Bitcoin's Major Boost Was Likely Manipulated, Research Finds
14 June, 2018, 03:21 | Author: Regina Silva
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 Dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns.
That's according to explosive new research from University of Texas finance processors John Griffin and Amin Shams, best known for identifying suspicious activity in the VIX past year. Evidence of price manipulation was found in all of those, too. Tether is the 11th largest cryptocurrency and is pegged to the U.S. dollar.
Their findings suggest that Bitfinex, an exchange which created and sold Tether, used their currency to snap up bitcoin and drive demand for it, bumping up prices. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical Dollars. Other digital currencies like Ethereum and Litecoin soared at around the same time by as much as 64 percent.
The researchers noted that the "bitcoin reversal did not exist before Tether was prevalent in the market and disappears during the period when Tether stops being printed".
Bitfinex, a cryptocurrency exchange, distributed Tether and supplied it to other exchanges, mainly Poloniex and Bittrex, the researchers said.
As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year. "Due to the semi-transparent nature of the blockchain, we are able to use extensive algorithms to lump nodes of investors and match transactions on the Tether Blockchain to those on the Bitcoin Blockchain".
Or, in layman's terms: to counteract price declines, it looks like somebody at Bitfinex is using Tether to buy bitcoin. Bitcoin's price reached a record high of $20,000 in December, but its value has since dramatically fallen to $6,300.
In December, the CFTC sentsubpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether.
To prevent future price manipulation, the researchers say that "external capital market surveillance and monitoring" may be necessary to keep the market free from tampering.
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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