Published: Thu, June 14, 2018
Finance | By Claude Patterson

Cryptocurrency tether used to boost bitcoin prices, study finds

Cryptocurrency tether used to boost bitcoin prices, study finds

Their paper seems to confirm what many have believed for months, if not years, that cryptocurrency markets are susceptible to manipulation.

When the bitcoin price falls, traders and journalists scramble to explain the sudden decline. In the last 24 hours, bitcoin has fallen almost seven percent, according to CoinMarketCap. The latest reason? A research paper hot off the press at the University of Texas at Austin.

Days after Tether (USDT) gained a higher market cap than Monero and Dash, new research has reignited suspicions that the altcoin "manipulated" Bitcoin prices. This has been widely rumored within the cryptocurrency community for ages, but the study lends an air of academic credibility to the claims. They wrote that bitcoin's surge in late 2017 correlates with movement of Tether from Bitfinex to other exchanges in the hours before the valuation increased.

"It was creating price support for bitcoin and, over the period that we examined, had huge price effects", Griffin said.

Around the time of the bitcoin peak, cryptocurrency experts suspected Bitfinex was involved in manipulation, and the US Commodity Futures Trading Commission subpoenaed the exchange after concerns were raised.

An incomplete audit by Friedman LLP appeared to prove Tether's solvency, but lacked critical evidence. This pattern is only present in periods following printing of Tether and not observed by other exchanges.

"Overall, the findings indicate that Tether is closely linked to Bitcoin price appreciation, and question the goal of Tether".

With intentions to investigate the price outsets of Tether to Bitcoin, they choose the sample of 87 of the largest purchases of Bitcoin with Tether from March 2017 to March 2018.

"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". "Such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies", the researchers claim.

Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by United States dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns.

To prevent future price manipulation, the researchers say that "external capital market surveillance and monitoring" may be necessary to keep the market free from tampering.

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