Bitcoin's collapse is raising suspicions about price manipulation

New Report Blames Tether for Bitcoin’s Bull Run

The findings come from University of Texas at Austin professor John Griffin and graduate student Amin Shams, who examined the role of another cryptocurrency called Tether, which is pegged to the U.S. dollar.

The findings add to the growing concerns that Tether was used to artificially inflate Bitcoin for the benefit of a small group of big cryptocurrency holders, putting the rest of the market at risk.

Bitcoin soared previous year, peaking at almost $20,000 in December, before the price collapsed. The latest reason? A research paper hot off the press at the University of Texas at Austin.

A study by the Department of Finance at the University of Texas at Austin finds that the Bitcoin price through much of 2017 was directly manipulated through the use of Tether, the largest stablecoin by market cap and adoption. This has been widely rumored within the cryptocurrency community for ages, but the study lends an air of academic credibility to the claims.

New Report Blames Tether for Bitcoin’s Bull Run
Bitcoin's collapse is raising suspicions about price manipulation

Their analysis of the flow of coins on Bitcoin's blockchain found that the three main Tether exchanges for most of 2017 - Bitfinex, Bittrex, and Poloniex - also created substantial cross-exchange Bitcoin flows among themselves. This, they say, may indicate a "month-end need for dollar reserves related to Tether", implying that Tether issues un-backed tokens to help buttress the bitcoin price and then sells enough BTC at the end of the month to fully back the outstanding USDT.

Or, in layman's terms: to counteract price declines, it looks like somebody at Bitfinex is using Tether to buy bitcoin.

The CEO of Bitfinex, a cryptocurrency exchange, also runs Tether, and in December, a United States regulator sent a subpoena to both companies. And, in January, Tether parted with its auditor, Friedman LLP. "These effects are present only after negative returns and periods following the printing of tether". Chainalysis, a research firm which last week produced its own overview of Bitcoin money supply trends, told The New York Times that the Tether theory "seems credible". Whenever bitcoin fell, tether was used to buy it to prop up the price of the leading crypto. The prices climbed faster on exchanges the dealt in Tether than on those that didn't. "Tether issuances can not be used to prop up the price of Bitcoin or any other coin/token on Bitfinex".

"Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies".


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