John Griffin, a finance professor at the University of Texas who is known for shining a spotlight on suspicious activity in the VIX benchmark, has released a report in collaboration with graduate student Amin Shams that suggests the popular USD-backed stablecoin Tether was used to manipulate the price of bitcoin to reach its all-time high of $20,000 in late December 2017.
In a 66-page paper titled “Is Bitcoin Really Un-Tethered?” Griffin and Shams work through how the 2.5 billion Tether tokens may have affected the price of various cryptocurrencies, primarily bitcoin. Their analysis indicates that Tether was repeatedly used to provide price support to bitcoin at key levels.
According to the research, Griffin and Shams suggest that Tethers were minted in large sums, as much as $200 million each, then moved to Bitfinex where the manipulation allegedly occurred. When bitcoin’s price would drop, the Tethers would be used to purchase bitcoin and stabilize its price until retail investor buying resumed.
The authors of the research paper do not have any concrete evidence to implicate that Bitfinex was complicit, such as damning emails or documents, but Griffin explains:
“There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases.”
The pair of researchers came to their hypothesis after reviewing a trail of millions of transactions they followed across each cryptocurrency’s underlying distributed public ledger. The transactions show that roughly 50% of bitcoin’s price increase was tied to Tether moving to exchanges as the price declined.
Other altcoins were found to also be artificially inflated via Tether, with their price increasing at a much faster rate on any exchanges that offer Tether than those that do not offer the controversial stablecoin.
Griffin’s research is being given considerable weight due to the attention the professor earned in the wake of his 2016 paper that made claims of price manipulation in VIX financial contracts – claims that were later confirmed by whistleblowers and followed by lawsuits.
“The hype in cryptocurrency isn’t just 20-year-olds buying Bitcoin in their garage -- that’s part of it -- but there are big players moving the market and having a huge price impact.”
Price manipulation in the cryptocurrency market is a growing concern, as the United States Department of Justice and Commodity Futures and Trade Commission have launched a criminal probe into potential bitcoin price manipulation. The CFTC issued subpoenas to four exchanges linked to the price of bitcoin futures contracts through CME Group.