Bitcoin saw its price multiply 13 times last year to hit $19,000 as a new generation of speculators jumped on the crypto bandwagon but a new report published by University of Texas claims to have found proof that bitcoin’s price was manipulated during market downturns, using Tether, a cryptocurrency pegged to the US dollar.
The war of words between the traditional financial institutions and cryptocurrency enthusiasts could be nearing an end after professors John Griffin and Amin Shams of the University of Texas Department of Finance published a paper that provides the most compelling opinion yet of the alleged link between a controversial ‘stablecoin’ called Tether and the staggering price rises at the tail end of 2017.
During the period of global hype at the end of 2017, when bitcoin’s price rose from $963 on January 1st 2017 to $19,118 on December 19, global finance leaders around the world lined up to slam the technology as a scam or a ponzi scheme.
Bitcoin cynics include Jamie Dimon, CEO, JPMorgan Chase who said if people were “stupid enough” to buy bitcoin, they would pay the price, and legendary investor Warren Buffett, CEO of Berkshire Hathaway who likened cryptocurrencies to “rat poison.”
The damning report all but confirms concern within the crypto community over the hundreds of millions of dollars worth of new Tether that was created in 2018 during periods when the prices of other virtual currencies were heading south.
Tether is controversial because its price is “tethered” to the Dollar – $1 buys one Tether token.
However, this direct link between a cryptocurrency and the US dollar has caused concern and in January the Bitfinex exchange was subpoenaed by US regulatory agency – the Commodity Futures Trading Commission – over potential price manipulation.
The fear was the new Tether coins were created and then used on various exchanges to make big purchases of bitcoin and other tokens. The new tokens – created, and not bought using US dollars – were used to push prices back up and reassure wallet holders that the blip was temporary.
The price manipulation accusations come from the fear that the new Tether coins were allegedly created and therefore not bought with, or backed up by the US dollars they claim to represent.
The manipulation occurs when they are then used to swell the price of bitcoin with entirely imaginary monetary backing.
The study supports this hypothesis and claims to have produced a clear link between the printing of new Tether tokens and bitcoin’s overheated price increases.
The study said: “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.
“Such price supporting activities are successful, as bitcoin prices rise following the periods of intervention. These effects are present only after negative returns and periods following the printing of Tether.”
Back in February, Aleksei Antonov, Crypto companies evaluation expert at Tokenomics and Blockchain assets portfolio manager described the claims of price manipulation to Express.co.ukas “100 percent a crime”.
He said: “In terms of the Bitfinex issue and tether, these price manipulation claims are a whole new level of bad.”
Greg Adams Managing Director of blokt.com told Express.co.uk that: “The issue is that Tether has failed to provide full account audits proving that they have the fiat reserves to back up their minted Tether. Tether is supposed to be pegged to USD one-to-one, and without proof, nobody knows if this is truly the case.
“The catch-22 for Tether is that if they release full account audits, they will expose their private banking relationships. Once these relationships are revealed, there is a chance they will break down.”
Express.co.uk contacted Bitfinex for comment on the allegation and for further explanation over various tether transactions on the exchange during 2017. Bitfinex CEO JL van der Velde has rejected the allegations in the University of Texas paper, and a spokesman from the company told Express.co.uk: “Bitfinex nor tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of bitcoin or any other coin/token on Bitfinex.”