Bitfinex likely manipulated BTC price surge in 2017, paper claims

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The Bitfinex cryptocurrency exchange is responsible for the meteoric price jump in BTC from 2017, and not in a good way. This is the assertion of a professor with the University of Texas (UT), John Griffin, and Ohio State University Assistant Professor Amin Shams, who have released an update to a paper they published in 2018 on crypto price manipulation. They argue, as they have in the past, that the exchange is able to coerce the price of BTC by using Tether’s USDT stablecoin.

The professors argue that the $100-$20,000 run in 2017 came from one whale. They shared their latest insight with Bloomberg, explaining, “Our results suggest instead of thousands of investors moving the price of Bitcoin, it’s just one large one. Years from now, people will be surprised to learn investors handed over billions to people they didn’t know and who faced little oversight.”

In the update (in pdf), titled “Is Bitcoin Really Un-Tethered?,” the professors assert that Bitfinex prints USDT whether or not there is a demand from cash investors. This can lead to an artificial inflation in BTC’s price that is not the result of genuine capital flow and is the possible result of a desire to increase profits while manipulating prices.

By tracking crypto activity using algorithms, Griffin and Shams were able to show that USDT flows from Bitfinex to Poloniex and Bittrex and, in exchange, BTC is returned to Bitfinex. They also discovered that, when positive net hourly flows are found in the initial transactions, BTC prices routinely increase over the subsequent three hours. They add, “This phenomenon strongly suggests that the price effect is driven by Tether issuances. Additionally, the price impact is strongly linked to trading of the one large player and not to other accounts on Poloniex, Bittrex, or other Tether exchanges.”

Just like in the past, Tether et al deny any of the paper’s findings. Tether General Counsel Stuart Hoegnar asserts that the conclusions are based on incomplete data being incorporated into the investigative study and adds that it is a “transparent attempt to use the semblance of academia for a mercenary money grab. Updates or not, the paper lacks academic rigor.”

Given the amount of information included in the publication, it would be easy enough for others to validate the conclusions. However, it has long been suspected that Tether is anything but up front about its stablecoin activity and transactions, and the latest findings aren’t going to do much to instill confidence.