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New Research Claims Bitcoin Price was Manipulated using Tether (USDT)

John McMahon | June 14, 2018 | 9:00 am
tether usdt
Bitcoin

New Research Claims Bitcoin Price was Manipulated using Tether (USDT)

John McMahon | June 14, 2018 | 9:00 am

New research out of the University of Texas alleges that the price of Bitcoin throughout its bull run in 2017 was being manipulated using Bitfinex’s Tether currency.

Tether May Have Been Used to Prop Up Bitcoin

A recently published paper by Professor John Griffin and graduate student Amin Shams examined the traffic of cryptocurrencies on the Bitfinex exchange and found a correlation between price slumps in Bitcoin and other coins and instances when Tether was issued and sold by the owners of the exchange. The paper alleges that these instances may account for about 50% of the price increases of Bitcoin and 64% of others trading in the top ten.

Professor Griffin emphasized that the pattern of transactions that he and his research partner found played a significant role in last years unprecedented price gains in the crypto market in a recent interview with the New York Times. He told the paper,

“There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases.”

Tether, as its name suggests, is pegged to the value of the US dollar and can be used to buy other crypto coins. J.L.. Van der Velde responded to the accusation in the paper with a statement that reads “Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex,”

The study performed by the Texas researchers focused in on 87 separate instances between March 2017 and March 2018 when Tether moved from Bitfinex to other exchanges. The research found that “these 87 events account for less than 1 percent of our time series (over the period from the beginning of March 2017 to the end of March 2018), yet are associated with 50 percent of bitcoin’s compounded return, and 64 percent of the returns on six other large cryptocurrencies (Dash, Ethereum Classic, Ethereum, Litecoin, Monero and Zcash).”

Researchers Find Market Manipulation

If what the study hypothesis turns out to be true this would not be the first time Griffin has sniffed out fraud in the financial world. He is most notably recognized for a 2016 paper that found manipulation in a financial contract known as VIX which was tied to flux in financial markets which were later confirmed by a whistleblower.

This also wouldn’t be the first time that manipulation of the price of Bitcoin has been alleged. A paper that looks back at the price of Bitcoin in 2013 was previously released by researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman. This paper entitled “Price Manipulation in the Bitcoin Ecosystem,” appears in an issue of the Journal of Monetary Economics describes the extent to which the Bitcoin ecosystem has been artificially controlled.

 

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  • Michaela von Alençon

    The study doesn’t deliver any facts, just assumptions.

    I heard there’s a paper coming out shortly, similar to this one, which aims to demonstrate that it mostly wasn’t Bitfinex, but other exchanges who were using Tether. Should be within the week.

    While it’s possible they’re correct, I don’t see the proof of it here. It’s still possible that it was a large outside investor – not the issuers of Tether – who was buying up BTC using USDT. That wouldn’t be market manipulation – just shrewd trading.

    They use various proxies to try and determine “pull” versus “push” in the flow of Tethers and BTC, but those proxies tend to look at aggregate market demand, and wouldn’t necessarily capture activity related to a single individual or a small group. They also look at premium on USDT pricing as a proxy for “pull” versus “push” activity, but a large sophisticated trader would be careful to keep such premiums to a minimum.

    When there were large volume USDT for BTC buys, how do you know if they were by a large outside investor, or by the issuers of Tether? You don’t, other than by looking at the actual flow of cash (USD) through Tether’s reserves, and we don’t have access to that.

    I think they’ve successfully highlighted the role of Tether in the run-up, and I think they’ve arguably narrowed it down to either the “whales” or the issuers of Tether moving the market, but I don’t think they’ve definitely isolated the latter as the cause.

    • Skippy McNifty

      spot on

  • Fabio Delong

    All markets are manipulated. Any market exists only to be manipulated.

  • SmartestMobile

    Tether (USDT) did NOT have an affect on, or played any role in, price (and its “manipulation”) , other factors may have. Sorry, “professor” needs to think harder about what USTD is and exactly why new tokens are issued and at times destroyed. Bitfinex was apparently first to make this “one hell of an invention” and they are obviously not in a rush to spill the details of it out. One day, it will be known and VERY heavily used by any and all trading platforms. Look elsewhere to “explain” price rise/spikes…

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