Debunking the unbacked stablecoins pump Bitcoin price theory once and for all

Some skeptics want to attribute Bitcoin's price increase and success due to market manipulation with USDT stablecoins.

The narrative is that no one wants Bitcoin so USDT creates fake demand to buy Bitcoin and drive it's price up. Exchanges are part of his global conspiracy supposedly. The proof they present is limited to the fact that Tether may have been only partially backed during a period in 2017 and due to the fact that Bitcoin price increases correlate with increased Tether creation.

A closer examination reveals this to be a rather nonsensical idea.

There is a very simple explanation. Bitcoin prices increase when there is a lot of demand for it and this will also increase demand for USDT. No conspiracy needed to explain it.

Bitcoin has a lot of real demand. During the last bullrun in 2021 half of the stablecoin market cap came from US banks and regulated entities that had nothing to do with Tether(USDC), in addition not all on-ramps rely on stablecoins. Since Tether has survived some pretty serious bank runs we know that they can't be 100% unbacked so we do also know that during the last bull market most money in stablecoins and most money coming in must have been real demand.

Second we see Blackrock, Deutsche Bank and other financial giants entering the BTC custody space. They know the market and their customers pretty well, believing they would launch products for which there is no real demand is silly.

The Bitcoin ETFs use Coinbase and don't rely on USDT at all and they are among the most successful ETFs ever launched that could soon reach the market cap of gold ETFs. Demand is enormous.

The ETFs alone have billions of dollars wanting to buy Bitcoin every day. Claiming that demand for Bitcoin isn't real is silly.

We can also take a closer look at the supposed manipulation scheme. Supposedly it's based on washtrading as many exchanges engage in. Washtrading however is used by exchanges to fake liquidity to attract traders and not to manipulate prices. Traders want to trade where the biggest liquidity is so some exchanges fake liquidity with bots.

"Tether truthers" claim that Tether prints unbacked USDT and gives it to exchanges which then use the fake dollars to buy up Bitcoin.

Does this make any sense? Nope. If exchanges use USDT to buy BTC they distribute fake unbacked dollars to traders. Those traders will eventually want to withdraw at least some of their dollars and the exchange needs to pay them with real dollars. So this scheme would create liabilities on the side of the exchange who then must pay the bills and Tether would essentially create free money for themselves. Sounds like a pretty bad deal for the exchange. Tether prints fake money and the exchange has to pay for it with it's own money. No exchange would want to do that obviously.

The second alternative is Tether prints fake money and buys BTC themselves. Basically they drive up the price and buy BTC at ever increasing prices. Is buying overvalued assets a good strategy from a business perspective? It might be if you buy them with free money but the problem is you are still creating liabilities that you will have to pay sooner or later and once the first bank run comes your scheme collapsed because you won't be able to liquidate the assets at the prices you have inflated yourself if you went far enough.

Markets are fairly efficient over long time periods. If no one wants to pay $5000 for a Bitcoin you aren't going to keep the price at $20k for long as the rest of the market which collectively has a much bigger financial muscle than Tether will dump on you or even borrow money to dump on you and you are left holding your own bag you bought at inflated prices.

Why take such an enormous risk in an unworkable scheme instead of just buying treasury bills with real dollars you received for your fake dollars and collect a free yield instead?

They also can't explain how such a vast conspiracy spanning many entities around the globe could be hidden when all blockchain transaction data is traceable and public.

In the end it's just a conspiracy theory that people come up with because they don't want to accept that Bitcoin is relatively successful despite their belief that it must be a scam....