Cryptocurrency tether used to boost bitcoin prices, study finds

Thursday, 14 Jun, 2018

The researchers noted that the "bitcoin reversal did not exist before Tether was prevalent in the market and disappears during the period when Tether stops being printed".

The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends. Executives at the company previously denied any involvement in price manipulation, The New York Times reports, though did not respond to a request for comment by the newspaper over the study.

The report says that Tether, one of the most-traded cryptocurrencies, has shown a pattern of being spent on bitcoin at pivotal moments, helping to drive bitcoin to a record price in December, according to a Bloomberg report on the study, which was authored by finance professor John Griffin.

While there is little public information on about how Tether was created, it generally exchanges for around $1 as each coin is supposed to be backed by $1 of fiat money in a bank.

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. Evidence of price manipulation was found in all of those, too. These purchases alone accounted for 50 percent of the cryptocurrency's compounded gains, when its value skyrocketed from $1,200 to around $10,000.

In the paper, Griffin and Shams write, "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".

"Across the six other crypto currencies, returns are 64 percent smaller on average when removing the 87 Tether-related [purchases]", the researchers added.

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

Or, in layman's terms: to counteract price declines, it looks like somebody at Bitfinex is using Tether to buy bitcoin.

Bitcoin reached its peak price of nearly $20,000 in December but is now trading at around $6,300 according to the Coin Market Cap.

"Tether is "pushed" through a supply-driven scheme to make up a currency, convert it into Bitcoin, and then manipulate the price 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.