University Study Concludes Tether Manipulated Cryptocurrency Prices

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University Study Concludes Tether Manipulated Cryptocurrency Prices

A research study by a finance professor at the University of Texas John Griffin and co-author, graduate student Amin Shams, cleverly titled “Bitcoin Really Un-Tethered?” reveals the pioneer cryptocurrency’s price was artificially propped up at its peak in 2017 when it hit a record high of almost 20,000 USD.

The authors suggest covert activities may have been used to inflate the price of not only bitcoin but also some other popular cryptocurrencies at their highest point in 2017.

Published on June 13, 2018, the paper questions how much of bitcoin’s triumph in 2017 pertained to secret practices of significant stakeholders, popularly known as “whales.”

Suspicious activities of Bitfinex and Tether

In 2017, bitcoin’s rise was questioned by digital currency investors after allegations of Bitfinex artificially propelling the prices of primary cryptocurrencies came to light.

The company was infamously subpoenaed along with Tether by the U.S. Commodity Futures Trading Commission (CFTC), as reported by BTCManager in January 2018.

The subpoena was launched after Tether suspiciously created 50 million Tether (USDT) after being hacked for over $30 million. The stablecoin firm did not introduce any security protocols before the release and added to the broader cryptocurrency community’s skepticism after stating all USDT is backed by an equivalent USD deposit at an unspecified location.

The Study Results

The research paper alleges Tether transactions are linked to 50 percent rise in bitcoin price and 64 percent in other cryptocurrencies.

Griffin has earlier brought attention to scams in financial markets and observed the inbound and outbound flow of digital tokens at Bitfinex was closely analogous with trading patterns. This led to the researcher believing Bitfinex was intentionally driving the cryptocurrency’s price up “in a coordinated” manner.  

Griffin stated in an interview with Bloomberg:

“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.”

Griffin observed the patterns over one year. He first noticed an asymmetry in the order flows, reflected with Tether purchases which tended to increase at the moment when bitcoin’s price would fall.

Griffin concluded someone working at Bitfinex used Tether, created and sold by the owners of Bitfinex, to buy the cryptocurrencies and drastically manipulate the market.

However, Bitfinex maintains that the company is far from any manipulation, but are yet to comment on the research.

Priyeshu Garg

Priyeshu is a software engineer who is passionate about machine learning and blockchain technology. He holds an engineering degree in Computer Science Engineering and is a passionate economist. He built his first digital marketing startup when he was a teenager, and worked with multiple Fortune 500 companies along with smaller firms. When he is not solving the transportation problems at his company, he can be found writing about the blockchain or hacking at a Hackathon.

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