For a long time it had become quiet around the cryptocurrency Tether. The Stablecoin was in the news a few months ago, because the rumor went around that Tether is not secured in a 1 to 1 ratio with dollar reserves in a bank account and is also being used for market manipulation. Now, researchers from the University of Texas have published a study that found evidence that USDT was used to price manipulation of Bitcoin.
It was already several times reported in detail the links between Bitfinex and Tether, the rumors and facts, as well as the controversial issue of lack of collateral through reserves. In particular, the rapid development of Tether’s market capitalization at that time, during the boom phase in December, posed a big question mark in terms of hedging.
In addition, especially the blogger Bitfinex’d heated the rumor mill that is manipulated by means of artificially printed Tether the Bitcoin price. Especially in times when the market is weakening, according to Bitfinex’d, Bitfinex has artificially pushed up the price to encourage traders to invest and actively trade. This would also benefit Bitfinex.
Bitfinex or Tether have always claimed to hold a corresponding amount of dollars and thus have not made any market or price manipulation.
The US Commodity Futures Trading Commission summoned both companies, Bitfinex and Tether, in December (possibly as a result of the rumors) to provide evidence that Tether is backed by an equivalent amount of US dollars. However, results have not been known so far.
The study of price manipulation of Bitcoin
The rumor that Bitcoin is being tampered with by Tether has now been investigated by a University of Texas finance professor John Griffin and his co-author Amin Shams. The study was published today. Using algorithms to analyze blockchain data, the study found that tether purchases correlated with market down times and resulted in significant increases in Bitcoin prices.
It also states that Tether’s pattern indicates that at crucial moments for Bitcoin, new Tethers have been issued. According to the study, Tether was instrumental in helping Bitcoin hit a record $ 20,000 in December. The authors wrote:
Tether seems to be used for both stabilization and manipulation of Bitcoin prices.
To examine the potential magnitude and likely impact of tether emissions on the Bitcoin price, the study focused on the events from March 2017 to March 2018, which saw the largest combined Bitcoin and Tether cash flows, overall, the authors have been able to make 87 events. All events have, according to study in common, that initially observed a negative price trend in Bitcoin. Thereafter, Tether flowed into the Bitcoin market, resulting in a trend reversal. The study states:
These 87 events account for less than 1% of our time series (from the beginning of March 2017 to the end of March 2018) but account for 50% of Bitcoin’s revenue and 64% of revenue from six other major cryptocurrencies (Dash, Ethereum Classic, Ethereum, Litecoin, Monero and Zcash).
At the time when Bitcoin’s price rose, Griffin said, none of the 87 largest combined cash flows took place. This indicates, according to the study, that Tether was used to protect the Bitcoin price during downturns.
According to the study, it is also noticeable that Tether, which is controlled by the parent company Tether Ltd. are issued, often in large quantities, as 200 million are printed. Almost all new coins then move to Bitfinex. If the Bitcoin prices fall after the issue, Tethers are used at Bitfinex and other exchanges to buy Bitcoin “in a coordinated manner that drives the price,” Griffin told Bloomberg. According to the study, cash flows are also piling up at key chart technical support points.
The study also suggests that the actual market demand for Bitcoin by Tether is artificially shifted upwards as USDT generates an artificial demand.
Similar to the inflationary effect of printing extra money, this may increase prices for cryptocurrency.
The effect would then be similar to that of a central bank-backed, inflationary currency, where new notes are issued to inject liquidity into the market, which is only later supported by gains. Consequently, tethers would be printed to get real investors to buy Bitcoin.
The publication of the study comes at a time when the CFTC has sent subpoenas to the cryptocurrency exchanges Coinbase, Kraken, Bitstamp to obtain comprehensive trade data on possible market manipulation.
Marko Vidrih @cryptomarks
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