I highly doubt they have given out Tethers for free, exchanges paid dollars for them. And even banks don't have all their money in stock. That is why it is illegal to incite bankruns.
Also, you can't assume that exchanges paid dollars for them. Tether could print a lot of Tethers, transfer them to exchanges, and exchange them for crypto. No dollars are involved in the transaction and it all relies on everyone believing that Tethers are worth $1 because Tether says they are.
> They can print Tether for free and use it to buy crypto. This pumps the price and then they can sell.
I've never understood this theory. It implies that the market moves when they buy, but not when they sell?
If you're unscrupulous and you have a money printer, you don't need to resort to market manipulation to print money, you just... print money. And you can offer a 20% APR to people who are willing to pay real USD for your money, to keep the music from stopping too early.
> I've never understood this theory. It implies that the market moves when they buy, but not when they sell?
That's not an unreasonable assumption when the asset isn't held and bought mostly by professionals trading based on its fundamentals, but by people that get very excited by "line goes up" and diehard HODLers. This isn't specific to Tether, it's standard pump and dump behaviour. Printing money is great, but getting further gains on your printed money (and a plausible "massive growth in crypto interest" story to make your printed money seem more real) is better still.
Plus chances are Bitfinex did the pump bit but actually holds onto a lot of the crypto it bought anyway.
Successful pump-and-dumps usually involve spreading a narrative (e.g. false rumors) in addition to the price action, though.
> Plus chances are Bitfinex did the pump bit but actually holds onto a lot of the crypto it bought anyway.
Yeah, this is a theory that makes more sense to me. Tether may have driven up the price over time by buying and holding bitcoin. The more they bought, the more they drove up the price, reinforcing their decision to buy. Similar to Archegos, but with bitcoin instead of equities.
You can do the same if you have a lot of USD in the first place or alternatively with reserves. Printing Tether isn't required and it is questionable if a pump and dump at quite this basic of a level is profitable on average.
It's not 'other scams'. It's that printing - the only thing Tether can do which others can't and seemingly the main reason why they suggest Tether is the one doing it - doesn't add much of anything to the scam.
The mechanism of a pump-and-dump like this is to spend your company's assets to boost the price of your personal (crypto) holdings. The exchange and the coin don't profit from the scheme; they lose money, while the owners of Tether/Bitfinex win big with their personal assets.
Not for free, but they very likely exchanged Tether for assets that are not dollars and whose value has since dropped. In some cases we know that those assets were very dubious and they had trouble getting the money back.
Banks have losses too. But they raise money by selling stock, which provides a cushion against losses. The stockholders lose money first.
How does this work with credit unions? The one I joined I had to “buy a share” for 5$ and keep that minimum of one share (5$) to keep my account active. The credit union is not publicly traded so the shareholders are the account holders.
Good question. Looks like technically, you are a shareholder and get dividends instead of interest for a "share draft account" [1] which is backed by share insurance. [2]
I don't understand how that can work as risk capital. Maybe it just isn't.
> I highly doubt they have given out Tethers for free, exchanges paid dollars for them.
Why do you doubt that? They have motive and opportunity, and they're obviously not on the level so any appeal to general assumptions of honesty go out the window.
It's less direct than that. Some crypto fund has say 10M$, they want to buy a lot of BTC, so they borrow 20M$ denominated in USD but settled in USDT from iFinex treasury, and use it to buy BTC. iFinex can now claim that they are backed by USD assets, crypto fund effectively has taken a leveraged BTC long position, pushing BTC up, everybody is happy. Until BTC goes down too much or everybody tries to withdraw USDT, or both, then everything unravels.
You can also replace "crypto fund" by any crypto project that uses leverage to deliver extraordinary returns - as long as everything goes up.
