Bitcoin Price was Manipulated by Tether, Researchers Claim

Bitcoin Price was Manipulated by Tether, Researchers Claim

A paper released Wednesday by a professor at the University of Texas titled "Is Bitcoin Really Un-Tethered?" claims that fraudulent transactions of Tether, a digital currency pegged to the United States dollars, were responsible for approximately 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies.

What is interesting is that Griffin and Shams's paper describes Tether as being primarily used by Bitfinex, a major crypto-exchange, to purchase Bitcoin tokens from two other exchanges and most importantly did this only after periods of Bitcoin price declines.

Days after Tether (USDT) gained a higher market cap than Monero and Dash, new research has reignited suspicions that the altcoin "manipulated" Bitcoin prices. These patterns can not be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.

According to the researchers at the University of Texas, the cryptocurrency Tether was allegedly used by the Bitfinex exchange to support the price.

In particular, Mr Griffin and Mr Shams examined the flow of Tether, a token that is supposed to be tied to the value of the United States dollar and that is issued exclusively by Bitfinex in large batches.

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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". They found that half of the increase in Bitcoin's price in 2017 could be traced to the hours immediately after Tether flowed to a handful of other exchanges, generally when the price was declining.

On Monday, researchers from the University of Texas at Austin published a study indicating that Tether was used to unduly influence bitcoin's 2017 ascent. He cautioned that a full understanding of the patterns would require more analysis. In U.S. and European financial markets, attempts to influence prices like this are considered "market manipulation" and can be criminally prosecuted. He is most notably recognized for a 2016 paper that found manipulation in a financial contract known as VIX which was tied to flux in financial markets which were later confirmed by a whistleblower.

Bitfinex denied that tether issuances could be used to manipulate bitcoin.

The new paper is not the first academic work to identify manipulation in the virtual currency markets.

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