Study Suggest Tether Was Used to Manipulate Bitcoin Price in 2017
It seems that one of the most important virtual currencies in the market has been used to manipulate the price of Bitcoin during 2017. According to a recent research conducted by a professor at the University of Texas, discovered that Tether has been used to stabilize and manipulate Bitcoin prices.
The professor has been involved in the past in a work that flagged suspicious activity in the VIX benchmark. He is also very recognized in the academy. Since the last year, Tether and Bitfinex have been gathering media attention due to the fact that the company never informed where they have stored the dollars necessary to keep tethered linked to the USD.
The US Commodity Futures Trading Commission (CFTC) subpoenaed both firms in December, trying to seek proof that Tether has indeed the dollars that it claims it has.
Bitfinex Chief Executive Officer, JL van der Velde, said in an email:
“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.”
Griffin and Shams decided to understand how the $2.5 billion Tether coins flowed through the markets. The currency started to be traded back in 2015, and it is a stable alternative to Bitcoin and used by some investors to hedge against BTC.
At the end of the last year, Bitcoin experienced an important price increase from $950 dollars to $20,000. And this situation raised questions among experts. This price action was also taken into account by the investigation.
The analysis showed that Bitcoin price has been supported. Tethers are created by Tether Ltd., in large chunks of $200 million dollars, for example. All the coins are then moved to Bitfinex where they are used to buy Bitcoin after a drop. This helps BTC falling less and keep its value for longer periods of time.
Griffin said that he has been analyzing an important number of markets and if he sees fraud or manipulation it is possible to track the data.
“If there’s fraud or manipulation in a market it can leave tracks in the data. The tracks in the data here are very consistent with a manipulation hypothesis,”
In the paper he wrote, Griffin found that there are several patterns in a yearlong period of time. He discovered that the flows weren’t symmetric. When Bitcoin price decreased during an important drop, Tethers were used to sustain BTC price. But when Bitcoin surged the same situation did not happen. This suggests that Tethers have been used to protect Bitcoin against downturns.
Furthermore, he added that Bitcoin purchases with Tether increased Bitcoin price in multiples below $500 dollars. The pattern is only present in periods after Tethers are printed and not observed in other exchanges.
The Justice Department is conducting several investigations to determine whether Bitcoin has been manipulated or not. Other digital assets are being investigated as well. Finally, the SEC and the CFTC opened investigations into allegations that the CBOE’s VIX benchmark is being manipulated.
“The hype in cryptocurrency isn’t just 20-year-olds buying Bitcoin in their garage – that’s part of it – but there are big players moving the market and having a huge price impact”