There is evidence that tether, a digital currency pegged to the USA dollar, may have been used to manipulate the price of bitcoin BTC=BTSP and other cryptocurrencies, according to a research paper released by the University of Texas on Wednesday.
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. "Tether issuances can not be used to prop up the price of bitcoin or any other coin/token on Bitfinex", he said.
BTC/USD is changing hands at $6,480, the price of the digital coin No. 1 recovered strongly from a new low reached late on Wednesday at $6,154.
Cryptocurrency exchange Bitfinex is the creator of Tether and controls its supply, and its involvement in the price surges is mentioned extensively in the study.
As evidence for this claim, the Griffin and Shams note that there tends to be negative end-of-month pressure on the bitcoin price in months when a large number of tethers have been issued but not in others.
In particular, Mr Griffin and Mr Shams examined the flow of Tether, a token that is supposed to be tied to the value of the U.S. dollar and that is issued exclusively by Bitfinex in large batches.
Bitcoin isn't all it has been cracked up to be, according to a new report by a University of Texas professor.
As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year. The published study states that the researchers used "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".
Beyond his work at the University of Texas, Mr Griffin has a consulting firm that works on financial fraud cases, including some in the virtual currency industry. Most prominently, he drew media attention for a 2016 paper that suggested that a popular financial contract tied to the volatility in financial markets, known as the VIX, was being manipulated.
The bottom line is that if Professor Griffin is correct, then the underlying manipulation in bitcoin's price may have been removed and the asset is going to fall back to its "natural" value.
"There were obviously tremendous price increases previous year, and this paper indicates that manipulation played a large part in those price increases".