Episode Summary
Executive Summary: This podcast episode features an anonymous whistleblower (Twitter handle Bitfinext) who has been investigating Tether, a stablecoin, for five years. The host also discusses President Biden's new executive order on promoting competition, which targets big tech. The interview with Bitfinext reveals red flags about Tether, including its terms of service stating tethers are not redeemable, its connection to Bitfinex, and allegations of fraud and market manipulation. The guest believes Tether is one of the largest frauds in financial history and warns of a potential financial crisis if it collapses.
Main Topics: Biden's Antitrust Executive Order (Priority: 4/5): Discussion of the new executive order signed by President Biden to promote competition, including 72 initiatives targeting big tech, non-compete agreements, prescription drug prices, and internet access. Tether and Stablecoin Basics (Priority: 5/5): Explanation of what Tether is, its purpose to solve banking problems for crypto exchanges, and how it claims to be backed one-to-one by US dollars. Red Flags and Fraud Allegations (Priority: 5/5): The whistleblower details multiple red flags: terms of service stating tethers are not redeemable, the connection between Bitfinex and Tether, missing $850 million via Crypto Capital, and lack of proper audits. Market Manipulation and Wash Trading (Priority: 4/5): Discussion of how Tether may be used to manipulate Bitcoin prices through front-running, painting the tape, and wash trading, with examples from the 2018 liquidity crisis. Comparison with Circle's USDC (Priority: 3/5): Comparison between Tether (USDT) and Circle's USDC stablecoin, noting USDC is more regulated but still lacks full transparency on reserves. Anonymous Whistleblower's Motivation (Priority: 3/5): The guest explains his motivation: he has no personal grudge, never worked for the company, and is driven by concern that Tether could trigger a financial crisis.
Key Arguments: Tether's terms of service originally stated tethers are not redeemable, contradicting marketing claims of one-to-one dollar backing. Bitfinex and Tether are run by the same people, as proven by legal documents and the Paradise Papers leak. The $850 million missing via Crypto Capital was covered up by dipping into Tether reserves, leading to the New York Attorney General investigation. Tether's commercial paper holdings are opaque and likely junk, potentially causing a black swan event if exposed. Bitcoin's price since 2017 has been heavily manipulated by Tether's activities, with the guest estimating 'extraordinary' manipulation. The guest believes Tether is 'one of the largest frauds in financial history' and advises staying away from crypto until resolved.
Data Points: Missing funds: $850 million - Bitfinex lost $850 million via Crypto Capital, which was covered up by Tether. Tether market cap: $60 billion - Tether's assets as of March 2021, with 75.85% in cash and commercial paper. Bitcoin price drop: 40-50% - Bitcoin fell 40-50% two weeks before Tether's September 2017 attestation. Tether employees: 13 - Reported number of employees at Tether, many of whom are 'window dressing'. Bitcoin price spike: $1,000 - Bitcoin price on Bitfinex was $1,000 higher than other exchanges during the October 2018 liquidity crisis. Tether volume: 60-70% - Tether makes up 60-70% of all actual cryptocurrency volume.
Pivotal Quotes: "In my honest opinion, this is one of the largest frauds in financial history." — Bitfinext (anonymous whistleblower): The guest's conclusion about Tether after five years of investigation. "There is no contract or right or other right or legal claim against us to redeem or exchange your tethers for money." — Bitfinext (quoting Tether's original terms of service): Key red flag: Tether's terms contradicted its marketing claims of dollar backing. "I do think that if Tether is allowed to continue, I believe that they will eventually trigger a financial crisis." — Bitfinext (anonymous whistleblower): The guest's primary motivation for exposing Tether.
Implications: The podcast suggests Tether's potential collapse could trigger a major crypto market crash and financial crisis. It highlights the need for transparency and regulation in stablecoins. For startups, Biden's antitrust order may limit big tech acquisitions, benefiting smaller companies. Listeners should be cautious about crypto investments until Tether's issues are resolved.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.