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Tether Directly Used to Manipulate Bitcoin Price, Finds Study

Tether Directly Used to Manipulate Bitcoin Price, Finds Study

"Tether seems to be used to stabilize and manipulate Bitcoin prices", said Professor John Griffin and Amin Shams in their research paper.

"Overall, the findings indicate that Tether is closely linked to Bitcoin price appreciation, and question the goal of Tether".

The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends.

Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by United States dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns. Price manipulation and collusion may be to blame.

While there is little public information on about how Tether was created, it generally exchanges for around $1 as each coin is supposed to be backed by $1 of fiat money in a bank.

Market manipulators used Tether's USDT token to artificially inflate the bitcoin price during 2017's prolonged bull run.

"We investigate whether Tether is primarily demand-driven from investors, or supply-driven by Tether issuers pushing the currency on the market". These purchases alone accounted for 50 percent of the cryptocurrency's compounded gains, when its value skyrocketed from $1,200 to around $10,000. They wrote that bitcoin's surge in late 2017 correlates with movement of Tether from Bitfinex to other exchanges in the hours before the valuation increased.

"Across the six other crypto currencies, returns are 64 percent smaller on average when removing the 87 Tether-related [purchases]", the researchers added.

Bitfinex has denied being involved in any price manipulation schemes.

As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year. Bitcoin's price reached a record high of $20,000 in December, but its value has since dramatically fallen to $6,300.

Both firms were subpoenaed in December by the Commodity Futures Trading Commission, which was seeking proof that Tether is backed by a reserve of U.S. dollars, as it claims.

"When prices are falling, the Tether creators can convert their Tether into Bitcoin in a way that pushes Bitcoin up and then sell some Bitcoin back into dollars to replenish Tether reserves as Bitcoin price rises", the researchers wrote.

"(Neither) Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation", Bitfinex and Tether Chief Executive Officer JL van der Velde said in a statement.

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