"Is Bitcoin [BTC] really Un-Tethered?" - John Griffin and Amin Shams

"Is Bitcoin [BTC] really Un-Tethered?" - John Griffin and Amin Shams

A study by the Department of Finance at the University of Texas at Austin finds that the Bitcoin price through much of 2017 was directly manipulated through the use of Tether, the largest stablecoin by market cap and adoption. Their paper seems to confirm what many have believed for months, if not years, that cryptocurrency markets are susceptible to manipulation.

Bitcoin soared a year ago, peaking at almost $20,000 in December, before the price collapsed. This has been widely rumored within the cryptocurrency community for ages, but the study lends an air of academic credibility to the claims. "Tether issuances can not be used to prop up the price of Bitcoin or any other coin/token on Bitfinex".

Both firms were subpoenaed in December by the Commodity Futures Trading Commission, which was seeking proof that Tether is backed by a reserve of USA dollars, as it claims.

"It was creating price support for bitcoin and, over the period that we examined, had huge price effects", Griffin said. The paper does not prove definitively that Bitfinex was tangled in price manipulation, but the evidence gives a strong indicator that it was involved.

"These effects are present only after negative returns and periods following the printing of Tether". Several exchanges have been using Tether as a way to quickly facilitate fund transfers, replacing the need to depend on banks.

New research claims that a trio of cryptocurrency exchanges likely inflated Bitcoin's value by buying it up whenever the price began to fall. Also, it looks like the activity is more concentrated at certain levels (e.g., near $7,100 as opposed to $7,084).

"Proxies for Tether demand receive little support in the data", Griffin and Shams add, "but our results are consistent with the supply-driven manipulation hypothesis". 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. Twitter accounts and websites such as Tether Printer which tracks the movement of new tokens issued by Tether's central organization show that millions of dollars' worth of USDT were printed through the 2017 and early 2018 market seasons - correlated with the rise of Bitcoin and other cryptocurrencies. "These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free", they conclude.