The latest research report by a finance professor at Texas University evaluates the role of Tether in the inflated prices of bitcoin and other cryptocurrencies last year. By using algorithms, the research finds a significant association of Tether in the price spike.
Tether, the force behind Bitcoin price rise, at least partially?
The research paper by John Griffin, a finance professor at the University of Texas along with the graduate student Amin Shams debates over how much of the Bitcoin price rise was because of a few big players instead of real investors’ demand.
The study basically
“examines the interaction between the largest cryptocurrency, Bitcoin, other major cryptocurrencies, and Tether, a cryptocurrency that accounts for more transaction volume than U.S. dollars.”
Many industry players had expressed concern when the prices skyrocketed last year to the activity at Bitfinex, to a degree. One of the biggest crypto exchanges, Bitfinex is also apparently the least regulated one in the industry. The exchange is registered in the Caribbean and was subpoenaed by the US CFTC. Tether was also subpoenaed which shares the same CEO with Bitfinex.
The focus of research was put on the flow of digital tokens going in and out of the Bitfinex. This brought about multiple distinct patterns that suggest that the prices were being pushed at the exchange when they slumped at other exchanges. For this Tether was used that is created and sold by the owners of Bitfinex.
The paper mentions,
“A similar analysis of the flow of coins on the much larger Bitcoin blockchain shows that the 3 three main Tether exchanges for most of 2017 (Bitfinex, Poloniex, and Bittrex) also facilitate considerable cross-exchange Bitcoin flows among themselves.”
Furthermore, in the 66-page paper, researchers state:
“we find that the cross exchange currency flows are closely matched on the Tether and Bitcoin blockchains. This independently verifies our algorithm for categorizing the exchange identities, and in addition shows that wallets associated with Bitfinex send Tether to Poloniex and Bittrex in exchange for Bitcoin.”
Price manipulation in Bitcoin space
The basis of the research is the records of the millions of transactions that are available on the public ledgers of all cryptocurrencies. When examining the flow of Tether, it has been noticed that it is issued exclusively by Bitfinex in huge numbers.
Furthermore, Mr. Griffin and Mr. Shams found that about half of the increase in BTC price in 2017 can be traced to the time immediately after Tether was flowed to other exchanges, whenever the price takes a dip.
“There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases.”
In the past, Bitfinex has denied that they have been involved in any kind of manipulation.
The paper also mentions other major cryptocurrencies like Ethereum and Zcash that can be purchased with Tether and rose dramatically at that time. The author further notes that the prices spike much quickly on the exchanges that accepted Tether than others who didn’t. Also, this came to a halt when Bitfinex stopped issuing new Tethers this year.
According to New York Times, Sarah Meiklejohn, a professor at the University College London said the analysis “seems sound”. The chief economist at Chainalysis, Philip Gradewell also said the study “seems credible”, though more analysis would be required to understand the patterns.
This is not the first time academic research has been done on manipulation in the crypto market. Last year, a paper was published on price manipulation in bitcoin price in 2013 which was caused by Mt. Gox.
What are your views on the paper and its findings? Do you think Bitfinex and Tether manipulated the BTC price? Share your thoughts with us!