The recent June 13th, 2018 study by John Griffin and Amin Shams highlights the price manipulation using Tether USD on the Bitfinex, Poloniex and Bittrex exchanges. The study illustrates how “printing” Tether USD without appropriate reserves allows for price manipulation in Bitcoin. Please note that the study’s authors did not interview an eyewitness or uncover a data leak. However, the amount of statistical data that they uncovered shows clearly that Tether was used to manipulate bitcoin prices on the Bitfinex exchange and to a lesser extent the Poloniex and Bittrex exchanges. The study does not assume that there is market wide price manipulation in bitcoin or other cryptocurrencies. So how was Tether used to manipulate bitcoin prices?
First off, Tether is the biggest stablecoin by market capitalization (approxiately $2.5 billion) and there is management overlap between Tether and Bitfinex. The CEO, CFO, chief strategy officer and legal counsel are the same. And Bitfinex is the only exchange in which Tether can be directly purchased. This sets up the groundwork for behind the scenes collusion between Tether and Bitfinex.
As bitcoin went down in price, Tether was issued in Bitfinex and used to purchase bitcoin. Although Tether is a stablecoin which perpetrates to have 100% currency reserves, most market experts allege that is not the case. This allows Tether to operate as a central bank and issue unbacked Tether USD on Bitfinex, and then Bitfinex would use Tether to purchase bitcoin. Tether would also flow to Poloniex and Bittrex to buttress bitcoin prices in times of price weakness.
A few key takeaways from the study become apparent:
Tether is printed and supports bitcoin prices during downturns
- Greater upward prices change occurred when large amounts of Tether were printed
- Tether is not redeemed when bitcoin prices rise
4.Tether can only be redeemed on Kraken and accounts for a small proportion of transactions - Tether is using fractionated banking
To quote directly from the study:
“In conclusion, this section finds considerable evidence that Tether is used to buy Bitcoin following Tether printing and negative returns and that this phenomenon has a sizable effect on future of Bitcoin prices. This effect also holds for other coins and induces an asymmetric negative auto correlation in Bitcoin returns.”