There is not a year in it’s existence that BTC has not spent time below $4k and I honestly think that 2021 will be no different. But will it go to $0 this year? Probably not – will it go to $0 at some point in the near future… unless there are some fundamental changes to it’s protocol and reward economics almost certainly chain death will eventually consume it and the skeptics will be proven correct.
The trouble for people making these calls though is the same one that John Maynard Keynes noted back in the day:
“the markets can remain irrational longer than you can remain solvent.“
There are many reasons why I think BTC is a fraud in terms of what it promises versus what it delivers, most center on the differences in ‘use case’ between what was described in the original BitCoin White paper versus the ‘digital gold’ narrative that dominates discussion today. Discussing these differences isn’t the point of this post, I’ll save that discussion for another day. While the validity of the use case fundamentally effects any question as to whether there is any inherent value in BTC or not, they are imho a much smaller factor in BTC’s current price today than the role that the stable currency ‘Tether’ plays.
Around $10 billion dollars worth of Tether has been printed since the 15th of January taking total issuance to around $35 billion – this is just under 1/3 of all the Tether that has been minted, and it was done over the past 30 days.
Why is the 15th of January note worthy? This was the date at which Tether had to submit certain documents in the NY AG case. This case is between the NY Attorney General and the Bitfinex group of companies of which Tether is one of the participants. Again, the details of this case are probably worth an entire comment or post on their own, however I won’t bother expanding on it beyond saying that part of the the NY Attorney General’s case is an accusation that Tether is being used to manipulate the price of BTC.
The NY AG case also included some some interesting BTC history involving MtGox and the infamous “Willy bot” which is very relevant to what is happening in the crypto space today:
99. Between 2013 and 2014, Mark Karpeles, the owner and operator of the failed cryptocurrency exchange Mt. Gox, implemented the Willy Bot to successfully manipulate bitcoin’s price from about $150 to over $1,000 in less than 3 months.
100. Before its collapse, “Mt. Gox was the biggest trading platform for bitcoin” and “was handling 70% of all bitcoin trading” worldwide.97 Mark Karpeles was its sole owner and operator.
101. On May 25, 2014, an anonymous trader posted a report titled, “The Willy Report: proof of massive fraudulent activity at Mt. Gox and how it has affected the price of Bitcoin.
102. The Willy Report provided detailed analysis of Mt. Gox’s leaked trading logs and concluded that someone had programmed a bot to buy 10-20 bitcoin every five to ten minutes*. The report concluded that this “enormously” affected the price of bitcoin and played a key role in its rise to $1,000.
*[Stewie: Willy Bot was actually discovered because MtGox went down for a period of time during a DoS attack. During this period of time no one could access or trade on MtGox, however during this time they forgot to turn off the bot and throughout the whole period the only trades being done were these automated buys.”]
104. The researchers observed that the “Willy account became active on September 9, 2013” and continued to trade until their data cutoff on November 30, 2013. Because Karpeles owned and operated the exchange, “Willy” never actually had to pay for bitcoin, but nonetheless bought “around 268,132 for just under $112
million” during that time period. One passage captures their findings particularly well:
Separating the days on which Willy was active from those he was not, reveals a dramatic difference: In the case of Mt. Gox, the average USD/BTC rate increased by $21.85 on the 50 days Willy was active; it actually fell (by $0.88 on average) on days when Willy was not active. The same dramatic difference holds for the other exchanges as well. These results are striking and suggest that Willy’s activity could have caused huge jumps in the exchange rate on all of the exchanges.
106. The Willy Bot scheme underscores how control over an exchange and the opportunity to make trades with non-existent money allowed a single individual to dramatically influence cryptocurrency prices, even without sophisticated manipulation tactics like wash trading, match trading, and spoofing. The simple power to acquire cryptocurrencies with non-existent U.S. dollars interferes with the natural price discovery process and misleads market participants.
I’ll take that final statement again, “The simple power to acquire cryptocurrencies with non-existent U.S. dollars interferes with the natural price discovery process and misleads market participants.“
This is the nub of the issue with Tether, the Bitfinex companies have the power to create no-existent USD dollars via their Tether proxy, that provides the liquidity to support and inflate, or more accurately, manipulate the price of EVERY asset within the crypto complex. Without true USD liquidity, there can be no true price discovery.
Since that chart was produced in November 2020, the supply of Tether has more than doubled from 16b to 35b and the price of BTC has….
Finally here is a weekly chart of BTC vs USD
Oops! That was actually a chart from the last Tether bubble back in 2017 – here is the current BTC chart.
Hard to tell them apart isn’t it
Edit: A final word of caution for this week: