The Man Who Discovered the Bitcoin-Tether Connection Now Claims the Industry’s VIX Volatility Tracker is Rigged
John Griffin, the Texas finance professor who discovered the Bitcoin-Tether connection earlier this year, has made a name for uncovering scams in the world of finance. Now, Griffin is sifting through crypto market data and traditional financial market data to discover signs that crypto markets are rigged.
John Griffin first made headlines in the crypto space in December 2017, when the price of bitcoin was approaching $20,000. While the rest of the crypto community was caught in bitcoin price mania, Griffin was digging through two terabytes of trading data. Griffin and his research team reached a surprising conclusion: Tether, the controversial stablecoin used on some of the world’s top crypto markets, was being used to manipulate bitcoin prices.
Griffin’s work was highlighted in a piece on Bloomberg earlier today.
Griffin Claims Tether Was Being Used To Prop Up Bitcoin Markets
As reported by Bloomberg, Griffin’s research last year led to a dramatic conclusion about Tether:
“Griffin and Shams noticed that when Bitcoin fell to certain levels, purchases using Tether would flood in to stabilize prices. After crunching the data, they concluded this fit a pattern consistent with someone, or a group of people, trying to manipulate Bitcoin prices.”
In other words, someone in control of Tether was using that control to manipulate cryptocurrency prices. That person did not want the price of bitcoin to fall, which is why Tethers were issued anytime the price of bitcoin started falling. Tethers would prop up the price, and the bull run would continue.
The research team published their results in a June paper. Crypto markets tanked soon after the release of the paper.
In response, J.L. van der Velde, CEO of Tether Ltd., was forced to issue a statement saying that they do not use USD Tethers to artificially prop up bitcoin. To this day, Tether remains one of the most controversial companies in the crypto space.
Griffin Has Uncovered Other Manipulative Activities Across The Financial Space
In addition to his work with Tether and bitcoin prices, Griffin has made a name in traditional financial markets for issuing scathing reports against companies, investment banks, and other institutions.
Last year, Griffin famously (or infamously) claimed that the industry’s preferred volatility index, VIX, was rigged, setting off a firestorm of controversy across the crypto community.
US regulators have taken notice of Griffin’s work. In the years following the 2008 financial crisis, Griffin was hired by the US Department of Justice to investigate mortgage fraud. This past June, the CFTC sat down with Griffin to discuss another paper.
Now, Griffin is turning his attention to VIX, the volatility index used by many major financial institutions.
Why The VIX Volatility Index May Be Rigged
Griffin’s latest work focuses on determining whether or not the volatility index VIX is rigged. The VIX is famous for being a barometer of fear. It indicates how volatile investors expect the stock market to be, based on the trading activity in S&P 500 options.
However, the VIX is more than just a gauge of fear to look at: there are also derivative products based on the VIX. You can trade futures based on the VIX, for example, and generate profit if you can accurately predict where the VIX is going next.
In his latest paper, Griffin argued that S&P 500 options volume spikes at suspicious times, but only in contracts used to price the VIX. Those options trades do not make any sense, Griffin argues, unless they’re part of an attempt to manipulate the market for VIX futures.
Cboe, which created the VIX index, rejects the notion that its famous index is rigged, claiming that:
“the academic paper’s analysis and conclusions are based upon a fundamental misunderstanding about how VIX derivatives are traded and settled.”
Griffin isn’t the only person who feels the VIX is manipulated: there’s reportedly a “long list of plaintiffs” who have sued Cboe over the alleged manipulation.
Griffin also claims banks have reached out to him trying to determine how they can get in on the action – seriously. He claims banks have asked him how price manipulation of the VIX index could work, and he suspects banks are doing this so they can participate in the manipulation.
Price Manipulation Isn’t Just For Bitcoin
The SEC has rejected multiple bitcoin ETFs for one simple reason: fears of price manipulation. Griffin’s work shows that price manipulation isn’t a problem unique to crypto; it’s a problem across all types of financial markets.
The VIX is one of the world’s most trusted volatility indexes. Now, Griffin’s work suggests that the VIX is manipulated. If the SEC genuinely cared about price manipulation on the VIX, then why does it allow trading of VIX-based investment products?
Ultimately, the Bloomberg writeup on John Griffin, the man who uncovered the Tether-bitcoin price manipulation scam, is worth a read and can be found here.