A new study from two researchers at the University of Texas at Austin concludes that Tether may have been used to manipulate cryptocurrency prices in 2017, according to a Wednesday report from the New York Times. Researchers John. M. Griffin and Amin Shams evaluated transaction data and found that at least half of the crypto market’s record-setting rise in value may have been the result of price manipulation.
The study looked for patterns in millions of crypto transaction records, and focused particular attention on the Bitfinex-issued token, Tether. Questions about Tether have been circulating for many months, with some analysts noting that Bitcoin price increases seemed to follow in the wake of rapid increases in the token’s supply. U.S regulators issued subpoenas to Bitfinex and Tether earlier this year, to help answer questions about Tether’s real value.
Tether claims that its token is pegged to the U.S. dollar, which has helped to make it a popular stand-in for dollars on digital currency exchanges around the world. However, some have questioned that claim since Tether has refused to confirm its reserve dollar holdings and has yet to permit an outside entity to audit its accounts.
Griffin and Shams discovered that half of all Bitcoin price increases last year occurred hours after new batches of Tether were delivered to various cryptocurrency exchanges. Many of these Tether flows occurred at times when Bitcoin’s price was retreating. Moreover, the duo found that cryptocurrency prices increased at a faster rate on exchanges that received the Tether flows.
Notably, the researchers concluded that the patterns they identified ended in 2018 –after Bitfinex stopped increasing the supply of Tether.
The study ultimately concluded that the Tether effect was dramatic and far-reaching. As the researchers explained in their paper’s abstract:
“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. Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies. The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends.
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.”