Rumors of a close Tether/Bitcoin relationship first flagged months ago in the nascent cryptocurrency market seem to have now been justified. Last year’s tremendous spike in bitcoin’s value might have been purposefully engineered, suggests a newly released paper by academics from the University of Texas.
The article authored by professor John Griffin and graduate finance student Amin Shams assumes that Tether, one of the most-traded virtual coins, backed by fiat money, has been exploited to manipulate the price of bitcoin. He spotted the covert strategy when studying the flow of virtual currency transactions through Bitfinex, at one point the world’s largest bitcoin-dollar exchange and its rivals, especially during incredibly volatile periods. Griffin, who is known to have revealed a number of fraudulent financial cases worldwide, found that the exchange platform had artificially propelled bitcoin prices up by purchasing currencies with Tether, the owners’ brainchild, from a range of traders.
“Such price supporting activities are successful, as bitcoin prices rise following the periods of intervention. These effects are present only after negative returns and periods following the printing of Tether.”
The news notably appears worrisome for cryptocurrency investors, who have been increasingly puzzled over a spate of problems that Bitfinex has faced in recent years. In 2016, the exchange suffered from a large-scale robbery, with perpetrators nicking roughly 120,000 bitcoin, worth around $72 million at the time.
Separately, it has long been in the crosshairs of US regulators, and was reportedly subpoenaed by the US Commodity Futures Trading Commission (CFTC) agency along with Tether, the exchange’s so-dubbed “stable coin.” The latter has also raised questions, with critics saying that although one Tether token formally equals $1, Tether issues far more tokens than it has dollars in the bank. Investors are concerned that Tether has never been audited, as such a review could reveal quantitative discrepancies, if any.
Tether’s market cap and trading volume was carefully studied by Weiss Ratings, an investment research firm that recently began evaluating cryptocurrencies, and it came to believe that the contentious digital money poses a risk to the entire cryptocurrency ecosystem.
“This means the entire Tether supply changes hands regularly, sometimes more than once a day. … This is important to know because it tells us that Tether is used for trading A LOT. It’s one of the main sources of liquidity in the cryptomarkets,” the firm concluded.
The value of other virtual currencies purchased with Tether, such as Ether and Zcash, spiked even more dramatically than that of Bitcoin during the most critical periods.
Having reached a historic record of $20,000 per coin in mid-December 2017, bitcoin dramatically fell to a mere $6,000 in the subsequent two months, with financiers now eagerly evaluating the cryptocurrencies future. May experts refer to its current state as a “coma.” According to Veronika Dneprovskaya, a leading specialist in major broker Alpari’s investment department, investor trust may pump up demand for the “digital gold,” with its price moving upwards in light of an increase in the complexity of the mining process.
According to Coinbase, the largest US cryptocurrency exchange, bitcoin has furthered dipped to a mere $6,486 per coin, down around 20 percent from last month.
READ MORE: Scholar: Venezuela’s Petro ‘Failed Project From the Beginning’