The crazy growth of bitcoin in 2017 was caused by manipulative actions of one market participant, a new study reveals.
In 2018, University of Texas professor John Griffin and Ohio State University professor Amin Shams published a paper according to which the bitcoin rally in 2017 was caused by manipulations. Recently, they published another article according to which those manipulations came from one bitcoin whale who traded on Bitfinex.
Researchers’ hypothesis is based on the assumption that new USDT coins are created without corresponding deposits in US dollars. In their opinion, unsecured Tethers are used to buy bitcoins, and their emission often leads to a jump in the bitcoin price. The authors reviewed Tether and bitcoin transactions from March 1, 2017 to March 31, 2018, and concluded that one major entity purchased bitcoins on Bitfinex whenever the value of the first cryptocurrency dropped to a certain level. According to them, only one market participant trading on Bitfinex demonstrated such behaviour. “This pattern is only present in periods following the printing of Tether, driven by a single large account holder, and not observed by other exchanges,” they wrote in their paper, set to be published in a forthcoming Journal of Finance. “Simulations show that these patterns are highly unlikely to be due to chance. This one large player or entity either exhibited clairvoyant market timing or exerted an extremely large price impact on bitcoin that is not observed in aggregate flows from other smaller traders.”
“Our results suggest instead of thousands of investors moving the price of Bitcoin, it’s just one large one,” Griffin said in an interview. “Years from now, people will be surprised to learn investors handed over billions to people they didn’t know and who faced little oversight.”
Tether denied all allegations of involvement in bitcoin price manipulations. According to Tether General Counsel Stuart Hoegner, the study is “foundationally flawed” because it is based on an insufficient data set. Hoegner accused the authors of the article of lack of academic rigor, as well as of trying to use the scientific community to extort money.
He added that “macroeconomic experts and stakeholders in the cryptocurrency ecosystem understand that it is the global rise of digital currency that has driven the markets and demand for Tether.”
In 2017, Bitfinex and Tether received subpoenas from the US Commodity Futures Trading Commission (CFTC). The US Department of Justice later launched a criminal investigation into whether Tether was used to manipulate bitcoin. No charges have been brought against Tether and Bitfinex as part of this investigation.