Researchers have come to a shocking conclusion that at least half of the rise in the prices of major cryptocurrencies and bitcoin may be due to a concentrated campaign of price manipulation. This came to light from recent papers published by John M Griffin and Amin Shams from the Department of Finance at the University of Texas. John M Griffin is a finance professor at the University of Texas and Amin Shams is an undergraduate-graduate student. The paper published by them is titled “Is Bitcoin Really Un-Tethered?” A brief abstract from this paper states that they have investigated that whether Tether, in any way, influenced cryptocurrencies during the recent rise in their prices. Tether is a digital currency pegged to the U.S. Dollar. What makes it unique is that the company claims that each Tether token issued is backed up by a U.S. Dollar which is held by the Tether Reserve. The professor-student duo argues that Tether has been repeatedly used to provide support to bitcoin whenever it’s graph starts to fall down.
They came to a conclusion that Tether, does in fact, have an effect on the cryptocurrency market and it seems like Tether has been used to ‘stabilize’ Bitcoin prices or possibly even ‘manipulate’ them. The researchers also suspect that Tether may not always be fully backed by the US Dollar. Griffin also said that he has looked at a lot of markets and if there is a instance of fraud or manipulation, it can leave tracks behind, adding to which he professor said he has been able to find a very consistent pattern here. The paper also said that the flow of Tether was such, that whenever the bitcoin prices fell, the Tether purchases increased, however there was no effect on Tether when the bitcoin prices rose. The published paper says that Tether was being used to protect the price of bitcoin whenever it headed for a downfall.
As we went through the published paper we found out that the study was focused on a particular time period which was March 2017 to March 2018. And it was clearly highlighted in the paper that the last 87 of the largest transactions of buying bitcoin using Tether were done whenever the price of bitcoin started to fall. Another interesting observation was that in some cases the Tether was minted just 3 days before it was used. After these transactions the prices of bitcoin showed increment. The professor-student duo ran almost 10,000 simulations to verify that the observations were true or not, before publishing the paper.
The research forces us to question the relation between Tether Inc. and Bitfinex. The questionable link here being that both of the companies share the same management team including the Chief Engineering Officer of Bitfinex. A large amount of Tether is minted and then transferred to Bitfinex. Tether from Bitfinex and other exchanges is used to buy Bitcoin. Although the firm has been subpoenaed earlier for investigations, but nothing was found against them.