Study Claims That The Price Of Bitcoin (BTC) Is Prone To Manipulation

Research conducted by a team of two at the University of Texas has revealed that a pattern has emerged showing that at pivotal moments the Tether (USDT) virtual currency was spent on Bitcoin (BTC) and this assisted in driving the price of the flagship cryptocurrency to record highs. According to John Griffin the finance professor and Amin Shams his co-author the stablecoin was used to manipulate as well as stabilize the prices of Bitcoin.

Since last year concerns have been raised over cryptocurrency exchange Bitfinex and Tether. This was especially after Bitfinex lost banking relationships and yet was able to continue operating. Last year in December Bitfinex and the firm that issued the USDT token, Tether Ltd, were subpoenaed by the U.S. Commodity Futures Trading Commission. Both companies share the same chief executive officer, Jan Ludovicus van der Velde.

Concerns were also raised last year when Tether fell out with an auditing firm known as Friedman LLP before an audit exercise could be completed. With the USDT token pegged to the U.S. dollar Tether claims that its coins are backed by the fiat currency on a 1:1 ratio. However an audit process has never been carried out to prove or disprove this claim.

Currently there are 2.5 billion USDT tokens that are in circulation and in their research Griffin and Shams were seeking to find out how these virtual coins flowed through the markets. According to Griffin there was a pattern detected showing that USDTs were used to provide support to the price of Bitcoin. Typically Tether Ltd creates the tokens in big chunks say 200 million and they are then moved to Bitfinex. When the prices of Bitcoin fall following the issuance, USDTs available at Bitfinex as well as other crypto exchanges are then used to purchase the flagship virtual currency in a coordinated manner. This results in the price of Bitcoin going up.

Per Griffin the data they have been able to track clearly shows the hallmarks of price manipulation at play. Some of the patterns Griffin uncovered include asymmetric flows. For instance when the price of Bitcoin fell purchases made using Tether went up and this tended to assist in reversing the decline. The reverse did not however occur when Bitcoin appreciated in price thereby suggesting that Tether was being used to prop up Bitcoin in bearish conditions.

This is not the first time that allegations of price manipulation are being made. In 2017 a research paper was published which indicated that the big price increases that Bitcoin enjoyed in 2013 were a consequence of price manipulation at Mt. Gox, then the largest cryptocurrency exchange.