving any cash. Instead they were trading the Ripple asset for another digital asset called USDT. The value of XRP fluctuated all the time, but 1 USDT was always worth $1.

In theory, you could cash out into real money, but withdrawals could take weeks to be processed and those funds would be of no use if another crypto investment opportunity came along. Digital USDT, therefore, solved both problems, stability and liquidity in the crypto markets.

Thousands of crypto trades happen every minute. On Binance, a crypto exchange I log on to for my story, shows traders buying and selling cryptos with others in the market in real time and USDT is one of the biggest movers.

I am tempted to convert the fractions of Bitcoins in my possession to the digital equivalent of a dollar, USDT, but I can’t bring myself to do it. Instead I’m nagged by a strange letter, the T after USD. It stands for Tether and it’s not backed by the United States government, but on Binance and on crypto exchanges across the world, it is a glue that holds the market together. It’s the stable coin, the closest thing that exists to a real dollar in a virtual universe.

What the hell is Tether, I wonder?

Tether USDT

My research brings me to an unpopular opinion being pushed on twitter by an anonymous user (@bitfinexed) whose following is growing every day. USDT, the person tweets daily, is all a fraud.

bitfinex8,000 miles from the bar in New York City, a crypto exchange in Hong Kong named Bitfinex has become flush with a new batch of USDT, $100 million worth. Nobody moved them there. Rather Bitfinex’s affiliate company, Tether, has created them out of thin air. All of this newly minted USDT is soon used to purchase Bitcoin and other cryptos in huge chunks, sending prices soaring. Traders cheer the demand and everyone it seems is getting rich.

The market tolerates this sudden introduction of USDT because Tether claims that all USDT is backed by actual dollars held in reserve in a bank account. So $100 million in newly minted USDT is supposed to mean that a wealthy investor has deposited $100 million in real money into Tether’s bank account in exchange for $100 million USDT to trade with on Bitfinex. That keeps the value pegged at 1:1. Once an investor has access to their USDT on Bitfinex, it is used to buy up other cryptos.

That someone would exchange $100 million in real money for USDT is astounding. It demonstrates to the market that the uber wealthy see the value of crypto. Rumors abound that the investor is Goldman Sachs or a Saudi Prince or an international drug lord. Nobody knows and nobody has time to question it because tomorrow the same thing happens all over again, another $100 million in USDT appears and a buying frenzy of Bitcoin, Ripple, and Ethereum ensues, sending the entire crypto market in a frenzy.

Bitcoin Frenzy

By December of 2017, $1 billion worth of USDT exists. That’s $1 billion of buying power dumped into what was a relatively sleepy niche marketplace. Since market capitalization is not proportionally correlated with what’s actually invested, a billion dollars in buy orders can be enough to potentially drive the crypto market capitalization up by hundreds of billions of dollars in return. And that’s what happens.

Tether’s influence is apparent. Bitcoin, for example, was worth $1,000 at the beginning of 2017 and reached $19,000 by mid-December. Ethereum went from $8 to $1,400 in less than 13 months. Ripple went from 6/10ths of a cent to over $3.00.

At its peak, the market cap of the entire cryptocurrency market was nearly $1 trillion, a stunning valuation that finally caused the investing public to second guess itself and burst the bubble.

And just like that, the market crashed.

But not all at once. On the way down, newly issued USDT continued to flood the market. When they were used to buy other cryptos, prices would suddenly spike and the market would experience brief rebounds. To traders, this anonymous investor was either a white knight trying to save the market or a madman who continued to dump his billion dollar fortune into rapidly declining digital assets at his own peril.

crypto crash

Any short term recovery lost steam, however, and the bulletproof can’t-lose attitude of crypto culture was breached. The same college students touting their previous prowess took to social media to bemoan the irrationality of a sudden bear market and the loss of their fortunes. The meetups that became a staple of 2017 suddenly dried up. Twenty-somethings on Telegram complained that the events might even cause them to find a job. The horror, they half joked.

By April 2019, $2.6 billion worth of USDT existed on exchanges around the world, all brought into existence by Bitfinex’s affiliate, Tether. That meant that somewhere $2.6 billion was supposedly sitting in a bank account as a reserve to guarantee the value. Without it, the dramatic rise or fall of the crypto markets would probably never have been possible.

Tether’s influence and size was enough to attract the interest of American regulators. In December 2017, at the height of the bubble, the US Commodity Futures Trading Commission sent subpoenas to both Bitfinex and Tether. And in November 2018, right after Bitfinex’s Chief Strategy Officer suddenly resigned, Bloomberg News reported that the US Department of Justice was investigating whether Tether had been used to prop up Bitcoin or manipulate the market. Tether’s loyal fans chalked it all up to FUD (Fear Uncertainty and Doubt) and spun the investigations as proof that governments felt threatened by the future new world order.

Tether NY AGBut that was until April 25, 2019, when the New York State Attorney General bolstered the worst fears that a handful of critics had been screaming for years, that Tether may not be all it’s cracked up to be.

Bitfinex and its affiliate’s long struggle with finding a stable banking relationship had led the company to split its holdings. A significant share was on deposit at a small Bahamian bank while over $1 billion had been sent to a Panamanian payment processor (without a contract) named Crypto Capital for safekeeping, the AG alleges. Those funds were comprised not only of Bitfinex’s client deposits but were also co-mingled with reserves held to back USDT. The arrangement was such that if Bitfinex customers ever began requesting fiat currency withdrawals beyond what they had on hand, Crypto Capital was supposed to send payment on Bitfinex’s behalf to satisfy the request.

As the crypto bear market continued into mid-2018, Bitfinex went calling on Crypto Capital to pay its customers that wanted to be paid out in cold hard cash. Crypto Capital, much to their surprise, refused, putting Bitfinex in the precarious position of not being able to pay customers. As the public began to turn on Bitfinex, Bitfinex executives pleaded desperately with Crypto Capital.

By the Fall of that year, Bitfinex finally learned what the holdup at Crypto Capital was. The money was gone. According to Crypto Capital, $851 million had been seized by governmental authorities in Portugal, Poland, and The United States. Bitfinex says the supposed seizure is all a ruse and that they have been swindled out of the money.

In any case, rather than advise the public of the lost funds, Bitfinex allegedly contemplated borrowing the remaining funds it had on hand in reserve to back USDT to pay out Bitfinex customers and sustain its operations. The arrangement may have been Bitfinex’s only hope to cover its $851 million loss and survive, Tether be damned.

The New York Attorney General was not impressed with Bitfinex’s plan to raid its USDT reserves and successfully persuaded a New York Supreme Court judge to order an injunction preventing Tether from extending a $900 million line of credit to Bitfinex.

But Bitfinex had other plans in the works.

Suspiciously, on April 24th, one day before the New York Attorney General filed its action, $300 million worth of new USDT was created, loaded up on Bitfinex, and used to buy up massive chunks of crypto. No one can be sure that anyone truly deposited $300 million in real money with Tether to make this possible. Regardless, there appeared to be an immediate impact. Bitcoin, Ethereum, and Ripple all rose in value by more than 50%. Several news outlets ran headlines that said “Bitcoin is Back.”

As the situation continued to unfold, Tether revealed that it did not actually hold $1 in currency for every $1 in USDT it created. Proceeds of Tether sales, they admit, are used to fund operations, make investments, and buy assets. The USDT foundation was unraveling in real time.

On April 30th, a little known Arizona Businessman named Reginald Fowler, who once held a small stake in the Minnesota Vikings, was indicted along with an Israeli woman named Ravid Yosef for bank fraud and for running an unlicensed money transmitting operation tied to virtual currency trading. The US Attorney for the Southern District of New York states that “Reginald Fowler and Ravid Yosef allegedly ran a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.” The duo, the US Attorney continues, used the financial system for criminal purposes through lies and deceit.

DOJ Fowler

Fowler’s business is believed to be tied to Crypto Capital, the same company that owes $851 million to Bitfinex. During his arrest, investigators found roughly $14,000 in counterfeit $100 bills in his office and learned that $60 million of client funds had been diverted from his business to his personal bank accounts.

Bitfinex, meanwhile, does not plan to go down quietly. On May 17th, they announced they had raised $1 billion from anonymous investors in just 7 days to recapitalize the company back to sustainable health by selling a new crypto called UNUS SED LEO tokens. Bitfinex called the demand for these tokens “overwhelming” and that the sale represented a “new milestone for Bitfinex and the greater Blockchain community.”

On social media, nobody believes them. The unusual token name and spelling led to them being branded “Unused” Leo tokens. Dozens of users called for their arrest, but most just called their token sale a scam. The jig, in the hearts and minds of the crypto faithful, is up.

Tether’s value on exchanges, meanwhile, goes the opposite way. The value of USDT jumps to $1.01, making it worth more than 1 US Dollar. Traders, in a sense, have no choice but to keep up the lie, because a collapse of USDT might mean a collapse of the entire crypto market.

So as the market’s framework falls apart and may never have been real to begin with, the market itself rallies.

The correlation between USDT and the entire crypto market dawned on executives of Bitfinex in October 2018. When Crypto Capital refused to give back the $851 million, a senior Bitfinex executive wrote, “Please understand all this could be extremely dangerous for everybody, the entire crypto community. [Bitcoin] could tank to below $1,000 if we don’t act quickly.”

Below: Yours truly wearing crypto socks I got for free at a crypto meetup in Brooklyn.”HODL,” an intentional misspelling of “HOLD,” is a rallying cry for the crypto faithful to hold on to their tokens and coins in spite of declining values


Back in New York City, the May 2019 surge in crypto prices, still less than half of the all-time highs, jolts awake a dormant online chat group that used to organize crypto meetups. One user calls attention to a particular gathering scheduled to take place on May 6th. It emphasizes discussion on blockchain instead of trading.

The response from those still following, however, is tepid. One of the group’s original chief proponents calls crypto a “f***ing scam.” Another user ponders if free alcohol is incentive enough to sit through “fools” talking about “blockchain revolution bullshit.”

A joke about losing money prompts another to claim they were never in it for the money in the first place. “I’m in it for the tech bro,” he says.

Yet another, who admits he has been holding onto to his near-worthless crypto through the whole bear market, hopes that the rally this time will finally last.

“To the moon!”

This story appeared in deBanked’s May/June 2019 magazine issue. To receive copies in print, SUBSCRIBE FREE





Since this article was first written, more than $900 million worth of fresh USDT has been created and dumped into the crypto market. The value of the cryptocurrency market has soared with it.

Bitcoin: $5,350 on May 1 to $10,696 on June 23.
Ethereum: $162 on May 1 to $309 on June 23.
XRP (Ripple): $0.31 on May 1 to $0.47 on June 23.

Some Bitcoin journalists have pegged the sudden market increase to activity in India and Facebook’s announcement of a Libra coin.

However, the correlation between the creation of USDT and the value of Bitcoin remains extremely suspicious.


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Last modified: July 9, 2019
Sean Murray


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