Kraken hits back at Bloomberg over “indefensible” Tether reporting

Posted: 3 July 2018 11:36 am
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Kraken responds to an unusual Bloomberg report, and says its timing "raises red flags".

Kraken has responded testily to a recent piece by Bloomberg on Tether movements at the Kraken cryptocurrency exchange.

"A reporter covering market structure for Bloomberg News inexplicably fails to comprehend basic market concepts such as arbitrage, order books and currency pegs. More troubling, however, was the applause from other “journalist” lemmings as they followed in walking their reputations off a cliff. It defies logic," the Kraken blog post reads.

For context, it may be worth noting that Kraken has a long history of responding to developments in cryptocurrency with quippy and sarcastic blog posts, so it probably doesn't pay to read too far into the overall tone of the piece.

It has a point though. The Bloomberg investigation is founded on the shocking discovery that Tether prices remain relatively stable despite the push and pull of supply and demand, and that when it does move, the movements are unpredictable.

"Huge trades move prices about the same as small ones, ignoring the normal rules of economics," Bloomberg says. "The mystery is bracketed by another quirk: Oddly specific order sizes—many going out to five decimal points, with some repeating frequently. Another red flag."

"At Kraken, the third-most-common trade during the period Bloomberg examined was for 13,076.389 Tethers... such numbers could be signals to cheaters’ automated trading programs."

"No human would enter that order, it doesn’t make sense," Bloomberg quoted an expert as saying.

The response

"We asked the botter responsible for the mysterious 13076.389 orders [why they chose that number]. The answer: 'literally randomly selected'. So, there you have it," Kraken writes.

That's one mystery solved.

The next mystery is why Tether prices don't seem to shift too much in either direction. That would be because it's a stablecoin designed to remain pegged to US$1. It's a stablecoin backed by little more than an unaudited smile and a wink, but it's a stablecoin nonetheless. Why the prices change at all is because people do still buy and sell Tether at prices other than $1, and there are some arbitrage opportunities out there.

That's another mystery solved.

The remaining question Bloomberg asks is why Tether prices do move the way they do though. They don't remain perfectly pegged at $1, and there seems to be little rhyme or reason to its minute shifts to either side.

"Small trades and large trades may result in no change or similar changes in price because there is a much larger buy or sell order in the order book that has not been filled," Kraken explains. "Anyone, including Bloomberg, is welcome to test this hypothesis by looking at our order books and placing a trade. All the data is publicly available on the trade panel or through our API."

Bloomberg concluded its report with a suggestion that the evidence points at wash trading on Kraken, causing everyone to wonder why anyone would bother wash trading Tether. It goes on to suggest that this might be part of a broader market manipulation puzzle, and the circle of alleged price manipulation between Tether and bitcoin, via Bitfinex.

"Kraken offers only one market on USDT (USDT/USD). Between our competitors, there are over 400 other traded markets on USDT and Kraken represents less than 0.1% of aggregate daily USDT volume. As much as we pride ourselves on the level of recognition we enjoy in the industry, we sadly cannot claim to be the arbiters of the price of USDT," Kraken writes.

It went on to suggest that Bloomberg's reporting might not be on the up and up either.

"If we are to take up our pitchforks against market manipulation, guide your torches toward this illumination," the Kraken post dramatically waxed. "The Bloomberg News piece was published on June 29th, the last business day of trading for Q2, and expiration date of numerous futures contracts. It raises red flags."

It's an interesting point, and the timing seems to be beyond a coincidence. It's not Bloomberg's first auspicious coincidence of timing around Tether either. For example, Tether was initially subpoenaed in December 2017, but Bloomberg sat on the news for almost two months until scrutiny around Tether increased, and then reported it as though it was a new development.

One might be forgiven for assuming that Bloomberg has an agenda beyond journalistic integrity.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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