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Tether Directly Used to Manipulate Bitcoin Price, Finds Study

13 June 2018

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Griffin and Amin Shams, the paper concludes that "purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices" through algorithms the researchers applied to the market and blockchain in order to detect patterns.

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

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.

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 Dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns. Whenever bitcoin fell, tether was used to buy it to prop up the price of the leading crypto. "Tether issuances can not be used to prop up the price of bitcoin or any other coin/token on Bitfinex", he said.

"It was creating price support for bitcoin and, over the period that we examined, had huge price effects", Griffin said. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical United States dollars.

Industry players had questioned if Tether, a virtual "stablecoin" that aims to create a digital currency equivalent of the USA dollar, and the cryptocurrency exchange Bitfinex played a part in Bitcoin's explosion in value in late 2017 and early 2018.

The Commodity Futures Trading Commission subpoenaed both Bitfinex and Tether in December, over concerns about if Tether is actually by the reserve of USA dollars it claims it has. A follow-up investigation from Bloomberg found that Bitfinex and Tether are likely banking with Noble, but neither company has confirmed it publicly.

Tether Directly Used to Manipulate Bitcoin Price, Finds Study