Thread by @Noahpinion

Tether is what Bitcoin believers always thought Bitcoin was going to be.

https://twitter.com/TheStalwart/status/1470367214486306819

Think about it. In crypto-land, Tether is the unit of account and the medium of exchange. Bitcoin is used a long-term store of value like gold, but Tether is money.

Tether is a free bank (because it prints its own dollars) that engages in fractional reserve banking (because its dollars are not actually backed 1-for-1 by USD asset reserves). It is the reinvention of the way we did money in the 19th century.

The "New Bretton Woods" global financial system uses U.S. Treasuries as the reserve asset instead of gold, with the Fed's commitment to fighting inflation as the artificial scarcity mechanism instead of the difficulty of gold mining. Tether piggybacks on New Bretton Woods.

Tether is money in crypto-land. Bitcoin, increasingly, is not. But nor is it the reserve asset in crypto-land, as gold was the reserve asset in 19th-century free banking. Treasuries, and Treasury substitutes, are still the reserve asset.

So Tether = fractionally-backed privately issued dollars, issued by a gray-market free bank. Treasuries and quasi-Treasuries are its gold equivalent, backed by Jerome Powell's credibility. So where does this leave Bitcoin?

Bitcoin is post-1973 gold.

Post-1973, gold's value has been determined by investors' belief in gold's value, NOT by its use in the global financial system. Bitcoin, increasingly, is in the same place. No one uses gold as money OR as bank reserves. It's just an investment asset. Bitcoin will be the same.

In terms of Bitcoin's eventual price (the relevant thing for investors), this puts it at far less valuable than the maximalists hope, but far more valuable than the minimalists expect. Gold's global value is ~$10 trillion. That's a lot.

And as for Tether, whether it can survive as a free bank depends on A) whether regulators crack down, B) whether the New Bretton Woods system survives the rise of China, and C) what a bank run looks like in the ae of crypto.

I guess I should write a post about this...

(end)