Cryptocurrency tether used to boost bitcoin prices, study finds

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Cryptocurrency tether used to boost bitcoin prices, study finds

John McCrank, Anna Irrera

 

FILE PHOTO: A Bitcoin logo is seen on a cryptocurrency ATM in Santa Monica, California, U.S., January 4, 2018. REUTERS/Lucy Nicholson/File Photo

 

NEW YORK (Reuters) - There is evidence that tether, a digital currency pegged to the U.S. 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.

 

“Tether seems to be used both to stabilize and manipulate bitcoin prices,” said the paper’s co-authors, professor John Griffin and doctoral student Amin Shams.

 

Critics of tether have raised concerns over the past year about whether Tether Limited actually holds $1 in reserve for each tether issued, as it claims. More than $2.2 billion of tether was issued between March 2017 and January 2018, according to the paper.

 

Regulators worldwide are increasing their scrutiny of cryptocurrency markets. The Commodity Futures Trading Commission and the U.S. Department of Justice have been investigating whether bitcoin and other cryptocurrency prices are being manipulated, Bloomberg reported last month.

 

In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether. The reason for the subpoena was unclear.

 

Bitfinex denied that tether issuances could be used to manipulate bitcoin.

 

“(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.

 

Bitcoin soared last year, peaking at nearly $20,000 in December, before the price collapsed. It was at $6,624.45 on Wednesday afternoon.

 

The researchers found that tether issuances rose last year during periods when the price of bitcoin was dropping. When bitcoin was rising, the same pattern could not be found.

 

Once issued, nearly all tether was moved to Bitfinex and then shifted to other exchanges, where it was used to buy bitcoin, propping up the price, the paper said.

 

The researchers used algorithms to analyze data from blockchains, the decentralized ledgers that underpin bitcoin and other virtual currencies, between the beginning of March 2017 to the end of March 2018.

 

The periods with the largest flow of tether accounted for 87 hours, or less than 1 percent, of the data, but were associated with 50 percent of bitcoin’s compounded return, and 64 percent of the returns on six other large cryptocurrencies.

 

The researchers then did 10,000 simulations looking in each case at 87 random hours from the data and were unable to find similar results.

 

“Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies,” they said.

 

Reporting by John McCrank and Anna Irrera, Editing by Rosalba O'Brien

 

-- © Copyright Reuters 2018-06-14

[Guitar God]

Well obviously people are going to buy Tether when BTC is dropping because they want to invest in a less volatile currency to preserve value until BTC hits a dip and starts to go up again so they can buy it back when it’s the cheapest. 

[Monomial]

On 6/14/2018 at 8:01 PM, Guitar God said:

Well obviously people are going to buy Tether when BTC is dropping because they want to invest in a less volatile currency to preserve value until BTC hits a dip and starts to go up again so they can buy it back when it’s the cheapest. 

 

Agreed. This article is horribly confusing. I understand the argument behind Tether propping up Bitcoin. Namely, that when people exchanged Bitcoin for Tether, instead of selling the Bitcoin on the market to buy USD which would have depressed the price, Tether simply held it, creating an artificial demand for Bitcoin and driving it to unwarranted highs. But the process described in the article above doesn't seem to offer any support for that, only normal market action. Of course, as cryptocurrencies drop people are going to unload it for stable coins in significantly larger numbers than when it was rising.

 

I suspect reading the actual paper written by UoT would make sense, but I often wonder where Reuters finds these reporters and editors.

[phycokiller]

20 hours ago, Monomial said:

 

Agreed. This article is horribly confusing. I understand the argument behind Tether propping up Bitcoin. Namely, that when people exchanged Bitcoin for Tether, instead of selling the Bitcoin on the market to buy USD which would have depressed the price, Tether simply held it, creating an artificial demand for Bitcoin and driving it to unwarranted highs. But the process described in the article above doesn't seem to offer any support for that, only normal market action. Of course, as cryptocurrencies drop people are going to unload it for stable coins in significantly larger numbers than when it was rising.

 

I suspect reading the actual paper written by UoT would make sense, but I often wonder where Reuters finds these reporters and editors.

I think they will take anything that is free, some of them may even be computer generated. one thing cryptos have shown is how ignorant many so called financial experts are, but I guess if they werent they wouldnt have to work as journalists