University of Texas Study Links Tether To Bitcoin Price Manipulation

Record bitcoin price propped up by another digital currency

Tether Manipulation Pushed Up Bitcoin's Price, Researchers Find

A paper released Wednesday by a professor at the University of Texas titled "Is Bitcoin Really Un-Tethered?" claims that fraudulent transactions of Tether, a digital currency pegged to the Dollars, were responsible for approximately 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies.

He added that Tether seems to be used both to "stabilise and manipulate bitcoin prices".

Bitcoin fell to its lowest price since February 6 on Wednesday, to $6,371, as it struggles to find a stable support level.

Bitfinex CEO J.L. van der Velde told CNBC that neither the exchange nor tether helped to boost bitcoin prices.

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.

According to Griffin, Tether coins are created in large quantities, such as 100m. They found that half of the increase in Bitcoin's price in 2017 could be traced to the hours immediately after Tether flowed to a handful of other exchanges, generally when the price was declining.

Tether appears to have stopped issuing new tethers as of recent times, possibly in fears of stricter regulation, or lack of legitimate deposits into the company's reserves that may prompt more printing; regardless of being due to the lack of new printed tokens or simply due to lack of demand leaving Tether's company in need of new deposits, Bitcoin's price drop past $6,500 has proved the researcher's hypotheses. New analysis indicates that this is one of the most important factors that drove bitcoin's rally past year. However, the currency may have had another shady goal; large amounts of Tether were also used buy Bitcoin, which propped up its value, the researchers claim.

Mr Griffin previously wrote research pointing to fraudulent behaviour in several other financial markets. Most prominently, he drew media attention for a 2016 paper that suggested that a popular financial contract tied to the volatility in financial markets, known as the VIX, was being manipulated.

Beyond his work at the University of Texas, Mr Griffin has a consulting firm that works on financial fraud cases, including some in the virtual currency industry.

The bottom line is that if Professor Griffin is correct, then the underlying manipulation in bitcoin's price may have been removed and the asset is going to fall back to its "natural" value.

The new paper is not the first academic work to identify manipulation in the virtual currency markets.

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