Why Bitfinex and USD Tether (USDT) Find Themselves Under Fire Once Again

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For months Bitfinex has been suspected of manipulating Bitcoin (BTC) prices and propping them up during times of low demand. Now a new college research paper, released by John Griffin, a finance professor at the University of Texas, and his research associate Amin Shams, claims that Bitfinex and USD Tether (USDT) are responsible for the huge increases in Bitcoin's (BTC) price at the end of 2017. The University of Texas researchers concludes over half of Bitcoin's (BTC) price increases could be attributed to USDT.

The paper examines the flow of USDT over several exchanges it is prevalent on and investigates millions of associated transactions. There is some compelling evidence if one were to buy into the supply-side theory they present here. The timing of USDT issuance times with markups in Bitcoins (BTC) price does correlate and that is suspect enough on its own. Bitfinex CEO, JL van der Velde reportedly told Blockchain news, Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of Bitcoin (BTC) or any other coin/token on Bitfinex. disputing the accusations in the research paper.

It is strange to think that a token with such a small percentage of the overall market capital could have such a drastic effect on BTC's Price. Nevertheless, the Griffin asserts exactly that. Quoting the paper, "even less than 1% of extreme exchange of tether for Bitcoin has substantial aggregate price effects." In other words, he is saying that the smallest changes in USDT create vast price changes across the entirety of the crypto market.

Additionally, the paper charges Bitfinex with another accusation, claiming these pumps in price are used to sell off the acquired Bitcoins (BTC) through discreet channels, in turn, using the USD acquired from the sale to back up USDT that was previously unbacked. If true this information could destroy Bitfinex and collapse USDT for more than obvious reasons. Griffin says he has all the evidence he needs to back up these claims concluding, "Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies."

"These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free. More generally, our findings support the historical narrative that dubious activities are not just a by-product of price appreciation, but can substantially contribute to price distortions and capital misallocation."

What This Means for Investors

Possible manipulation is a hot topic and an especially potent fodder for FUD as well as a legitimate concern for traders and investors. If it is true that a small group is responsible for manipulating bitcoins price to their own gain it will surely send a ripple through the entirety of the market.

Still, the cryptocurrency community is active enough and adoption is growing enough to justify higher prices in some cryptocurrencies. From a purely technical perspective the market is oversold and due to correct back upwards in the near future. For those eyeing a new entry after the last run-up, it may be wise to start making small buys, scaling in and taking advantage of the fear this is creating.

For the full research paper on USDT visit here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066

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Disclosure:

I have received no additional compensation other than the Ethereum that Hade Technologies pays to produce Exclusive content

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