Published: Thu, June 14, 2018
Business | By Tara Barton

Tether Manipulation Pushed Up Bitcoin's Price, Researchers Find

Tether Manipulation Pushed Up Bitcoin's Price, Researchers Find

The researchers analyzed 87 of the largest Bitcoin purchases made with Tether from March 2017 to March 2018.

Tether appears to have stopped issuing new tethers as of recent times, possibly in fears of stricter regulation, or lack of legitimate deposits into the company's reserves that may prompt more printing; regardless of being due to the lack of new printed tokens or simply due to lack of demand leaving Tether's company in need of new deposits, Bitcoin's price drop past $6,500 has proved the researcher's hypotheses.

"Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies". The prices climbed faster on exchanges the dealt in Tether than on those that didn't.

The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late previous year.

The periods with the largest flow of tether accounted for 87 hours, or less than 1 percent, of the data, but were associated with 50 percent of bitcoin's compounded return, and 64 percent of the returns on six other large cryptocurrencies. Price manipulation and collusion may be to blame.

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Bitfinex, a cryptocurrency exchange, distributed Tether and supplied it to other exchanges, mainly Poloniex and Bittrex, the researchers said. Their paper seems to confirm what many have believed for months, if not years, that cryptocurrency markets are susceptible to manipulation.

The CEO of Bitfinex, a cryptocurrency exchange, also runs Tether, and in December, a United States regulator sent a subpoena to both companies.

Or, in layman's terms: to counteract price declines, it looks like somebody at Bitfinex is using Tether to buy bitcoin. Bitcoin's all-time highs around $20,000 one month later - and those of major altcoins - were also a result of Tether flooding the market with coins, they say. These patterns can not be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices. "These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free", they conclude.

In response to the research, Bitfinex's CEO JL van der Velde told PCMag: "Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation".

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