The Simple Logic Behind Tether Injections / Grants
Tether tends to get printed before crypto prices stabilize or go up. The simplest reason for this is because Tether acts as a dollar substitute, especially on exchanges that don’t use dollars, and prices go up when people buy crypto… especially with dollars / dollar substitutes.
Tether Grants (what is called when Tethers are printed) are really just a matter of supply and demand and simple logic.
- Crypto prices are low.
- Thus there is a demand for crypto.
- People (exchanges, big players, etc) deposit large amounts of dollars with Tether around the same time.
- Tether prints Tethers to meet the demand.
- People use Tethers to buy crypto on exchanges that don’t deal in dollars.
- The increased demand pushes the price of cryptos up in dollar value.
- Thus we see large sums of Tether being printed before prices stabalize / go up.
Now add to that this logic:
Some of the most popular exchanges in the crypto space can’t or don’t use dollars. One notable example is Bitfinex. Bitfinex has a close relationship with Tether. All dollars deposited in Bitfinex are converted to Tether (and then you get dollars back when you cash out). Thus when a lot of dollars are deposited with Bitfinex, they must have enough Tether or they must deposit dollars with Tether to have Tethers printed.
Therefore, when we see [for example] a 250 million dollar / Tether order, we might assume it is going to an exchange like Bitfinex to satisfy demand on that exchange. It might also be going to a big player, or another exchange that uses Tether like Bittrex… but the point here is that there is logical reasons why we would see large grants appear right before prices stabilized or went up.
It is likely that exchanges that deal in dollars, like GDAX/Coinbase Pro, also see large injections dollars before the price goes up. However, Tether records all Tethers created on a public blockchain and GDAX/Coinbase Pro doesn’t. Thus we see Tethers being printed, but don’t see cash deposited into exchanges that use dollars.
Now add this logic:
When people close short positions for a profit on Bitfinex, they get “paid out” in Tether. That means a ton of Tether is needed to pay shorts right before a bunch of Tether is needed for longs to spot buy crypto (to buy actual cryptos, not to use leverage to margin trade). In short, a bunch of Tether is needed at the bottom of any correction, in fact… arguably more than is needed in any other situation.
The Conspiracy Theories
One can come up with wild conspiracy theories to explain the above (and they do see Bitfinex’ed, or this paper, or our page that covers this), but the longer I stay in the crypto space, the more I reject these theories and the more I prefer using basic logic and take Tether / Bitfinex at their word.
NOTE: Conspiracy theories that assume that all positive price action is manipulation, but all declines in price are natural… are I think some of the most lopsided conspiracy theories in the crypto space. The price action that happens with Tethers when prices go up is almost indistinguishable from the inverse that happens when prices go down and cryptos flood the market. The fact that Tethers are being used is I think irrelevant.
Taking Tether at its Word and Seeing the World as a Mostly Rational Place
Taking Tether at its word, and trusting that all the exchanges and big players who do business with them aren’t all collectively being duped, then we can say “a ton of Tether being printed is essentially the same thing as seeing a lot of dollars being added to brokerage accounts when the stock market pulls back.”
Of course people are going to get their dollars ready to buy when prices become attractive…. and of course that proceeds recovery / stability.
If you had a ton of money and a ton of crypto, would you 1. do nothing when prices dropped due to a bunch of crypto being moved to exchanges and put up as sell orders that were collectively pushing the market down or 2. use your money to support the price of crypto and try to spur on a rally?
If “2” is your answer, then you understand Tether. Add to that the other things I pointed out, and it starts making even more sense.
THE PROBLEM OF CENTRALIZATION: Although I think Tether is explained by simple logic and the conspiracy theories surrounding it amount to little more than FUD, there is a central problem here. That is, Bitcoin is decentralized, but Tether and Bitfinex are not. At the end of the day we have to trust centralized private companies when we deal with exchanges and certain types of coins. Bitfinex and Tether may be upstanding and even outstanding, and they may use some decentralized tech, but they aren’t a decentralized trustless blockchain… they are companies. Until the crypto space can fully decentralize it’ll continue to face FUD that points fingers at the actions of central players.
Generally, this has been a precursor of price going up. Tether gets printed when people deposit USD and get USDT back. This USDT will then be used to buy crypto. This is similar to someone depositing $250MM to exchanges. Of course, that doesn’t mean they will buy right away. DYOR https://t.co/zg2PEjGohv
— Charlie Lee [LTC⚡] (@SatoshiLite) June 25, 2018