Is there more to the Tether USDt hack than we know?
We are getting good at this. Two days ago we mentioned Tether in our daily crypto tour and advised more research. Today we hear about $30 million in USDt that were ‘hacked’ and moved to an unauthorized wallet. Interestingly, the coins were tracked to a wallet but will only be blacklisted and isolated rather than returning to the owners. Instead Tether plans to replace the tokens by creating more. The hope is to prevent the coins from entering the market to make trades.
The hack coincided with a precipitous drop in BTC price and sudden recovery. The question left unanswered is how does a $30 million hack cause $7 billion dollar market drop? Especially given the coins were ‘tracked’ to an unauthorized wallet. The news of the hack did not come out until after the drop and recovery which indicates this was an inside job or the USDt were able to make trades. Making trades alone cannot cause a drop of the coin. There has to be a shift of buyers and sellers to cause the drop. For a $130 billion market this requires a very large shift.
Tether does not create the market though and would be unable to directly affect the market on its own. The tokens are traded on the Bitfinex market in exchange for other coins. USDt’s are issued (created) by Tether based on the deposits from users. In order to cause a sell-off there has to be a lack of buyers and a growth of market sell orders which go unfulfilled until the price reaches a point where buyers come in to make purchases.
This is getting deeply speculative but what would happen if a large market player or someone at Bittrex held a large block of Bitcoins and wanted to sell at a high price and buy back at a lower price? As the price kept increasing this proposition becomes more difficult. This Bitcoin holder works through nefarious ways to get an insider at Bitfinex to manipulate the price of Bitcoin to lower the price through a pause in fulfilled market sell orders causing the price to drop. Just prior to this the holder sells a large block of coins. When the pause goes in and the price drops the holder simply gets back into the market and benefits by keeping the difference in sold vs purchased price.
There are a number of ways to debunk this theory. First the Bitcoin blockchain is public so the coins would be required to be held on one of the exchanges.The price drop would generally be limited to that exchange as not all exchanges can pause at the same time. We see by looking at Coinbase’s exchange that the same drop occurred. Additionally the volume on the affect exchange would have an odd drop due to the pause but we do not see that on Bitfinex’s exchange. The last 7 day average volume for BTC:USD is 60k transactions per day but over the last 24 hours there has been 66k transactions. This points to the hack not being directed by Bitfinex.
One of the concerns growing around the crypto community is the ability of Tether to simply issue tokens and manipulate the Bitcoin market. As the token is not a mining token the company is free to create any number of tokens it desires. It assures the USDt are backed by deposits and benchmarks the value at $1/token. It also controls the wallets as evidenced by the statement released stating the offending wallet will be isolated.
What if it is discovered that Tether had a role in the coins being stolen. More specifically what if it is determined the coins were not stolen but created? There is not a time stamp on the press release from Tether but there is a counter on the security update posted which lists 17 hours at time of writing. Is it possible that Tether knew an announcement of a hack of what seems to be a trivial amount would lead to a small decrease in BTC price and a buying opportunity to raise some cash. Check out the chart below with some very professional arrows placed by a highly payed firm for us.
Tether knows the USDt is ingrained into the Bitfinex ecosystem and the announcement was very controlled by limiting to a very exact trivial amount compared to the market for crypto currency. It also listed the wallet address indicating it had the situation under control. Tether could have sold a small position in Bitcoin then purchased back at the lows and pocketed the difference.
Course, we have no evidence to prove any of this and the above is simply observations from us. Use this information how you wish. We also payed very well to have an arrow to point to the increase in trading volume just prior to the price of Bitcoin regaining much of the loss. This volume is part of the Tether as a market manipulator theory we briefly referred to here. Leave any comments below for other theories and make sure you wear your tinfoil hat.
Coinbase is a digital currency exchange headquartered in San Francisco, California.