Cryptocurrency tether used to boost bitcoin prices, study finds

Record bitcoin price said propped up by another digital currency

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Researchers at the University of Texas say bitcoin's price peaks previous year were down to artificial inflation.

The paper by John Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student, is likely to stoke a debate about how much of bitcoin's skyrocketing gain past year was caused by the covert actions of a few big players, rather than real demand from investors.

"Tether issuances can not be used to prop up the price of Bitcoin or any other coin/token on Bitfinex", Jan Ludovicus van der Velde, Bitfinex's chief executive, said in a statement.

Again, in plain language: in periods right after the bitcoin price falls and Tether mints a bunch more USDT, that's when it's clear that somebody (who could it be?!) is artificially pushing the bitcoin price back up.

Tether [USDT], one of the most traded cryptocurrencies supported by platforms like Bitfinix, ShapeShift, Bittrex, and Omni, shows an indication of being spent on Bitcoin in its critical moments, according to research by a University of Texas professor.

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Industry players had questioned if Tether, a virtual "stablecoin" that aims to create a digital currency equivalent of the US dollar, and the cryptocurrency exchange Bitfinex played a part in Bitcoin's explosion in value in late 2017 and early 2018.

Bitcoin fell 2% against the dollar shortly after the New York Times piece was published.

Bitfinex CEO J.L. van der Velde told CNBC that neither the exchange nor tether helped to boost bitcoin prices.

In addition, the paper provides evidence that Tether's reserves are lacking in comparison to the amount of USDT in circulation, based off patterns found in the issuance of new USDT tokens and price movements.

Speculation has long held that Bitcoin's value was being propped up by Tether - and Gizmodo found that a sudden rebound in the former's price in February coincided with a sudden influx of Tether being added to the market.

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Mr Griffin previously wrote research pointing to fraudulent behaviour in several other financial markets.

Beyond his work at the University of Texas, Mr Griffin has a consulting firm that works on financial fraud cases, including some in the virtual currency industry.

The new paper is not the first academic work to identify manipulation in the virtual currency markets. They set out to know how less than 1% of hours with heavy Tether activity can explain nearly half of the meteoric rise in Bitcoin.

Do you think tether played a part in inflating prices past year?

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