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.
John Griffin and Amin Shams, of the University of Texas at Austin's Department of Finance, published a study Wednesday linking the stablecoin with bitcoin's prices during the 2017 price increases. The exchange, which is registered in the Caribbean with offices in Asia, was subpoenaed by U.S. regulators shortly after articles about the concerns appeared in The New York Times and other publications.
Griffin said: "There were obviously tremendous price increases past year, and this paper indicates that manipulation played a large part in those price increases". Executives at the company previously denied any involvement in price manipulation, The New York Times reports, though did not respond to a request for comment by the newspaper over the study.
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"Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation", Bitfinex CEO JL van der Velde told Bloomberg in an e-mailed statement.
"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". The paper alleges that these instances may account for about 50% of the price increases of Bitcoin and 64% of others trading in the top ten.
Some cryptocurrency enthusiasts will take issue with comparing the rally previous year with an asset bubble, but it certainly had all the right characteristics to be defined that way.
In addition, the paper provides evidence that Tether's reserves are lacking in comparison to the amount of USDT in circulation, based off patterns found in the issuance of new USDT tokens and price movements.
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The authors of the paper do not have an email or document trail to prove Bitfinex is responsible for the the price manipulation, but instead relied on the transaction records on the blockchain to sift out patterns, a method that has helped authorities spot suspicious activity in the past.
Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices.
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.
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