This piece was posted before the overnight spike to $13,662.35 last, up $1,922.00 (+16.37%)
From Decrypt, June 25:
Everything you want to know about the relationship between whales, tether, bitcoin, exchanges and how the market ticks.
in the 24 hours.Over the past month, $600 million worth of “tethers,” a cryptocurrency supposedly pegged to the dollar, have been minted into existence. Seemingly in tandem, Bitcoin’s price has climbed up from $8,500 to $11,000. Are the two events connected?....MORE
Absolutely, said Will Harborne, the founder of the Ethfinex, a decentralized exchange that’s headquartered in London. Ethfinex is a subsidiary of Bitfinex, Tether’s sister exchange, and has insight into the relationship between tether, bitcoin, whales and bull markets
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In an interview with Decrypt, Harborne explained how the whole thing works.
When you see a large Tether “print,” said Harborne, it means a handful of wealthy clients have essentially preordered batches of tethers, days in advance, to then dump on the market—often before it’s begun to surge. Tethers are useful to these large holders, who can trade them—paired to Bitcoin, Ether, Litecoin and other coins—on high-liquidity exchanges that don’t accept fiat currencies.
This early communication between Tether and its investors, who must fork up a minimum of $100,000 to buy directly from the Tether website, is what generates the big round numbers seen in public prints—say, last week’s $100 million, said Harborne. To respond to the “rough, projected demand” conveyed by these investors, Tether must create a fresh batch of tethers, which requires key members sign off with their public keys; this takes time, and is the reason investors’ demands are aggregated into large batches.
Then, when the wires for the preorders come through, Tether—according to Harborne—sells off, or “issues” the newly minted tethers to the pre-purchasers for a dollar a piece, and the buyers use them on the market to snap up Bitcoin, Litecoin, whatever. (Issuing is supposedly distinct from printing, in which tethers are minted but not dispersed.)
And then?
The lay speculators see the price inch up, they pile in, and…number goes up.
“[Tether] essentially just ‘pre-creates’ the blockchain tokens based on a rough projected demand,” said Harborne. “Usually customers don’t just send $5 million without pre-notifying Tether. So tether can know it’s going to roughly need about [for example] $250 million over the next few days. But then once the money arrives via wire transfer the actual Tethers get sent to the customers.”
Take what happened over the last month. Per Etherscan, 600 million tethers were minted between May 25 and June 25. At first, the coins were released slowly at the end of May, which coincided with a gradual increase in price. Then, three more large tranches of tethers were minted and released in rapid succession, coinciding with the parabolic leap in bitcoin’s price, from $8,500 to $11,000....