$2.5 Billion: Tether Used to Manipulate Bitcoin’s Price Last Year, Study Suggests

  • A study conducted by University of Texas professor John Griffin suggests Tether (USDT) has been used to manipulate bitcoin's price last year.
  • Analyzed data includes mid-December, when the flagship cryptocurrency surged to nearly $20,000.
  • Tether and Bitfinex have been embroiled in controversy over the stablecoin's issuance.

A study recently published by University of Texas professor John Griffin and co-author Amin Shams suggests that Tether (USDT), a crypto supposedly backed by fiat currency 1:1, has been used to manipulate bitcoin’s price last year.

According to the paper Griffin and Shams authored, titled “Is Bitcoin Really Un-Tethered?”, the stablecoin was used to create support areas for the flagship cryptocurrency, effectively ensuring its price didn’t drop, and that other traders saw buy signals in specific ranges.

As Bloomberg reports, Tether tokens started trading in 2015 and were pitched as a stable alternative to bitcoin’s volatility. Notably USDTs are issued by Tether, a company connected to popular cryptocurrency exchange Bitfinex, which lost banking relationships last year, but continued to operate.

After Bitfinex lost banking services, several community members started questioning whether Tethers were indeed being backed by actual dollar reserves, to the point the US Commodity Futures Trading Commission (CFTC) subpoenaed both companies late last year, in an attempt to find out whether said reserves exist.

In their study, Griffin and Shams looked at how the 2.5 billion Tethers in existence flowed through the crypto markets. They found these were created in large chunks, often of 200 million or more, and are then moved to crypto exchange Bitfinex.

Per the researchers, these were then used to buy bitcoin “in a coordinated way that drives the price,” specifically when BTC’s price started dropping. Griffin said:

“I’ve looked at a lot of markets. If there’s fraud or manipulation in a market it can leave tracks in the data. The tracks in the data here are very consistent with a manipulation hypothesis.”

John Griffin

The paper details that when the flagship cryptocurrency’s price fell, purchases with Tether tended to increase, which then reversed the decline. When bitcoin rose, it adds, the opposite wasn’t seen. This, to Griffin, is “suggestive of Tether being used to protect bitcoin prices during downturns.”

Analyzed data includes last year’s price surge that saw most cryptocurrencies hit a new all-time high, with bitcoin coming close to the $20,000 mark in mid-December, according to CryptoCompare data. At press time, the flagship cryptocurrency is trading at $6,458 after falling 4.55 percent in the last 24-hour period.

Potential BTC Price Manipulation

Griffin’s study identified 87 of the largest purchases from March 2017 to March 2018, and noted that in these cases USDTs had been issued three days before said purchases occurred. Per the report, these purchases occurred one hour after bitcoin’s price started declining.

These examples, as Bloomberg notes, account for less than 1 percent of the examined period, while amounting to 50 percent of the flagship cryptocurrency’s compounded returns last year. Per Griffin, a noticeable trend they picked up noted that when bitcoin traded near price thresholds defined in $500 increments, purchases with Tether “strongly increase.”

Per Griffin, this gives other investors the impression there’s a price floor they can place their buy orders at, which subsequently drives up the price. The paper’s authors purportedly ran 10,000 different simulations, which showed “this behavior never occurs randomly.”

The researchers added:

“If it was random behavior you wouldn’t see it cluster around the thresholds. It indicates it’s a conscious strategy to provide price support.”

John Griffin, Amin Shams

It’s worth noting that both Bitfinex and Tether share a management team that includes the cryptocurrency exchange’s chief executive officer, JL van der Velde. According to Bloomberg, he said in an emailed statement:

“Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.”

JL van der Velde

Despite the CEO’s words, various community members and regulators remain skeptical. As CryptoGlobe covered, the US Department of Justice (DOJ) has recently launched a criminal probe into potential bitcoin price manipulation, in a move that’s seen as the culmination of US’ scrutiny into cryptocurrency markets.

What’s going on with Bitfinex and Tether is still unclear. Unconfirmed reports have suggested the company saw Polish authorities seize $380 million from the exchange. Aside from the Tether situation, Bitfinex has been embroiled in controversy as it recently asked customers for tax data, which can be shared with local tax authorities. Earlier this month, the company suffered outages amid a cyber attack.

Ripple Helping UAE Exchange and Unimoni to Launch Cross-Border Payments to Thailand

On Sunday (February 10th), Finablr, the UAE-based parent company of two international remittance firms, UAE Exchange and Unimoni, announced that these two companies have joined Ripple's global payment network, RippleNet, and will be using Ripple's technology for cross-border payments (starting with Thailand).

The payments and foreign exchange company's network of brands, such as the two mentioned above, processed "150 million transactions" in 2017, and "managed close to $100 billion in volumes for its customers." Finablr is "licensed to operate in 44 countries and regulated by 95 regulators." 

According to an article in the UAE-based news outlet The National:

"Asia is one of the major recipients of remittances from expat workers in the Middle East, where Finablr is based. Remittance flows to South Asia grew 13.5 per cent last year, according to the World Bank. It estimates that officially recorded remittances to developing countries have increased by 10.8 per cent to reach $528 billion (Dh1.939 trillion) in 2018. Global remittances, which include flows to high-income countries, are projected to have grown by 10.3 per cent to $689bn."

Finablr says that UAE Exchange and Unimoni are already on RippleNet, and that they will "use the blockchain-based platform provided by Ripple for real-time, seamless cross-border transactions to Thailand, with plans in place to extend it to other countries." Furthermore, it believes that this means that "UAE Exchange and Unimoni become the first in their category in the Middle East to have adopted blockchain technology to process transactions."

The first country to benefit from this partnership with Ripple is Thailand, "with Siam Commercial Bank, one of the largest banks in Thailand, enabling UAE Exchange and Unimoni customers around the world to transfer money instantly to their beneficiaries in Thailand."

Promoth Manghat, Executive Director and CEO at Finablr and Group CEO at UAE Exchange and Unimoni, said: 

“The adoption of blockchain opens up considerable potential to streamline remittances and provide a frictionless, fast and secure payments experience. The launch of this service is a significant milestone for us in our commitment to enable seamless services for our customers, and we thank our partners Ripple and Siam Commercial Bank for their collaborative support in this journey.”

Meanwhile, Navin Gupta, Managing Director, South Asia and MENA at Ripple, had this to stay:

“We are excited to see this collaboration go live, allowing customers in any part of the world to send live payments to Thailand instantly and efficiently. In pursuit of our shared goal to provide a frictionless experience when moving money globally, we will continue to support our partners – UAE Exchange and Unimoni – in their efforts to deliver innovative technology-led financial solutions.”

Finally, Dechapol Lamwilai, FSVP, Head of Disruptive Technology Office, Siam Commercial Bank, stated: 

“We are delighted to be a part of the UAE Exchange and Unimoni journey in leading frictionless cross-border transfer experiences in the new digital era. As strategic partners, we look forward to working closely together to provide best-in-class payments solutions that bring added value and convenience to customers sending money into Southeast Asia.”

 

Featured Image Courtesy of Finablr