“Is Bitcoin Really Un-Tethered?” is a report by academics John. M. Griffin and Amin Shams from the University of Texas and University of Ohio respectively. The duo suggested that the 2017 bull market where bitcoin’s price rose to almost $20,000 was caused by Tether (USDT).
In simple terms, they claimed that USDT was routinely used to prop up bitcoin’s price when it dropped below certain thresholds. Griffin and Shams are now reiterating these claims, but with a twist. In their recent report that made rounds on November 4, they claim that one giant bitcoin whale on Bitfinex fueled the 2017 bull run. The research was picked up by leading news outlets like the Wall Street Journal and Bloomberg.
Now, Tether published an official response to this research terming it as “embarrassing” and “watered-down”. Its sister firm, Bitfinex, also published a similar response on its official website on November 7.
Market Manipulation? Bitfinex, Tether Responsible For 2017 Bull Market
According to the Griffin-Shams study, Tether minted close to 3 billion USDT and used the tokens to buy other cryptocurrencies and also flood Bitfinex crypto exchange. This then created artificial demand which spurred the parabolic rise in bitcoin price and subsequent bust to $3,000 lows.
Griffin and Shams reportedly analyzed bitcoin and tether transactions in the period between March 1, 2017, and March 31, 2018, and came up with the conclusion that buying pressure increased on Bitfinex exchange as the exchange used tether tokens to purchase bitcoin so as to uphold the prices. The academics claim to have discovered an alarming pattern which only occurs after a large amount of tether is printed, facilitated by a single large Bitfinex account holder.
Tether Hits Back At Manipulation Claims
Tether laughed off the updated report by Griffin and Shams, arguing that it is a “weakened yet equally flawed version” of the earlier report. The firm also stated that the report is an “embarrassing walk-back” that still has notable “methodological defects” and an untrue claim that a single trader was likely responsible for bitcoin’s rise to $20,000 in December 2017.
According to Tether and Bitfinex, the authors made the claims sans necessary data to reach a logical conclusion. Tether went on to provide an example of such noting that the authors of the report have publicly acknowledged not having “accurate data on the crucial timing of transactions or the flow of capital across different exchanges”. This lack of information explains that they could not come up with a well-founded sequence of events that could have caused the purported price manipulation.
The two firms also claimed that the authors lack the understanding of how the crypto market works and the factors behind USDT purchases. They also mentioned the reaction witnessed from expert traders and analysts in the crypto industry to the updated report, which Tether further termed as “facile” for attributing the historic 2017 rally to a lone whale.
In conclusion, Tether noted that the company and its affiliates have never minted USDT for the purpose of manipulating prices and that all the tether tokens are fully backed by an equivalent amount of reserves and only issued as per demand in the market. USDT issuance has increased steadily since December 2017. Tether pointed out that this growth is not because of manipulation but is due to Tether’s “efficiency” and “widescale utility” in the cryptoverse.
Tether And Bitfinex Not Out Of The Woods Yet
It’s certainly not the first time Tether and Bitfinex are making headlines for not-so-pleasing reasons. Early last month, a lawsuit was filed in the United States District Court for the Southern District of New York against Tether and Bitfinex, claiming that they manipulated the markets and caused damages of more than $1.4 trillion.
The two firms are also dealing with the New York Attorney General’s lawsuit filed in April this year. At that time, Attorney General Letitia James claimed that Tether and Bitfinex conspired to cover up the alleged loss of at least $850 million of clients’ funds.
Moreover, the United States Department of Justice is investigating the alleged manipulation of bitcoin’s price using tether stablecoin. At the moment, however, it is still unknown if the Department has arrived at any conclusions.