Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by United States dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns.
On Monday, researchers from the University of Texas at Austin published a study indicating that Tether was used to unduly influence bitcoin's 2017 ascent.
While there is little public information on about how Tether was created, it generally exchanges for around $1 as each coin is supposed to be backed by $1 of fiat money in a bank. However, the currency may have had another shady goal; large amounts of Tether were also used buy Bitcoin, which propped up its value, the researchers claim. Bitfinex stopped issuing Tether earlier this year, though the currency, the value of which is pegged to the U.S. dollar, is still trading in large volumes. Other digital currencies like Ethereum and Litecoin soared at around the same time by as much as 64 percent. Evidence of price manipulation was found in all of those, too.
Bitfinex, a cryptocurrency exchange, distributed Tether and supplied it to other exchanges, mainly Poloniex and Bittrex, the researchers said.
The findings add to the growing concerns that Tether was used to artificially inflate Bitcoin for the benefit of a small group of big cryptocurrency holders, putting the rest of the market at risk. The paper does not prove definitively that Bitfinex was tangled in price manipulation, but the evidence gives a strong indicator that it was involved.
In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether. The Commodity Futures Trading Commission and the U.S. Department of Justice have been investigating whether bitcoin and other cryptocurrency prices are being manipulated, Bloomberg reported last month. In a nutshell, trades of Tether were "timed following market downturns" triggering "sizable increases in Bitcoin prices". "These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free", they conclude.