$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.

Ethereum Foundation on Bitcoin, Bitcoin Cash, Ethereum Classic, Stellar, and TRON

Siamak Masnavi

On Friday (April 12), day two of the EDCON (Community Ethereum Development Conference) 2019 event in Sydney, Australia, Vitalik Buterin and four other members of the Ethereum Foundation—Hsiao-Wei Wang, Virgil Griffith, Danny Ryan, and Justin Drake—had some interesting things to say about Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ethereum Classic (ETC), Stellar (XLM), and TRON (TRX). Here are some of their most interesting comments from the interview.

Q: How much has the Ethereum roadmap changed?

Vitalik:

  • "It's changed a huge amount. The first version of proof-of-stake (PoS) I came up with that I published in January 2014, it actually technically was not even secure."
  • "Since then, we've just done a huge amount of research, rethinking, figuring out that proof-of-stake actually is possible."
  • "We spent years trying to make Casper FFG work... We've spent a long time trying to make sharding work on top of the existing Ethereum chain."

Q: Why should people bring their attention back to Ethereum?

Vitalik:

  • "There's definitely been a reduction of interest in all blockchain projects, especially people who are just following cryptocurrencies for the price like stopped following them because the price stopped moving in a happy direction for a while."
  • "Right now, there's more things to build with and build on top of than there ever has been before, and I expect there to be even more over the next few months. So, for a developer, the experience is becoming more and more interesting very quickly."

Q: Is there a move toward more frequent hard forks with the 1.0 chain?

Danny:

  • "There's definitely a movement on the 1.0 chain to more frequent small hard forks; they're just going to get into a rythm. There are a number of just smaller technical challenges they want to tackle."
  • "With respect to the Beacon chain and Eth 2.0, the approach right now is to move quickly and to, before we get to phase two, which is when all user activity comes in, move pretty rapidly and build up the core architecture. When you do have the user level activity... there's a ton more maintenance on the system that you have to have and there's just more political maneuvering to get changes."

Q: What do you think about Justin Sun's recent comment about working with Ethereum developers?

Virgil:

  • "So, it's news to us."
  • "The man is an incredible marketer. He's incredible!... I would love to have him as Chief Marketing Officer for Ethereum... I wouldn't make him CEO of my company, but CMO? Hell's yeah!"

Q: Do you find it worrying that some projects are migrating to EOS, Stellar, and TRON?

Virgil:

  • "I mean we don't need to eat like everything."
  • "I actually advised someone a few months ago to actually go [to] Stellar instead of Ethereum. So, Ethereum sort of errs on the side of maximum flexibility. If you only want to send tokens around... just fungible tokens...I mean, we are kind of overkill. Yeah, so, if you just want to send tokens around really, really fast, you probably don't need us, and that's not offensive."

Q: Thoughts on IEOs?

Vitalik:

"Basically... they seem just like ICOs, but more centralized."

Q: What is your relationship with the Ethereum Classic team?

Virgil:

  • "They have a bit more purist sensibilities, but they are not incompetent."
  • "When they publish software, you maybe bow... 'Hey, that's kind of handy! I'm really glad that's compatible with us. Thanks, guys!'"
  • "So, I guess their incompatibility is nice, and they occasionally make nice things."
  • "I do think Ethereum Classic would probably have a little more trouble as they get larger. In general, the larger you get, you have to get a little more pragmatic just because the real world impinges upon you more, and so, I'll probably say they have a little bit more freedom to be ideologues because of their size."

Q: What do you think about the value proposition of Bitcoin over the long term?

Danny:

  • "The meme value of Bitcoin is very high... the store of value meme, the king of crypto meme... the gold thing."

Vitalik:

  • "Things I am watching -- one of them is Bitcoin Cash. I mean, price-wise, it seems to have recovered a lot from its slump recently, but also technology-wise, it seems like they are beating Bitcoin to integrating Schnorr signatures, which was just super out-of-the-blue surprising."
  • "It's like maybe two years ago you might have thought it's just like jokers, but there seems to be real technical talent there."