Yesterday we re-posted a detailed money flow analysis of Crypto markets with a focus on Tether liquidity titled The Bit Short: Inside Crypto’s Doomsday Machine.

It is an anonymous post but it’s obviously genuine, the author is from the startup VC community.  Several core arguments were solid and only could come from someone who deeply understands risk management in opaque markets, blue oceans (new markets), dealing with paradigm changing ventures – such as Crypto is (or potentially is).

Bottom line, Tether is a Ponzi scheme, a massive global money laundering operation.  If you look at the majority of Bitcoin purchases, they are from Tether, not from US Dollars.  So if you’re thinking that if you’re not in Tether you are safe, you are wrong.  2 Crypto systems have emerged, the regulated and the unregulated.  This is not so different than the traditional banking system, which gave rise to Shadow banking.  Just like a Seychelles entity, there is no transparency in the non-regulated exchanges.  They mostly block US IP addresses and US Citizens, not only to avoid being caught- but from preventing the Ponzi to blow up.  Tether is a real Ponzi scheme because they ARE processing withdrawals, and depend on more money flowing into the system through offshore exchanges promising huge bonuses and rewards (paid in Tether of course).

If you’d like to read Tether’s opinion here is their Feb 21 letter from Cayman firm Moore.

Despite Tether’s reassurances that all is good, the public has not seen a ‘smoking gun’ document showing the $35 Billion in an account held somewhere – why not?  The only reason they would fail to produce the document is because the money is not there.  The most alarming evidence is the Central Bank of Bahamas balance sheet, which is public and updated quarterly.

In FX analysts look at ‘real money flows’ that means actual wire payments to foreign countries, not swaps or derivatives or bank ledger entries but real money flows.

If Tether was properly balancing their balance sheet, there should be billions of US Dollars flowing into and out of the Bahamas, and there isn’t.

So what?  What would the consequences be?

First, the price of Bitcoin would drop substantially.  Most of the foreign ‘black’ unregulated foreign exchanges of Crypto would blow up, not because they decide so – they wouldn’t have the Crypto to make withdrawals.

Regulated exchanges would benefit, although their account holders of Bitcoin and affected currencies would be eviscerated.  For traders that want to profit, Kraken does offer a Tether / USDC contract that one could use to short, although this would be a binary event – it would remain unchanged until a blow up and then Tether would go to zero.  Your profits would be limited to 100% because you couldn’t leverage it (we’re not sure on this, but we are assuming you can’t leverage this contract).

Solid tokens that are not dependent on Tether would benefit, Crediblock.com is a consultant to xsigma.fi full disclosure.  We have assembled some support and other tools here on our Crypto blog page.

It is possible to buy Kraken Pre IPO if you are accredited, from LevelX.

There isn’t anyway to unwind this without injury, unfortunately.  The entire premise of Tether and a good amount of the shadow Crypto markets is based around Tether.  The good news of course, is that post – Tether the infrastructure will be built more securely.  Perhaps this is what Central Banks are waiting for as an opportune moment to step in and show the world how to run a Global Reserve Currency?

For a full explanation of what Currency is (Including “CRYPTO CURRENCY”) Checkout Splitting Pennies.