What if I told you that right now the value of Bitcoin represents the biggest bubble in financial history? Worse, what if I were to tell you that when the current Bitcoin bubble bursts, the cataclysmic financial aftermath will affect you directly, even if you have never bought Bitcoin or invested in the cryptocurrency market?
What if I were to also tell you that governments, central banks, and financial regulators all around the world have all been aware of this bubble for at least the past eight years? This, and that the very same agencies are waiting for the current crypto bubble to burst with giddy expectation?
I won’t leave you in suspense any longer. If there is one simple reason why no one should invest in Bitcoin or other cryptocurrencies, its name is Tether.
Bitcoin & Tether – A Match Made in Financial Armageddon
As I have made clear in previous posts on The Crypto Con, the value of Bitcoin is based entirely on belief. If a significant number of people believe Bitcoin has value, it has value. By comparison, if belief ever falters, so do Bitcoin market prices. This is why the market prices of Bitcoin and other cryptocurrencies can fluctuate wildly on exchanges.
If you are someone who trades cryptocurrency professionally, such price swings can be catastrophic. After all, even the best traders can’t predict which way markets are about to move with 100% accuracy. Thankfully, they don’t always have to. This is because in 2014, something called stablecoins were invented.
What Are Stablecoins?
Stablecoins are cryptocurrencies. However, stablecoins differ from coins like Bitcoin in that they have a 1-to-1 redeemability against real currencies like the U.S. dollar. The most famous of these is the stablecoin Tether. Moreover, how stablecoins help traders profit more when trading cryptocurrency is simple.
Almost all cryptocurrency exchanges where people trade cryptocurrencies support Bitcoin and Tether trading pairs. This means that Bitcoin traders can instantly exchange Bitcoin for an equivalent amount of Tether whenever they like.
To put this simply, let’s say you own $100,000 worth of Bitcoin. If you think the Bitcoin price might soon start to go down, you can simply exchange the $100,000 worth of Bitcoin you own for $100,000 worth of the stablecoin Tether.
Because Tether is backed on a 1-to-1 basis by the USD, you will still have $100,000 even if the price of Bitcoin falls to zero overnight. Even better, if you think that the price of Bitcoin will recover, you can use your $100,000 in Tether (USDT) to buy back your Bitcoin at a lower price. If the Bitcoin price subsequently increases, you will end up with a greater amount of Bitcoin with a higher equivalent dollar value than you had before.
Why Use Tether and Other Stablecoins to Do This?
Why people use stablecoins to trade Bitcoin this way is simple. It is possible to trade Bitcoin for regular cash on exchanges. However, real-world banks and credit card issuers often limit the amount of cash users can trade with. Bank fees and transaction processing times also make it impossible for people to trade Bitcoin for regular cash instantly. This is why traders choose to use stablecoins.
At present, there are several stablecoins on the cryptocurrency market. However, Tether (USDT) was the very first on the scene. Tether is also one of the most widely accepted on exchanges and is subsequently the go-to stablecoin for most cryptocurrency traders.
The Trouble With Tether
Tether may be the most popular stablecoin on the cryptocurrency market. However, mounting evidence suggests that Tether might not actually hold enough real U.S. dollars in reserve to genuinely be backed on a 1-to-1 basis by the U.S. dollar itself. Many people also believe that Tether Limited, the company that controls Tether, regularly creates millions of dollars’ worth of unbacked USDT coins to artificially inflate the price of Bitcoin.
If these allegations are true, this would mean that Bitcoin and Tether work in tandem to make Bitcoin itself nothing more than the world’s biggest ever Ponzi scheme.
Mounting Evidence Suggests That Tether Is NOT a Stablecoin
For a stablecoin to be a true stablecoin, it is of paramount importance that every single coin has the genuine backing of a real U.S. dollar. In a worst-case scenario, after all, Bitcoin might one day go to zero. If this happens and you were smart enough to exchange all your Bitcoin for Tether beforehand, you will, therefore, still expect to be able to exchange all your Tether for real U.S. dollars and not lose a dime. This is the whole point of using Tether in the first place.
Sadly, there has been a whirlwind of controversy surrounding Tether since at least 2017. This is due to the fact that no one has ever been permitted to independently audit Tether’s accounts. No one can, therefore, independently verify that every USDT (U.S. Dollar Tether) currently in circulation has the backing of a real U.S. dollar as Tether claims. It might even be the case that Tether has never been backed on a 1-to-1 basis by real U.S. dollar reserves.
- In 2021, the New York Attorney General slapped Tether and its parent company iFinex Inc. with an $18.5 million fine. Why? Because it was found that Tether and the iFinex-owned cryptocurrency exchange Bitfinex had mixed client and corporate funds to cover an $850 million black hole in their combined finances.
- Later in 2022, the U.S. Commodity Futures Trading Commission (CFTC) hit Tether with a $42.5 million fine for lying about their reserves. In fact, what the CFTC found was that between 2016 and 2018, Tether was only 26% backed by real U.S. dollars. This despite swearing otherwise.
Since these rulings, Tether has begun stating that it backs every USDT coin it creates with real U.S. dollars and what Tether calls “cash equivalents.” Currently, these cash equivalents include land purchases, other cryptocurrencies (including Bitcoin), and U.S. Treasury bonds. In fact, at present, Tether owns more U.S. Treasury bonds than whole countries like Germany. However, Tether still won’t let anyone independently audit their accounts.
Why Is It a Problem If Tether Isn’t Backed on a 1-to-1 Basis with Real U.S. Dollars?
Why Tether coins not being backed on a 1-to-1 basis by real U.S. dollars is a problem is simple. Firstly, if you hold funds in Tether, there may come a day when it will not be possible to exchange the Tether you own for real cash or equivalents of other cryptocurrencies.
Think about this. Between 2016 and 2018, Tether swore that every USDT coin was backed by a real U.S. dollar. However, it has since been proven that Tether only had enough cash reserves to back 26% of all USDT coins then in circulation. This means that if you bought Tether during this time, you were effectively trading $1 for something with a real-world value of just 26 cents.
It is also important to keep in mind that between 2015 and 2018, Bitcoin rose from $500 in value to a peak of over $20,000. However, as a 2018 paper titled “Is Bitcoin Really Un-Tethered?” by researchers John M. Griffin and Amin Shams alleges, the Bitcoin price during Bitcoin’s rise to $20,000 in 2017 was driven predominantly by “one entity,” namely Tether. If this is true, it means that Bitcoin’s true value when it hit $20,000 should have been something around $5,200.
How Can Tether Possibly Be Responsible for Inflating Cryptocurrency Prices?
If Tether is not backed on a 1-to-1 basis, anyone who ever buys Tether risks losing some or all of their funds if too many people try to exchange Tether they own for real U.S. dollars at once. It also means that the current price of Bitcoin is far higher than it should be. The only question is, how could Tether possibly be inflating the price of Bitcoin?
At present, Tether Limited says that it only creates new Tether (USDT) coins to meet consumer demand. This being the case, when cryptocurrency traders and investors see Tether creating millions of dollars’ worth of new USDT coins before sending coins to exchanges, they assume that there is increasing demand for Bitcoin itself. Investors, especially new-to-market investors, subsequently rush to buy Bitcoin.
If you are someone who isn’t involved in the cryptocurrency space, some of the above may already be a little difficult to understand. However, all should become clear when we take a look at just how much Tether (USDT) creates each month and deposits on exchanges.
As verified by the cryptocurrency exchange Binance, Tether created and sent the following amount of new Tether coins to exchanges in the first 5 months of 2025:
- January 2025 – 1 billion USDT
- February 2025 – 3 billion USDT
- March 2025 – 4 billion USDT
- April 2025 – 6 billion USDT
- May 2025 – 6 billion USDT
Now remember, all Tether coins are supposedly backed on a 1-to-1 basis by real U.S. dollars or cash equivalents. This means that on top of the reserves Tether had in December 2024, Tether was able to find $1 billion to create 1 billion new Tether coins to deposit on exchanges the following January. Then in February, Tether Limited was able to fund another round of Tether printing to the tune of $3 billion?
Can you name a company that can raise a billion or three billion of investment funds each month? Can you name one which has $3 billion or $6 billion in ready cash or profits each month which it can afford to invest back into itself? The simple answer is probably not.
Now let’s take a look at the total amount of Tether created in 2024:
- December 2024 – 5 billion USDT
- November 2024 – 13 billion USDT
- October 2024 – 1 billion USDT
- September 2024 – 1 billion USDT
- August 2024 – 3 billion USDT
- July 2024 – 1 billion USDT
- June 2024 – 1 billion USDT
- May 2024 – 2 billion USDT
- April 2024 – 5 billion USDT
- March 2024 – 6 billion USDT
- February 2024 – 2 billion USDT
- January 2024 – 5 billion USDT
Yes, the total amount of Tether created by Tether Limited in 2024 was over $45 billion. Moreover, Tether has been creating and making available new Tether coins at this scale since 2016, with the majority of USDT Tether created being used to buy Bitcoin.
It doesn’t take a genius to see that there is something very wrong here. This is especially true when we consider the fact that Tether, despite supposedly being a company with more cash than Apple, refuses to allow anyone to audit its accounts.
The Great Big Imaginary Money Game
The way Tether Limited operates has been likened by some to how central banks operate. Tether creates its own currency out of thin air, of which only a small percentage is ever backed by real assets. Unbacked USDT is then used to buy Bitcoin, which pushes the price of Bitcoin higher and higher. Tether also gets away with this by operating offshore, far from the reach of financial regulators.
Eventually, of course, the rug will get pulled. Moreover, when confidence in Tether fails, it will fail fast. The mass realization that for nearly a decade, the Bitcoin price has been pushed higher by billions of dollars of Tether monopoly money, will also result in a catastrophic devaluing of assets like Bitcoin and other top market cap cryptocurrencies.
None of this is speculation. The only question is when Tether’s game will finally be rumbled.
On the upside, if you are someone who wishes that they had invested in Bitcoin back when a single Bitcoin was worth just a few hundred dollars, all you have to do is wait for confidence in Tether to fail and the subsequent crypto collapse that will follow. Then you might get a second chance. Just be warned that whether the Bitcoin price will recover after Tether crashes is a different story altogether.