Cryptocurrency tether used to boost bitcoin prices, study finds

Cryptocurrency tether used to boost bitcoin prices, study finds

The study, by University of Texas finance professor John M. Griffin and graduate student Amin Shams, explored how digital currency Tether could have been used to inflate prices of other cryptocurrencies. Indeed, even less than 1% of extreme exchange of Tether for Bitcoin has substantial aggregate price effects. Whenever bitcoin fell, tether was used to buy it to prop up the price of the leading crypto. "Tether seems to be used both to stabilize and manipulate Bitcoin prices", they wrote in their paper, released on Wednesday. Price manipulation and collusion may be to blame. The prices climbed faster on exchanges the dealt in Tether than on those that didn't. In his paper, Griffin says that the USA dollar-pegged cryptocurrency tether was used to buy bitcoin at the times that the latter was falling, which helped "stabilize and manipulate" the cryptocurrency's price. Tether is the 11th largest cryptocurrency and is pegged to the United States dollar. These purchases alone accounted for 50 percent of the cryptocurrency's compounded gains, when its value skyrocketed from $1,200 to around $10,000.

Bitfinex, a cryptocurrency exchange, distributed Tether and supplied it to other exchanges, mainly Poloniex and Bittrex, the researchers said. Although their findings don't definitively prove collusion or price manipulation, the Tether-Bitcoin buys had obvious benefits. These patterns can not be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.

Regulators worldwide are increasing their scrutiny of cryptocurrency markets. Bitcoin's all-time highs around $20,000 one month later - and those of major altcoins - were also a result of Tether flooding the market with coins, they say.

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Around the time of the bitcoin peak, cryptocurrency experts suspected Bitfinex was involved in manipulation, and the US Commodity Futures Trading Commission subpoenaed the exchange after concerns were raised.

In the paper, Griffin and Shams write, "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".

"(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.

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