Tether Used to Manipulate Crypto Prices in 2017
Prof. John Griffin, along with graduate student Amin Shams, released a research paper that stated that the gains witnessed in the cryptocurrency markets last year, especially those of Bitcoin, were the result of manipulation rather than actual demand from investors.
This is not the first time that there have been concerns that last year’s cryptocurrency prices were manipulated. And Bitfinex has been one of the main suspects considered responsible for this manipulation.
How Was the Manipulation Done?
In his research, Griffin analyzed the flow of cryptos to and from Bitfinex. This analysis showed multiple distinct patterns that would indicate that a person or people at the exchange had successfully – and covertly – worked at pushing up crypto prices when they were slumping in other exchanges.
This was done by using Bitfinex’s currency, Tether. People at the exchange used Tether to buy up other cryptos whose prices were sagging to keep the market pumped.
The research showed that at least half of the spikes in Bitcoin’s price last year could be directly traced back to the hours immediately after Tether transactions, where the crypto was moved to a handful of other exchanges. These transactions took place every time there was a decline in the price of Bitcoin.
Other cryptos that can be traded using Tether are Ether and Zcash, and both these altcoins also showed the same movement patterns.
The researchers did not use any emails or other damning documents to identify Bitfinex’s possible manipulation. Rather, it used the millions of data points of cryptocurrency transactions that are available on the Blockchains to identify these patterns. While the method is not foolproof or conclusive, it has definitely helped authorities zero in on suspicious or fraudulent activities in the past.
Reactions to the Report
The creator of this method of pattern analysis, Professor Sarah Meiklejohn from University College London said that the research that Griffin and his associate had done seemed to be sound. The Chief Economist at Chainalysis, Philip Gradwell also reviewed the paper and said that it looked quite credible. However, he cautioned that a complete analysis of all the patterns was needed to have conclusive proof.
Bitfinex, as it has done in the past, denied that it had been involved in any form of price manipulation. The exchange’s CEO Jan Ludovicus van der Velde said that it was not possible for their in-house cryptocurrency, Tether, to prop up the prices of other cryptocurrencies.
The cryptocurrency market, already struggling, fell even further after this report was released.