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Opinion: The new Bitcoin price manipulation allegations are a bit silly

Posted: 5 November 2019 2:00 pm
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When you have an axe to grind, you can't let a lack of new evidence get in the way.

It's a day ending in "Y", which means it's time for another series of Bitcoin price manipulation allegations to do the rounds.

This time it's a reheated batch of allegations from last year, and anyone hoping for some kind of new and damning revelations will be left disappointed by the warmed-up leftovers presented as new evidence.

The initial study

The following is a summary of the conclusion of the initial study:

You can theorise that Bitcoin prices are manipulated because there's a strong correlation between Tether (USDT) issuance and Bitcoin price rises.

Of course, that's what you would expect to see anyway because Tether is a natural onramp for buyers.

As such, the new question is whether this is organic demand as people "buy the dip" with USDT or whether unbacked Tether is being pushed onto the market, in the absence of genuine demand, to manipulate prices.

To support the argument that Tether is unbacked, the researchers point to a correlation between end-of-month Bitcoin price drops and the Tether issuance for that month. Basically, the more Tether was exchanged for Bitcoin in a given month, the more likely you are to see a larger Bitcoin price drop at the end of the month.

As the theory goes, Tether prints unbacked money throughout the month and then sells freshly-pumped Bitcoin right before the end of the month to ensure it can still demonstrate full backing on a month-to-month basis.

This is how Tether can apparently be fully backed, while also manipulating markets.

The new update

All of that was elucidated in the initial research paper.

The newest edition, which is what's now doing the rounds, is pretty much exactly the same thing, but updated to explicitly say the researchers believe it's a single player behind this manipulation. The first paper strongly implied it, while this new paper just says it outright.

This new inclusion is based on the fact that a single large account holder on Bitfinex appears to be responsible for the majority of those strategic Bitcoin purchases at key price points.

"Bitcoin purchases from Bitfinex strongly increase just below multiples of 500. This pattern is only present in periods following printing of Tether, driven by the single large account holder, and not observed by other exchanges," the researchers say.

"Additionally, we find that one large player is associated with more than half of the exchange of Tether for Bitcoin at Bitfinex, suggesting that the distribution of Tether into the market is from a large player and not many different investors bringing cash to Bitfinex to purchase Tether."

Here's the catch

The only new element to this new research paper is the conclusion that a single entity was behind the trading. But the evidence to support this claim doesn't mean much. One account does not necessarily equal one entity, and all Tethers flow from a central entity. The "new" allegations add nothing new.

It's not the first time a peer-reviewed research paper relating to Bitcoin has gone up with errors. Here's an example of another completely inaccurate peer-reviewed Bitcoin-related research paper. It's still up and has been cited 18 times now.

While the lack of any new information does not necessarily invalidate the claims made in the original research paper, it does strongly suggest that this paper is only circulating now because someone has an axe to grind.

That axe can be found here. Just last month someone launched a $1.4 trillion lawsuit alleging that Bitfinex and Tether were responsible for the 2017 Bitcoin bubble. And now, these researchers have spontaneously published a new paper alleging that "one entity" was behind the previous price manipulation allegations by rehashing last year's findings.

Too soon to say

To be clear, the silliness of these new allegations does not necessarily put Bitfinex and Tether in the clear.

It's perfectly possible that USDT was being used to exacerbate Bitcoin price rises, and the researchers have found statistical evidence of suspicious activity. It hasn't been proven one way or the other yet.

But while we can't draw a complete conclusion on the broader allegations, it's clear that this newest batch of news probably wasn't based on a spur-of-the-moment bout of academic curiosity.

This is most clearly emphasised by the most obvious inconsistency: the researchers claim that a single entity was manipulating Bitcoin prices in 2017, but don't account for the obvious Bitcoin mania of the time.

Everyone and their dog were trying to buy Bitcoin in late 2017. Exchanges couldn't keep up with the customer influx, and public interest in Bitcoin was at an all-time high. Countless millions of people were running towards cryptocurrency as fast as possible, and prices obviously skyrocketed as a result.

But if this new research is to be believed, about half the total price increase can be attributed to this one entity, and most of the Bitcoin mania of late 2017 was just a figment of your imagination.



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Disclosure: The author holds BNB and BTC at the time of writing.

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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