#313 - The $100 Billion Lie That Will Destroy Crypto

Everyone thinks Bitcoin's biggest risk is regulation, governments or hacks. It's not. The biggest risk is one company, Tether. Right now Tether controls $100 billion. It's the largest stable coin on earth, supposedly backed by US dollars. But here's the problem. Tether has never had a full independent audit. They've been fined by regulators, they've admitted to pass reserve misrepresentations, you know, it's confidence drops even slightly, it's going to

be like a bank run. Instant panic, total liquidity freeze, forced liquidations, cascading across every exchange. And Bitcoin just gets obliterated, right? So I'm going to show you exactly why Tether is cryptos and particularly Bitcoin's biggest ticking time bomb, and what happens when it breaks and why you should really be considering closely what you own. So here is the first section I want to discuss with you. It's what is Tether, right? So let's start out simply. Tether, USDT, is

what's called a stable coin. It's supposed to be backed by one to one on a US dollar basis. So one US dollar equals one Tether, yeah? So that's what it's supposed to be like. So it's stable. It's pegged to the US dollar. Stability is what allows traders to move in and out of crypto, avoid volatility, store value inside exchanges and provide liquidity through this thing called DeFi and so forth. Tether's market cap sits roughly at about $100 billion. That

makes it the largest stable coin on Earth. But if the biggest dollar substitute is in crypto, and it's not solid, what does that say about everything else built on top of it? It's like an unordered to bank, right? So here's where it gets uncomfortable. Tether has never undergone a full independent top tier audit of its reserves. They publish attestations, they publish summaries, they publish breakdowns of holdings, but a full forensic audit

has never been done. So historically, Tether has been fined by regulators. It's admitted misrepresentations in the past and shifted its composition. It talks about different reserves being commercial paper of unknown entities. They even claim their own portions of US treasuries, right? But here's the real key question. If you were running the largest, basically quasi-bank in crypto, wouldn't you want to remove all of the debt and do a transparent audit. So if it's clean,

why not prove it, right? And here's where it gets messy. There's contagion risk. This is where it starts to escalate. It's very scary. Crypto runs on liquidity. That's how

it runs. And liquidity runs on stablecoins. And stablecoins run on trust. If confidence in Tether drops, this is what happens. One, traders rush to redeem all their USDT, their Tether coins, for real actual dollars. Step two, exchanges start to halt withdrawals. And step three, panic starts to spread across every single exchange, it starts to spread, and then it forces liquidations, and it starts to cascade. Prices then collapse massively. Liquidity basically

disappears and dries up. And we've seen kind of similar versions of this with The FTX collapse and Terra Lunar and Celsius and all these other things. And the markets basically freeze, right? And each time liquidity just basically evaporates. Each time there's like force selling and accelerated collapse. It's just wild. But here's the difference. FTX was a major exchange. Tether is the plumbing of the entire ecosystem. So

if the plumbing breaks, How does the house stand? Just quickly, if you're ready to take control of your finances but feel stuck on where to start, I have a solution. My book, Money Buys Happiness, simplifies investing and wealth building with practical steps to help you achieve financial peace. Get your copy via the link in the show notes and let's get your money working for you. Now back to the episode. So if we look back in history, which is all we can do, it

doesn't repeat, as I said before, but it rhymes. So in 2008, confidence evaporated in mortgage-backed securities. The CDOs basically grouped bonds that were just poisonous, right? And Lehman's, as a result of that, collapsed. Lehman Rise, 100-year-old bank lending froze. Iceland went bankrupt. Liquidity crisis. Banks didn't fail because they were worthless, they failed because confidence vanished. And that's what happened in the past in 1929 with bank runs. It's a psychology of

fear. And even when there's bank runs on solvent institutions, and everyone withdraws, it collapses. And right now, as I'm recording this, I've said before in just a previous episode, Binance is in trouble because people are repealing and ripping out their crypto holdings out of Binance, and that company, while solvent, can collapse. So crypto is very fragile because it has no safe switches. It's got no lender of Last resort, there's no deposit guarantees

like banks. There's no central bank backstop. There's no coordinated rescue mechanism. If Tether faced a true redemption crisis, who steps in? The Federal Reserve. They're not going to do that. Not like they did in 2008 with the GFC. So when trust disappears in a market built entirely on trust, what's left? It's kind of like the

final domino. So Bitcoin's value proposition is all about decentralization. But it's really a trading ecosystem. It's actually highly centralized as most liquidity pairs against USDT, right? So it's actually very centralized thing. It's just the narrative is decentralized, because it gets more pundits into play, which actually props up. or the price because there's no value in it. Most exchanges use it as like USDT is a currency, so to speak. And most of the arbitrage flows actually depend on

it, right? So if USDT tether breaks it significantly, all the liquidity depends on vanishes. And when liquidity vanishes, vroom! It starts to widen, buyers start to disappear, force selling, Bitcoin technically could go to zero, right? Practically, it would mean total ecosystem failure, and totally possible, right? This is one of the long tail risks no one's talking about. And this is the one scenario that permanently destroys trust

in an asset class. Because it's not about a hack or a rogue CEO or a bad algorithm or whatever happened with Enron, you know, like poor accounting. It would mean that dollars propping up the entire system weren't actually real. It's like one big fraud, right? And once the trust is gone, it's hard to rebuild it. And this is a real possibility. Now, to

be fair, Tether has survived multiple market crashes, it's processed billions of redemptions, it's done that before, it's increased transparency over time, it's done all these things. There's been Tether scares before, but the risk is not about what has happened already, but it's more about what could happen under stress, real stress, like a proper recession, a proper redemption. an unwinding of the entire system. It's not hysterical, but

it could be controlled. So here's an example. It's not really a prediction, it's more of a black swan, okay? Something we can't see. But it's the single most structurally dangerous point in the entire world of crypto. If Tether holds, the system survives. If Tether breaks, it won't just be

another crash, it'll be systemic, right? It'll be very much the same as what happened in 2008 with mortgage bonds, but you won't have a bailout. That would be the way I could explain it the most, and totally possible, right? If the GFC could happen in 2008, this could definitely happen in the world of crypto, right? And that's why you need to understand where liquidity truly comes from. So I want to know, do you think

Tether is solid? Do you know much about it? Or is this a ticking time bomb that no one's talking about? So if you want deeper dive breakdowns like this without the hype and a BS straightforward show, without tribalism and cult-like tendencies and spruiking, except for my book, because you can buy for nine bucks, it's just a read, go do it, then hit the subscribe button. Stay smart and stay sharp. See you in the next episode. Thanks for listening to Money Grows

on Trees. If you enjoyed the episode, leave a five-star review on Apple Podcasts and Spotify and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media platforms at LloydJamesRoss for