Published: Wed, June 13, 2018
Money | By Ralph Mccoy

Tether Manipulation Pushed Up Bitcoin's Price, Researchers Find

Tether Manipulation Pushed Up Bitcoin's Price, Researchers Find

The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late a year ago.

Bitcoin's massive price run-up late a year ago may have been the result of a price manipulation campaign, according to a new study released on Wednesday.

"By mapping the blockchains of bitcoin and tether, we are able to establish that entities associated with the Bitfinex exchange use tether to purchase bitcoin when prices are falling. Tether seems to be used both to stabilize and manipulate Bitcoin prices", the researchers wrote.

As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year.

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In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether.

"Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation", Bitfinex CEO JL van der Velde told Bloomberg in an e-mailed statement. "Tether issuances can not be used to prop up the price of bitcoin or any other coin/token on Bitfinex", he said. It was at $6,624.45 on Wednesday afternoon.

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. This, they say, may indicate a "month-end need for dollar reserves related to Tether", implying that Tether issues un-backed tokens to help buttress the bitcoin price and then sells enough BTC at the end of the month to fully back the outstanding USDT. Tether is the 11th largest cryptocurrency and is pegged to the U.S. dollar.

"Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies", they said.

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