Business

Erik Gibbs

Bitfinex/Tether could be behind the recent crypto run

The world is trying to understand how the cryptocurrency market works – what really causes rallies like the one that just saw Bitcoin Core (BTC) jump from $7,000 to $12,000 in less than a week. Talk of Tether-linked involvement is surfacing, the same way it made its rounds when BTC jumped in 2017.

Will Harborne, the founder of the Ethfinex decentralized exchange, asserts that Tether is definitely behind the recent bull run. Ethfinex is a part of Bitfinex, which is, in turn, a part of Tether’s ecosystem. He says that when Tether prints a large amount of stablecoins – it just printed $600 million worth in the past month – it is because certain Tether clients have placed preorders for the coin in order to subsequently dump them onto the market.

These preorders require that key Tether members use their public keys to sign off on the transaction requests. This, says Harborne, takes time and is reflected in the market. Once the preorders are processed, Tether issues the new Tethers to the requestors at $1 each, and those requestors then use them to purchase digital currencies. From there, the bull run begins.

Harborne explains, “[Tether] essentially just ‘pre-creates’ the blockchain tokens based on a rough projected demand,” said Harborne. “Usually customers don’t just send $5 million without pre-notifying Tether. So Tether can know it’s going to roughly need about [for example] $250 million over the next few days. But then once the money arrives via wire transfer the actual Tethers get sent to the customers.”

Why the large orders are drawn isn’t clear, and Harborne won’t offer any possible reasons. However, large investors aren’t ignorant of how markets work. By making large requests, the market can see positive movement, which fuels even more movement, ultimately leading an asset to jump from $8,500 to $12,000 in just a matter of days.

This activity is being viewed by many as a type of market manipulation. A blogger, “Bitfinex’ed,” told Decrypt, “Nobody ‘buys’ tethers. Bitfinex issues tethers to their traders for market manipulation, market manipulators pump and dump, then ‘pay’ for the tethers later.”

The recent bull run is suspect, and Bitfinex’ed explanation may have merit. It comes on the heels of the lawsuit against Bitfinex by the New York Attorney General over the exchange’s financial arrangements with Tether, but Harborne says that there’s no correlation. Bitfinex’ed isn’t convinced, countering, “If it was [true], then Bitfinex would have been able to provide that documentation and avoid a lawsuit,” he said. “They would have been able to show, here, we issued 10,000,000 tethers to Mr.X, and here’s a 10,000,000 wire transfer from Mr.X just before we issued it.”

If a casino company announces that it is considering a merger, investors typically react favorably and the stock price increases – even though the merger hasn’t been transacted. The same could be said of Tether’s preorders, with crypto investors reacting favorably to the mere thought of positive growth associated with the market, and savvy investors Tether holders would have been well aware of this possibility.

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