Tether’s bank issues letter, critics pounce

In recent weeks, more than half of all bitcoin trades took place against Tether. Yet few knew for certain if there were dollars backing those tokens. This week, Tether released a letter from its bank, Bahamas-based Deltec, saying, “We hereby confirm that, at the close of business on October 31, 2018, the portfolio cash value of your account with our bank was US$1,831,322,828.”

That amount was nearly $55 million above the amount of Tether tokens in circulation. Over and done with, right? Not exactly.

Crypto Twitter talmudicly began parsing the letter, particularly the second part, which reads:

“This letter is provided without any liability, however arising, on the part of Deltec Bank & Trust Limited, its officers, directors, employees and shareholders, and is solely based on the information currently in our possession.

Yours faithfully,

Deltec Bank & Trust Limited”

Prominent Tether critic “Bitfinex’ed” had a field day, posting throughout the day. For instance, she or he wanted to know why no one would put a name on the letter:

Nobody wanted to put their name on this, either. pic.twitter.com/u0YuprReZE

— Bitfinex’ed (@Bitfinexed) November 1, 2018

She or he was also curious about the metadata on the document itself:

Another problem… the timestamps in the provided PDF are inconsistent, it was 'modified' before it was created.

Maybe Tether has a time machine? But the June report had consistent timestamps. pic.twitter.com/3htxNg5RnU

— Bitfinex’ed (@Bitfinexed) November 1, 2018

The Block’s Mike Dudas had a laugh:

Further confirmation on @Tether_to's account balance // h/t @Obstropolos 😂 pic.twitter.com/sE4vg6lzGE

— Mike Dudas (@mdudas) November 1, 2018

CoinDesk’s David Floyd was particularly interested in the phrase “without liability”:

https://twitter.com/davidfloyd512/status/1058052833193455617

His CoinDesk colleague Nikhilesh De wrote this piece about “the letter”: Tether Produces Letter Vouching for Dollar Deposits, But Bank Hedges. The two then collaborated on a piece where they had three lawyers look at the letter and give their take on it.

Adding to the mystery is that Deltec isn’t returning any reporters calls, according to Lily Katz and Matthew Leising of Bloomberg.

But of particular interest is the date of the letter. It was at the end of the month of October. A study done by John Griffin and Amin Shams of the University of Texas noted:

“the strong negative effect on Bitcoin prices in months of Tether issuance, suggest that Tether may induced price effects related to a need to raise month-end reserves. This finding is inconsistent with Tether being just a facilitator technology driven by investor demand because there is no reason to expect a relation between Tether printing and EOM [end of month] returns in that case.”

In other words, some bitcoins may have been sold for dollars to show dollar balances in the bank. And while the amount of tethers in the market went down in October, sure enough, there was a Bitcoin selloff on October 29 and a rally on November 1.

The plot thickens….