Risk with stable coin pegs is probably the biggest concern I came across when learning about crypto. I like the tech, I am really confident that we will see what increasing adoption, risks/barriers to entry will slowly get removed so inflows from less tech-savvy investors will continue, governments have limited ability to blockade crypto… That really just leaves the peg breaking on a major stable coin. Crypto would recover even from that, but for sure it would have a ton of negative market impact. Why do you decide to settle on calling it a ponzi though? Sure it’s not fully collateralized, but because it’s a widely accepted medium to get in and out of crypto, the market is willing to discount a little risk. It seems like a prisoner’s dilemma to me and everyone has chosen to cooperate and will still absorb stable coins for USD. It’s not like millions of people are denominations their life savings in stable coins. Pegs can take a bit of strain if they have utility, but usually when they do break, they break quickly. So I don’t think we’ll see USDT start trading at 0.95 and everyone who is concerned can make an orderly exit. That is a risk. OTOH I think we are past peak risk with tethers; there is so much institutional money and infrastructure is miles ahead of a few years ago. Everyone knows stablecoins are very important and would definitely assist in repairing the damage if they started to lose security there. People buy junk bonds for less yield that stablecoins are paying, and hold USD that is diluted with an even greater fury than stablecoin custodians do. The risk is known and priced in, evidenced by the higher yields on the coins vs. your 0.2% at the bank for USD. Nothing is riskless but if this is the fear keeping anyone pinned at 0% allocation I’d recommend moving beyond that even to just a few % order to capture some diversification and get exposure to developing tech that could make a huge social impact if it’s used in the right way. Life is full of risks and this one isn’t extremely outsized on a relative basis like you’re making it out to be. Does the US market where $1 of inflows creates $5-$10 in market impact and the underlying currency was expanded by 50% in the last two years or whatever the figure is seem THAT much more riskless?
Yeah, and what do you think any other stock is based upon? Truth and honesty? That's what being in the stock market is all about. And if this shakes you up, then you are in for a rude awakening when you realize everything being traded is manipulated. The american dollar is manipulated, but I don't see you complaining about how that should be banned. You need to chill out, crack open a beer and buy some Bitcoin. Cause all this complaining about price manipulation is getting you nowhere...
Tethers came to existence with promise that they are 100 percent backed by dollars in their coffers 1:1. And they maintained this lie for years, even firing auditors that they themselves hired. Eventually they admitted it was a lie, that it is backed by just 3% in cash, rest some commercial paper (per their claim). This is where it gets interesting. They printed 64 billions (most of it over past 1.5 years), which means they hold 60 billion in commercial paper, but not a single trading desk ever saw them buying/trading it. At 60 billion they would be one of the largest commercial paper holders. You do the math from here....
Stocks have been manipulated from dawn of its existence. This is not what we discussing here. What we talking about that 70% of daily volume in crypto market is based on fake money, aka tethers. We have never seen anything like this. Any market up until now (including tulips, south sea and Mississippi bubbles) was traded for real money. Manipulation and fraud was always there, but assets were bought/sold with legal tender. This is why seeing how it will play out will be spectacular, regardless of where it ends. We discussing here, not complaining. If you are too soft to look at my facts, totally fine. Not everyone can looks at facts that contradict their core beliefs, it is called confirmation bias. I did pick up few ethers, after it dropped below 2K, fully ready to loose it all
Then who exactly is using the Tethers to buy Bitcoin? Let's say I was making tethers in my own home, and I was buying all this Bitcoin, I wouldn't even waste my time waiting for it to rise, I would just sell as much as I can at that moment causing the market to plummet. But the market isn't plummeting is it? Instead it's doing the opposite of what it should be doing if someone was printing tethers out of thin air. So parts of your theory doesn't make any sense. Because how does printing fake money cause a different asset to rise? And do you think printing fake money is the only reason it is rising, or do people have a genuine interest in Bitcoin? Well what do you think is being used to buy Tether? Counterfeit money? American dollars decreasing in value? You even buy Ethereum after you have made this arguement contradicting yourself in many different ways. And lets say Tether falls apart and there is no more Tether, what about USDT? What about BUSD? USDC? And even USD that's used to buy Bitcoin, since everyone around here knows that USD IS BEING PRINTED OUT OF THIN AIR. But hey, lets not complain about that since our trust is in the government
Yeah, I hear what you are saying. Mindless bullishness on crypto isn’t helpful. There is a risk here. They are clearly using fractional reserve system, that is a known fact by the market and is being discounted. As currencies get more mature they can move from full reserve (probably always lies behind that claim even with usd:gold way back when), to admitting a fractional reserve, and then the most developed currencies can just operate off a nebulous tie to their creator like usd:American labor or whatever, and even with mass printing the market gobbles it right up. Perhaps you can argue crypto tethers are taking that curve a little fast. Inflows into the space have been fast as well though. And it’s a little bit of a misnomer to just claim all crypto volume is tethers. I don’t have numbers but a decent amount of the volume is real usd -> crypto with the tether as a brief intermediary. That was the case with my own six figure allocation as well as the process for many others. I think the market isn’t discounting the peg even with the imperfect audits and collateral because it is doing its job as an intermediary. I don’t know if anyone hoarding all of their capital in USDC expecting it to be the best store of value. Some early US state currencies inflated at rates of 20% per month and quickly became worthless at too great of a distance from the custodian bank. They were still functional currencies because that information was known by all and was able to be priced into transactions. Obviously stability helps boost efficiency because long-term planning is easier but markets are surprisingly resilient. I don’t think crypto risks are being flat out ignored at total market cap of the coins and related industry well over $1T at this point. At $10b sure, retailers and a few gunslinger firms could fuel a bubble by reckless discounting but I think we passed that point already. We might not see -80% peak to trough on a basket of the mega caps ever again.