The Un-Tethered Madness of One Crypto Could Tank the Whole Market

Shah Gilani|December 9, 2021

Every crypto, every alternative-coin or token on the market, has a problem. A big problem.

Fraud is rampant in the crypto-space. News stories about investors falling for NFT or “meme” coin scams are a weekly occurrence – if not daily.

But all that noise describing how robbers make off with millions of dollars from exchanges or private crypto-owners as if it were a cheesy action film has drowned out something important.

Something bigger than $1 billion in crypto stolen.

The most traded cryptocurrency on the markets is a sham that could tank the whole crypto market.

So today, I’m breaking down every aspect of the biggest crypto scam no one knows about.

The Leaning Tower of Crypto

If you don’t know what Tether is and you trade or own any cryptos, you’re in trouble.

If you own any Tether, you’re in deeper trouble. Because Tether is probably (and I have to say probably for legal reasons) a fraud.

Tether is a so-called stablecoin, which means its value is tied directly to another currency. In Tether’s case, that’s the US dollar. If you have ten Tethers you have the equivalent of $10 dollars-worth of crypto. One billion Tethers are supposed to be worth $1 billion.

But that’s only if Tether is actually tethered to a dollar.

The problem is that it’s not, or at least there’s never been any confirmation of it – unless you count no-name accounting companies swearing they saw the money here and there.

Back in 2019, the Office of the Attorney General (OAG) of the Southern District of New York began an investigation into Tether Ltd. and Bitfinex, an offshore crypto exchange.

Both companies are owned and operated by Hong Kong-based iFinex. The OAG claimed Tether misrepresented the actual amount of dollar reserves it held against Tether back in 2017 and was using un-backed Tether to raise the price of bitcoin for its own benefit through manipulation. The OAG also wanted to know what happened in 2018 when Bitfinex lost access to $850 million of customer funds to a Panamanian third-party payment processor Crypto Capital Corp, that remarkably had no contract with the Bitfinex.

None of the charges were criminal and were settled two years later on Feb. 23 with Bitfinex and Tether Ltd. paying an $18.5 million fine and agreeing to release verified reserve figures.

This means the companies got a slap on the wrist and nothing else, leading us to where we are today.

Stablecoin in Name Only

Bitfinex borrowed some $850 million from Tether’s reserves to pay back defrauded customers. It wasn’t proven they were defrauded, but the money was gone, lost to a Panamanian company that just may have had an affiliation with iFinex’s owners and operators.

The company is still in business and claims none of its customers lost money in the odd disappearance, because they were paid back out of Tether’s reserves, out of the dollars set aside that are supposed to back all Tether crypto.

At the time of the disappearing $850 million, there was only $2.4 billion of Tether in existence. So, the loss, covered by Tether amounted to 35.4% of the reserves backing Tether. So much for being Tethered and stable.

But not to worry. Tether replaced the reserves by simply creating more Tether blocks!

How’s that for a neat bait and switch, flim-flam fraud.

Tether now totals $74 billion, most of which was “created,” probably out of thin air, in the last 24 months.

Legally, a coin like this is required to wait for investors to pony up dollars that can be pooled to create a new block.

But there’s nothing that stops Tether Ltd. from creating blocks of Tethers and placing them on exchanges at will. This has resulted in a flood of Tether in crypto ecosystems, none of which is tied to any legitimate creation process.

So now investors are able to trade into and use Tether to buy other cryptos. It’s like a run-a-muck central bank printing tons of money that leads to financial asset inflation, which raises prices for most cryptos, bitcoin especially.

The other side of all that creative untethering is if creation blocks aren’t paid for, they’re not stablecoins. If whatever dollars backing a so-called stablecoin are invested in risky plays (because the owners would make money on winning bets) that lose money, the dollar “peg” gets broken. That means investors and traders buying Tether (assuming its value is $1 per Tether) with any other currency or crypto, in order to buy any other crypto, aren’t getting their money’s worth on either end of the transaction.

And this isn’t theory. This is happening, especially on Bitfinex and other offshore crypto exchanges.

The thing is, you can’t buy Tether on most U.S. crypto exchanges.

Coinbase, for example, doesn’t let you, nor does Bitstamp.

That’s because Tether’s had, and has, legal problems around the world. And US regulated crypto exchanges that are tied into the US banking system don’t want anything to do with a coin that would break anti-money laundering or “know your customer” laws.

But you sure can buy Tether offshore with exchanges like Binance, Mandala Exchange, or Bitfinex.

The point of parking billions of Tether coins offshore is they facilitate the massive leverage Bitfinex and other offshore crypto exchanges offer, in some cases up to 100 times leverage.

Now we’re at the gates of the coming crash that I first predicted at the end of November.

It’s all about leverage, leveraging fraudulently created Tether as a “source of liquidity” for exchanges and a settlement mechanism for most cryptos traded offshore.

Whether Tether is regulated out of existence or recognized as the fraud it is, the fallout will be falling cryptos since their inflated prices have been jacked up by engineered inflation of a derivative order that comes close to subprime superlatives.

When the levee breaks and trillions of dollars are lost, the crypto exchanges, including the good ones like Coinbase, will see their stock prices tank alongside bitcoin and dogecoin and the other wannabe fiat currencies of DeFi fame.

Until next time,

Shah