Crypto Price Manipulation Linked to BitFinex Tether Trading
In a paper released today, a professor from the University of Texas explores a possible link between Tether (USDT) trading on the BitFinex exchange and the price hikes of late 2017.
The main summary of the paper notes that less than 1% of time involving bulk Tether-Bitcoin transactions account for 50% of Bitcoin gains and 64% of other cryptocurrencies.
In December 2017, the value of Bitcoin almost doubled – shooting up from approximately $10,000 to $20,000 in less than three weeks.
In his report, Professor John M Griffin notes that such patterns cannot be explained by investor demand but exhibit manipulation caused when stable-coin Tether is used to provide price support:
These patterns cannot 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,”.
Coincidently, earlier this week a Freedom of Information Request was filed with the Commodity Futures Trading Commission (CFTC). The request was regarding subpoenas issued to BitFinex and was denied because, apparently, it could interfere with the CFTC’s law enforcement activities. The identity of the individual who made the request was not released, but may well have been related to the University of Texas report.
The professor’s paper goes on to note the obvious appeal of a decentralized, blockchain-based ledger but also points out that a majority of these trades conclude on centralized exchanges. This presents a problem as cryptocurrency exchanges operate outside of financial regulations and offer limited transparency.
While these concerns are noted, regulation and legislation of cryptocurrency markets have come a long way since the meteoric rise of Bitcoin back in late 2017.
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