Thread by @BambroughKevin

Why I think #Tether and more #exchanges / #crypto wallets will blow up shortly.

A study of banking history and wild cat banking reveals a consistent pattern. Greedy bankers love using fractional reserves.

They temptation is simply to great for these types to not dip into clients funds and try to trade for profit or simply invest in their own business hoping to achieve growth.

In the unregulated crypto industry this has all but surely been done nearly everywhere on a large scale

Evidence of this is the vast number of failed and fraudulent exchanges that have blown up in the last few years. But also just consider what you know of human nature and the typical greedy highly over confident attitude of the typical crypto executive.

You should just consider the initial investment required to build up and launch a new crypto exchange / digit wallet. Huge and continuing investments were made in computer hardware, programming, staffing and advertising. Some firms spending hundreds if not billions of dollars

I feel I know these types of crypto guys very well as I met very similar types in my travels back in my hedgefund days.

I’m extremely confident that there is no way in hell that these big exchanges handed over client funds to tether as most think.

Consider that Tethers USDT is expected to just stay pegged to $1. It’s simply to easy for unregulated exchanges to basically sell (short sell) USDT to clients when on boarding them. (Taking and using the client funds themselves for growth/advertising spending and partying)

The story/pitch these conmen used when on-boarding people (suckering them to send money into the crypto ecosystem) sounds more legit when they onboard people by initially having them buy a 3rd party stable coin. USDT for example

USDT accounted for the bulk of stable coin on-boarding over the last few years. Apparently over $60 bln of funds went to them. But I call bullshit.

It’s my belief that several if not many big exchanges cut a deal with Tether and we will likely be finding out details from FTX

Some of the exchanges obviously were motivated to sell USDT to new clients vs other 3rd party stable coins. The question is how?

Answer ‘swaps’ of ‘commercial paper’ and other notes or lending agreements designed to hide the true relationship.

When you consider that tether refuses to fully disclosure their holdings, the banks they deal with and use joker auditors it’s such a massive red flag. (Along with the principals business history and acumen)

Even consider the information they have given over the years showing a small percentage of holdings in USD Gov paper vs larger holding of corporate paper/notes.

I think it’s reasonable to conclude that the exchanges would try to negotiate with stable coin providers…

Offer to sell/onboard clients with tether usdt but only send a portion of the funds to tether. Perhaps 20% or the cash. And agree swap an I owe you ‘note’ for the remaining balance at a very low interest rate (libor)

The exchange could then a fund buffer on hand

They would have cash to allow for withdrawals when they come but also they could invest the funds and only need to be LIBOR to stay ahead. The temptation naturally gets to these guys. Especially some of the big boys. They quickly learned that money flowed with a rallying market

We will likely find that they gambled with client funds along with spending client funds on g&a

It’s also been well documented that these crypto execs love to buy expensive properties all over the world. especially in safe havens

The other key element that’s most certainly occurred is that significant funds will prove to have been stolen by the actual bankers these crypto exchanges partnered up with.

When all the billions came in they had to go somewhere at least semi legit.

Both the exchanges and stable coins needed to put the cash somewhere. Not in suitcases. So the question has always been what banks and brokerages do they / did they use. Mainstream regulated banks wouldn’t / didn’t take their funds.

The exchanges would have (and likely some did) commit banking fraud in order to deposit client money in a corp account with a regular bank. If you understand the regulated banking system you would know this to be true. SBF has at times openly spoke about this problem.

But that they opened various corporate accounts with various banks in order to hide the fact they they are a crypto exchange and they are depositing client money. Not disclosing this to a regulated bank is fraud and in violation of anti money laundering rules etc.

Now who would let the crypto guys deposit funds with them and not care? Well.. Russian banks for sure (funds still with them at huge risk and likely inaccessible) Iranian banks, I’ve read Taiwan, possibly some rouge Chinese banks, probably some Middle East banks, El Salvador…

Bottom line, much if not most of the funds that flowed into the crypto ecosystem flowed first into the hands of sketchy crypto execs, then some into even sketcher stable coin bullshit artists hands and then ultimately into the most sketchy banks in the world.

If the average crypto investor actually knew and understood the true character of the people they gave their savings to they would all be collectively shitting their pants. These sketchy exchange, stable coin people along with the criminal bankers will not be returning the funds

We will continue to see a classic ‘run on the bank’ occur at exchange after exchange.

Some crypto enthusiasts talk about the need to get custody of their coins off exchanges and just hold them on their own computers. Etc

I’ll guarantee you that the major exchanges greatly prefer you simply take control of your coins and stay in the ecosystem… doing so will help them keep the ponzi going… but that’s not what’s happening

Crypto owners of usdt are starting to find it extremely difficult (soon to be impossible) to find a route to off ramp.

Some exchanges are already preventing clients from moving coins onto their exchange for fear they will then cash out (which people are trying to do)

To them allowing clients to transfer coins from other exchanges would be like allowing a major casino to allow you to cash out coins you bought at another casino. But only the casino that takes your cash and gives you tokens will allow you to go back to cash from tokens

The fact that exchanges are now doing this is a ‘tell’. The crypto world is complete bullshit and a total ponzi.
The bulk of many tens of billions that came in the front door of the ecosystem has already left out the back door. On some exchanges you can still get out… do it