Our favourite non-self-identifying bitcoin bro, Anthony “Pomp” Pompliano, co-founder of Morgan Creek Digital Assets, seems quite excited this week. Yes, sure, bitcoin might be down 18 per cent since its all-time high above $58,000 on Sunday, but it turns out that bitcoin can — at least to a certain extent — weather bad news about Tether:
So yeah! Remember that? Silly fools trying to argue that Tether, the dollar-pegged stablecoin that is used for most bitcoin trading, is not actually backed by real dollars and is some kind of racket or something. Who would believe such a thing?? Umm . . .
So yes, that was Pomp back in 2017, getting it . . . right.
The New York attorney-general’s almost-two-year probe into the company concluded this week that Tether did not have the dollars to back the tokens that it was issuing at the time. The company and its sister trading platform Bitfinex have now been barred from operating in the state of New York, and have agreed to a $18.5m settlement. Attorney-general Leticia James said the companies “recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines”.
From the FT’s report (emphasis ours):
“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie,” she added. “These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
The investigation found that, no later than mid-2017, Tether “had no access to banking, anywhere in the world, and so for periods of time held no reserves to back Tethers in circulation at the rate of one dollar for every Tether, contrary to its representations.”
A large part of Tether “FUD” (fear, uncertainty and doubt) has always been that Tether may not be backed by the dollars it says it is backed by. And now we have a ruling that has found exactly that. So the FUDsters, we’d argue, have been proven right, on at least this.
But Pomp doesn’t seem in the least bit bothered by the assertion. He’s not trying to say the NYAG’s judgment was wrong, rather that bitcoin would survive with or without Tether, which runs contrary to another key argument from Tether FUDSters: that bitcoin would crash if Tether collapsed. We’d argue that’s not quite clear, however. Tether has somehow managed to maintain its peg to the dollar this week despite the NYAG’s ruling, meaning that bitcoin and the wider crypto market haven’t actually yet been exposed to Tether losing its dollar peg, or “breaking the buck”, because it in fact hasn’t. The missed capital in question, after all, isn’t really an issue unless there’s a large and sudden flow of redemptions that cannot be honoured.
The NYAG’s probe only covered the period until 2019, and so we haven’t gained any new information on what the current backing of Tether is, though the company insists the tokens are “fully backed by Tether’s reserves”.
For Pomp, that’s enough to deem Tether suddenly trustworthy in a trustless world:
While there is a chance, we guess, that Tether’s controlling entities have ponied up the cash to make up the capital hole, in reality it’s impossible to be sure without a proper and thorough audit, which they have never undergone. But it doesn’t seem like Pomp really cares whether Tethers are fully backed or not anyway. Because, well, the Fed prints money out of thin air too:
We guess the *difference* is that the Fed isn’t claiming that it has “the backing” for the money it has pumped into the system over the past decade or so, whereas Tether have always maintained just this, and have been found to have lied. What’s more, in the case of the Fed, its fiat actually is the backing for the money it creates not just faith (that is, ever since Nixon broke out of the Bretton Woods fixed-exchange system against gold in 1971).
So what is Pomp actually trying to say here? If Tether can do it, should all of us be allowed to issue “money” out of thin air just because the Fed does, and should it be OK for us to lie about it being backed by Fed dollars too?
All that said, bitcoin’s relative resilience in the face of the Tether ruling, as well as the resilience of Tether itself, is noteworthy. We’ll be publishing more on Tether next week — stay tuned.
*As we have stated here before, Mr Pompliano does not identify as a bitcoin bro, but we feel the term is justified, given the type of tosh he tweets, and so will continue to use it until he proves himself otherwise.
Related links:
When bitcoin bros* talk renewable energy - FT Alphaville
When bitcoin bros talk cryptography - FT Alphaville
When bitcoin bros talk finance - FT Alphaville
When bitcoin bros talk hard news - FT Alphaville
When bitcoin bros talk digitisation - FT Alphaville
