Cryptocurrency tether used to boost bitcoin prices, study finds

Record bitcoin price said propped up by another digital currency

The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late past year.

As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year.

Why did Bitcoin and several other cryptocurrencies suddenly balloon in value a year ago? This has been widely rumored within the cryptocurrency community for ages, but the study lends an air of academic credibility to the claims.

"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".

Both firms were subpoenaed in December by the Commodity Futures Trading Commission, which was seeking proof that Tether is backed by a reserve of United States dollars, as it claims.

The researchers found that tether issuances rose a year ago during periods when the price of bitcoin was dropping. Although their findings don't definitively prove collusion or price manipulation, the Tether-Bitcoin buys had obvious benefits.

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New research claims that a trio of cryptocurrency exchanges likely inflated Bitcoin's value by buying it up whenever the price began to fall. "These effects are present only after negative returns and periods following the printing of tether".

The researchers noted that the "bitcoin reversal did not exist before Tether was prevalent in the market and disappears during the period when Tether stops being printed". Also, it looks like the activity is more concentrated at certain levels (e.g., near $7,100 as opposed to $7,084).

Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by Dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns.

The study focuses primarily on the supply-based explanation for the link, but the researchers also note that the demand for bitcoin can create a similar demand for tether, particularly by investors who cannot move large sums of money into cryptocurrency directly.

To prevent future price manipulation, the researchers say that "external capital market surveillance and monitoring" may be necessary to keep the market free from tampering.

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