Latest / Money Grows on Trees / #313 - The $100 Billion Lie That Will Destroy Crypto

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#313 - The $100 Billion Lie That Will Destroy Crypto · Money Grows on Trees

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  Everyone thinks Bitcoin's biggest risk is regulation, governments
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  or hacks. It's not. The biggest risk
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  is one company, Tether. Right now Tether controls $100 billion.
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  It's the largest stable coin on earth, supposedly backed
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  by US dollars. But here's the problem. Tether
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  has never had a full independent audit. They've been fined
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  by regulators, they've admitted to pass reserve misrepresentations, you
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  know, it's confidence drops even slightly, it's going to
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  be like a bank run. Instant panic, total liquidity freeze, forced
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  liquidations, cascading across every exchange. And
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  Bitcoin just gets obliterated, right? So I'm going
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  to show you exactly why Tether is cryptos and
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  particularly Bitcoin's biggest ticking time bomb, and
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  what happens when it breaks and why you should really be
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  considering closely what you own. So here is
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  the first section I want to discuss with you. It's what is Tether, right?
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  So let's start out simply. Tether, USDT, is
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  what's called a stable coin. It's supposed to be backed by
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  one to one on a US dollar basis. So one US dollar equals
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  one Tether, yeah? So that's what it's
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  supposed to be like. So it's stable. It's pegged to the US dollar.
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  Stability is what allows traders to move in and out of
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  crypto, avoid volatility, store value inside exchanges and
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  provide liquidity through this thing called DeFi and so forth. Tether's
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  market cap sits roughly at about $100 billion. That
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  makes it the largest stable coin on Earth. But
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  if the biggest dollar substitute is in crypto, and
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  it's not solid, what does that say about everything else built on top of
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  it? It's like an unordered to bank, right? So here's where
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  it gets uncomfortable. Tether has never undergone a
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  full independent top tier audit of its reserves. They
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  publish attestations, they publish summaries, they
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  publish breakdowns of holdings, but a full forensic audit
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  has never been done. So historically, Tether has been fined by
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  regulators. It's admitted misrepresentations in the past
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  and shifted its composition. It talks about different
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  reserves being commercial paper of unknown entities. They
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  even claim their own portions of US treasuries, right? But here's the
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  real key question. If you were running the largest, basically quasi-bank in
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  crypto, wouldn't you want to remove all of
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  the debt and do a transparent audit. So if it's clean,
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  why not prove it, right? And here's where it gets messy. There's
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  contagion risk. This is where it starts to escalate. It's
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  very scary. Crypto runs on liquidity. That's how
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  it runs. And liquidity runs on stablecoins. And
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  stablecoins run on trust. If confidence in Tether
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  drops, this is what happens. One, traders
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  rush to redeem all their USDT, their Tether coins, for real actual
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  dollars. Step two, exchanges start to halt withdrawals. And
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  step three, panic starts to spread across every single exchange, it starts to
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  spread, and then it forces liquidations, and it
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  starts to cascade. Prices then collapse massively. Liquidity basically
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  disappears and dries up. And we've seen kind of similar versions of this with The
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  FTX collapse and Terra Lunar and Celsius and all these other things. And
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  the markets basically freeze, right? And each time liquidity just basically evaporates.
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  Each time there's like force selling and accelerated collapse. It's just
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  wild. But here's the difference. FTX was a major exchange. Tether
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  is the plumbing of the entire ecosystem. So
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  if the plumbing breaks, How does the house stand? Just
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  quickly, if you're ready to take control of your finances but feel stuck on
• 3:35
  where to start, I have a solution. My book, Money Buys Happiness,
• 3:39
  simplifies investing and wealth building with practical steps to help
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  you achieve financial peace. Get your copy via the
• 3:45
  link in the show notes and let's get your money working for you. Now back
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  to the episode. So if we look back in history, which is all we can do, it
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  doesn't repeat, as I said before, but it rhymes. So in 2008, confidence evaporated
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  in mortgage-backed securities. The CDOs basically grouped
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  bonds that were just poisonous, right? And Lehman's, as a
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  result of that, collapsed. Lehman Rise, 100-year-old bank lending froze. Iceland
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  went bankrupt. Liquidity crisis. Banks didn't fail
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  because they were worthless, they failed because confidence vanished. And that's what
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  happened in the past in 1929 with bank runs. It's a psychology of
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  fear. And even when there's bank runs on solvent institutions, and
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  everyone withdraws, it collapses. And right now, as I'm recording this, I've said before in
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  just a previous episode, Binance is in trouble because people are
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  repealing and ripping out their crypto holdings out of Binance, and
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  that company, while solvent, can collapse. So crypto is very fragile
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  because it has no safe switches. It's
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  got no lender of Last resort, there's no deposit guarantees
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  like banks. There's no central bank backstop. There's
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  no coordinated rescue mechanism. If Tether faced
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  a true redemption crisis, who steps in? The Federal
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  Reserve. They're not going to do that. Not like they did in 2008 with the
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  GFC. So when trust disappears in a market built entirely on
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  trust, what's left? It's kind of like the
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  final domino. So Bitcoin's value proposition is
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  all about decentralization. But it's really a trading ecosystem.
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  It's actually highly centralized as most liquidity pairs against USDT,
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  right? So it's actually very centralized thing. It's just the
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  narrative is decentralized, because it gets more pundits into play, which
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  actually props up. or the price because there's no value in it. Most exchanges
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  use it as like USDT is a currency, so to speak. And
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  most of the arbitrage flows actually depend on
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  it, right? So if USDT tether breaks it significantly, all
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  the liquidity depends on vanishes. And when liquidity vanishes, vroom!
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  It starts to widen, buyers start to disappear, force selling, Bitcoin
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  technically could go to zero, right? Practically, it would mean total ecosystem
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  failure, and totally possible, right? This is one of the long tail risks no
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  one's talking about. And this is the one scenario that permanently destroys trust
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  in an asset class. Because it's not about a hack
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  or a rogue CEO or a bad algorithm or whatever happened
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  with Enron, you know, like poor accounting. It would mean that
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  dollars propping up the entire system weren't actually real. It's
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  like one big fraud, right? And once the trust is gone, it's
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  hard to rebuild it. And this is a real possibility. Now, to
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  be fair, Tether has survived multiple market crashes, it's
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  processed billions of redemptions, it's done that before, it's increased transparency over
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  time, it's done all these things. There's been Tether scares before, but
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  the risk is not about what has happened already, but it's more
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  about what could happen under stress, real stress, like a proper
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  recession, a proper redemption. an unwinding of
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  the entire system. It's not hysterical, but
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  it could be controlled. So here's an example. It's not really a prediction, it's more
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  of a black swan, okay? Something we can't see. But
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  it's the single most structurally dangerous point
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  in the entire world of crypto. If Tether holds, the system
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  survives. If Tether breaks, it won't just be
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  another crash, it'll be systemic, right? It'll be very much
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  the same as what happened in 2008 with mortgage bonds, but you won't have
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  a bailout. That would be the way I could explain it the most, and totally
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  possible, right? If the GFC could happen in 2008, this could definitely happen in
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  the world of crypto, right? And that's why you need to understand where liquidity truly
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  comes from. So I want to know, do you think
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  Tether is solid? Do you know much about it? Or is this a ticking time bomb that
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  no one's talking about? So if you want deeper dive breakdowns like this
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  without the hype and a BS straightforward show, without
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  tribalism and cult-like tendencies and
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  spruiking, except for my book, because you can buy for nine bucks, it's
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  just a read, go do it, then hit the subscribe button. Stay smart
• 7:41
  and stay sharp. See you in the next episode. Thanks for listening to Money Grows
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  on Trees. If you enjoyed the episode, leave a five-star review on Apple
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  YouTube so you never miss an episode. And if you're serious about building wealth,
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