University of Texas Study Links Tether To Bitcoin Price Manipulation

Gladys Abbott
June 15, 2018

John Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student published a research paper that reveals that half of the Bitcoin price increase might have been orchestrated by a handful of big players.

"When prices are falling, the Tether creators can convert their Tether into Bitcoin in a way that pushes Bitcoin up and then sell some Bitcoin back into dollars to replenish Tether reserves as Bitcoin price rises", the researchers wrote.

It continued on to note that generally, the token is not redeemed by the issuer, "and the major exchange where tether can be exchanged for USD, Kraken, accounts for only a small proportion of transactions".

New research claims that a trio of cryptocurrency exchanges likely inflated Bitcoin's value by buying it up whenever the price began to fall.

Tether, a cryptocurrency supposedly pegged to the United States dollar, allowed cryptocurrency owners to use a "stable digital currency" within the volatile cryptocurrency market.

When the bitcoin price falls, traders and journalists scramble to explain the sudden decline.

More news: Arsenal and Chelsea to head for Dublin for International Champions Cup fixture

The US Commodity Futures Trading Commission allegedly sent Tether - as well as cryptocurrency exchange Bitfinex, with whom it is closely affiliated - a subpoena in December, though it is not clear whether that investigation has or will result in any enforcement action. Although their findings don't definitively prove collusion or price manipulation, the Tether-Bitcoin buys had obvious benefits.

Professor Griffin emphasized that the pattern of transactions that he and his research partner found played a significant role in last years unprecedented price gains in the crypto market in a recent interview with the New York Times. Several exchanges have been using Tether as a way to quickly facilitate fund transfers, replacing the need to depend on banks. He cautioned that a full understanding of the patterns would require more analysis.

Griffin has a history of spotting fraud and corruption in financial markets. He drew attention for a 2016 paper that suggested that a popular financial contract tied to the volatility in financial markets, known as the VIX, was being manipulated.

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

"It is great to see academic work trying to causally assess if market manipulation is taking place". A paper published a year ago by a team of Israeli and American researchers said much of bitcoin's big price increase in 2013 was caused by a campaign of price manipulation at what was then the biggest exchange, Mt Gox.

Other reports by LeisureTravelAid

Discuss This Article

FOLLOW OUR NEWSPAPER