Thursday, 21 June, 2018

University of Texas Study Links Tether To Bitcoin Price Manipulation

A cryptocurrency mining computer is seen in front of Bitcoin logo. A university research papers says there is evidence of manipulation of cryptocurrencies. Reuters Record bitcoin price propped up by another digital currency
Jean Garcia | 14 June, 2018, 03:18

The U.S. dollar-pegged tether has been used to support bitcoin's price during market downturns, a new study published by University of Texas at Austin professors.

Griffin and Shams' study shines a light on the possibility that Bitcoin's price manipulation was precipitated by a handful of cloak-and-dagger players and not genuine demand from investors. Several exchanges have been using Tether as a way to quickly facilitate fund transfers, replacing the need to depend on banks. Evidence of price manipulation was found in all of those, too.

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.

There is evidence that tether, a digital currency pegged to the US dollar, may have been used to manipulate the price of bitcoin BTC=BTSP and other cryptocurrencies, according to a research paper released by the University of Texas on Wednesday.

"Overall, we find that Tether has a significant impact on the cryptocurrency market".

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

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Both firms were subpoenaed in December by the Commodity Futures Trading Commission, which was seeking proof that Tether is backed by a reserve of USA dollars, as it claims.

Or, in layman's terms: to counteract price declines, it looks like somebody at Bitfinex is using Tether to buy bitcoin. Chainalysis, a research firm which last week produced its own overview of Bitcoin money supply trends, told The New York Times that the Tether theory "seems credible".

In other words, it looks like cryptocurrency buyers aren't really interested in Tether, and the researchers are fairly confident that the manufacturing of Tether has a lot to do with bitcoin prices staying high. "These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free", they conclude.

Their analysis of the flow of coins on Bitcoin's blockchain found that the three main Tether exchanges for most of 2017 - Bitfinex, Bittrex, and Poloniex - also created substantial cross-exchange Bitcoin flows among themselves.

"(Neither) Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation", Bitfinex and Tether Chief Executive Officer JL van der Velde said in a statement.

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