This article comes fromBloomberg, original author: Matt Levine

Odaily Translator |

Odaily Translator |

With Bitcoin returning to a price of nearly $6,000, the entire cryptocurrency investment market has recovered, and digital asset investment has once again attracted people's attention. Recently, the most concerned topic in the encryption market is the issuance of LEO tokens worth 1 billion USDT by the Bitfinex exchange. Will this be a "bottom-buying" investment opportunity for investors? Or will it be "blood drawn"?

If you want to know whether you should invest in LEO tokens issued by Bitfinex and its affiliated company Tether, you might as well let Mr. Odaily (WeChat: o-daily) take you to understand why Buffett does not invest in Bitcoin and gold.

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Warren Buffett: Invest in other assets because people are afraid of paper money

Warren Buffett only invests in productive assets - primarily stocks - that increase in value over time and are not tied to a medium of exchange - such as an exchange. You will find that investing in brands such as Coca-Cola and Dairy Queen will give you consistent returns, but the stock exchange itself will not make a profit from the rise in the stocks of these companies. In contrast, cryptocurrency exchanges can issue exchange tokens through IEOs and profit from them.

Whether you agree with Warren Buffett's investment philosophy or not, he used this to make his Berkshire Hathaway company the third largest listed company in the world by market capitalization and the top ten companies in the world by revenue (it is also the highest revenue company in the world) financial services companies).

“Most bitcoin, gold buyers are motivated by their fear of currency debasement, and over the past decade, that fear has proven correct.”

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Bo fool theory

The Greater Fool Theory refers to the fact that in the capital market, people are willing to pay a high price to buy an asset regardless of its real value, because they expect a bigger fool to buy it at a higher price. They bought the property there. One of the most important truths that Bo-fool theory tells people is: in this world, being stupid is not terrible, what is terrible is being the last fool.

"The rise in price itself generates additional buying enthusiasm, attracting a large number of investors into the market, who will think that the rise is an investment thesis. In a bubble, a group of originally skeptical investors will eventually give in, and buyers The group can even expand to keep the bubble trend going, but the bubble is still a bubble, as the saying goes: What the wise man does in the beginning, the fool does in the end."

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So, is USDT worthy of our trust?

Last week, what happened to Bitfinex and Tether probably shocked the entire crypto community. In theory, the stable currency USDT issued by Tether should be pegged to the US dollar one-to-one. Oddly enough, according to a lawsuit filed against Tether by the New York Attorney General’s Office, USDT’s bank accounts did not back the equivalent in U.S. dollar deposits, but instead lent hundreds of millions of dollars to cryptocurrency exchange Bitfinex, which recently Because the funds in the bank service provider Crypto Capital account were frozen, there was a funding gap of up to 850 million US dollars.

While Tether says USDT is fully backed by sufficient bank U.S. dollar deposits, it is still trading at a fairly small discount for now, and investors don't seem worried. According to an unnamed cryptocurrency trader, the crypto market does not seem to care much about Bitfinex’s funding gap, and the community has a great tolerance for pain. The "interesting" thing is that Tether (USDT) is still around $1 as of this writing.

Why would such phenomenon happen? Let's first look at what happened when people backed with gold in the past:

1. People have more gold, but they don't want to carry so much gold with them, so they leave it for goldsmiths to keep;

2. Goldsmiths quickly realized that people would not ask for gold from them at the same time, so they could lend some of their gold to others and charge interest;

3. At this time, goldsmith's gold reserves are no longer backed by actual gold 1:1, but by the sum of actual gold + customer loans.

4. In this model, most cases are fine: deposits are still backed by valuable assets: 1:1 pegged (or better). But confidence in the system is not always perfect, and if borrowers default, there is a risk that deposits (gold) will not be fully backed, and bad things will happen.

Does it sound a bit like USDT?

At this time, if you are Tether, you will definitely be like a "goldsmith" and feel that locking all the US dollars in a bank account will not gain any benefits, and it is a waste, so why not borrow them on "reasonable commercial terms"? How about giving out a portion of USDT and earning more money? Not everyone will convert their USDT into US dollars at the same time, especially since stablecoins are more stable in fluctuating markets, many people would rather hold and keep stablecoins. If Tether can ensure that the normal redemption is not affected, it can actually lend a part of USDT like a "goldsmith".

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If USDT is still trustworthy, is LEO worth investing in?

Here, we are not "washing white" for Tether and Bitfinex. After all, they did not disclose information to Bitfinex trading platform users and USDT holders in a timely manner when doing this. However, Tether did later disclose on their website that it was backed by reserves, loans and other assets and receivables, although the time interval between disclosures was somewhat long.

Now, Bitfinex has revealed that it will raise LEO tokens worth 1 billion USDT, and the fundraising method will only accept USDT. The purpose of this approach is actually very obvious. On the one hand, it can solve the problem of additional issuance of USDT, and at the same time, it can also alleviate the funding gap caused by the frozen funds of 850 million US dollars.