New Study Suggests Tether Used to Manipulate Price of Bitcoin
A new study from the University of Texas suggests that Tether (USDT) was used to manipulate Bitcoin prices during its incredible rise in December, 2017 and subsequent crash in January, 2018, Bloomberg reports.
The paper, written by finance professor John Griffin and co-author Amin Shams, is titled “Is Bitcoin Really Un-Tethered?” and makes the case that a coordinated effort from the organizations behind Tether and the Bitfinex exchange used new issuances of Tether to bolster Bitcoin prices.
It isn’t the first time that controversies have come up regarding possible collusion between Tether and Bitfinex. We described in our Tether guide earlier this year that Tether Ltd. (Tether’s parent company) and Bitfinex share upper-level management staff, including Jean-Louis van der Velde, who serves as CEO of both organizations.
Many people in the cryptocurrency community have called this a potential conflict of interest, and if Griffin and Shams’ paper is to be believed, it turns out those suspicions were correct.
“If there’s fraud or manipulation in a market it can leave tracks in the data,” Griffin said. “The tracks in the data here are very consistent with a manipulation hypothesis.”
The theory goes something like this: Tether Ltd. would issue large amounts of new USDT all at once, the vast majority of which would be transferred to Bitfinex. Soon after the issuance, Bitcoin prices would drop and then Tethers at Bitfinex and other exchanges would be used to buy Bitcoin “in a coordinated way that drives the price.”
Griffin and Shams saw this pattern of events happen repeatedly between March 2017 and March 2018. In fact, 87 of the largest purchases of Bitcoin with Tether over that period followed the above pattern. In each case, new Tether was issued within three days of the purchase, Bitcoin’s price had fallen in the preceding hour and the purchases themselves served to elevate the price of Bitcoin.
Drawing upon data from 10,000 market simulations, Griffin and Shams wrote confidently in the paper that “this behavior never occurs randomly.”
Making these cases even more suspicious, purchases of Bitcoin with Tether “strongly increase just below multiples of 500,” the authors wrote. “This pattern is only present in periods following printing of Tether and not observed by other exchanges.”
Griffin concluded in an interview with Bloomberg, “If it was random behavior you wouldn’t see it cluster around the thresholds. It indicates it’s a conscious strategy to provide price support.”
Tether Ltd. and Bitfinex CEO JL van der Velde responded to the paper in an emailed statement, saying “Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. . . Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.”
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