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Bitcoin crash accelerates as Tether fingered

14 June 2018

"By mapping the blockchains of bitcoin and tether, we are able to establish that entities associated with the Bitfinex exchange use tether to purchase bitcoin when prices are falling". In the last 24 hours, bitcoin has fallen almost seven percent, according to CoinMarketCap. Price manipulation and collusion may be to blame.

"Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies". Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical United States dollars.

The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late past year. The manipulation was so successful that it accounted for at least 50 percent of the gains Bitcoin and other cryptocurrencies such as Ethereum made over the past year.

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Again, in plain language: in periods right after the bitcoin price falls and Tether mints a bunch more USDT, that's when it's clear that somebody (who could it be?!) is artificially pushing the bitcoin price back up. 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". Bitfinex stopped issuing Tether earlier this year, though the currency, the value of which is pegged to the U.S. dollar, is still trading in large volumes.

"Across the six other crypto currencies, returns are 64 percent smaller on average when removing the 87 Tether-related [purchases]", the researchers added. The paper does not prove definitively that Bitfinex was tangled in price manipulation, but the evidence gives a strong indicator that it was involved.

Regulators worldwide are increasing their scrutiny of cryptocurrency markets. In a nutshell, trades of Tether were "timed following market downturns" triggering "sizable increases in Bitcoin prices".

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In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether. "Bitfinex nor tether is, or has ever, engaged in any sort of market or price manipulation".

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.

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Bitcoin crash accelerates as Tether fingered