Professor Griffin goes on to explain that he examined millions of transactions on cryptocurrency exchange Bitfinex, and says that “the US dollar pegged cryptocurrency Tether was used to buy Bitcoin at the times that the latter was falling- which helped ‘stabilize and manipulate’ the price”
First I’ll explain what Griffin’s said, and then I’ll explain why he’s wrong about Bitcoin but right about Tether. And it boils down to his understanding of how Exchanges work and how Bitcoin works.
Griffin said “Fraud and manipulation often leave footprints in the data and it’s nice to have the blockchain to track things,” Griffin told CNBC. Whenever bitcoin fell, Tether was used to buy it to prop up the price again.
“It was creating price support for bitcoin and, over the period that we examined, had huge price effects. Our research would indicate that there are sophisticated people harnessing investor interest for their benefit.”
Bitcoin started 2017 at below $1,000 and by Dec 2017 hit 20,000. But as if February to June 2018 it’s been jumping back and fourth from it’s lowest at $6k to the highest $10k (which didn’t even last) Tether is the 11th largest cryptocurrency and is pegged to the US dollar. Some critics say Tether owners don’t have enough fiat currency to back its $2.5 billion market capitalization.
Bitfinex CEO J.L. van der Velde told CNBC that neither the exchange nor tether helped to boost bitcoin prices. “Bitfinex nor tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of bitcoin or any other coin/token on Bitfinex,”
Now here’s what I think:
I’ve personally used Tether but I do worry about it. A lot of people have accused Tether of fraud, and Tether certainly hasn’t proven the naysayers. Do they have the 2.5 billion USD and how are they raising funds? Essentially as far as I can see, Tether is a non-backed, way of essentially printing virtual USD. I think Griffin is way off on this one. USDT (Tether) is a convenient trading pair that can be used with some of the top cryptocurrencies to trade and exchange directly for other coins.
The issue is that a lot of people don’t realize most tokens and currencies are not directly convertible or tradeable for others on exchanges. Generally you’ll have to sell your ABC alt-coin or tokens for Bitcoin, or USDT and then use the major currency you sold or exchanged to buy say another coin such as Ripple, Litecoin, Lisk etc.. So this is where USDT comes in, if Griffin thinks it propped up Bitcoin I think he is misunderstanding how the exchanges work. Yes a lot of people are using USDT to buy other currencies but is USDT a market factor? No, I don’t think so, it’s just simply convenient and I agree with Bitfinex that it doesn’t appear they are using it to prop up Bitcoin.
However, USDT could not be used in such a way if it wasn’t given prominence and primary trading pairs like Bitfinex and other major exchanges have used. Could some of the exchanges be in cahoots with currencies like USDT and others? Absolutely, and this is the more likely scenario of market manipulation in the sense that they essentially largely control which currencies fail and flourish.
Any coin that is used as a primary trading pair or in other words directly convertible has more value and will intrinsically be used more as a vehicle to buy coins like Bitcoin.
I think Griffin just raises the simple question about USDT being a fraud and this is the biggest concern but I highly doubt USDT’s existence or trading patterns are responsible for Bitcoin fluctuations directly. He may derive this from trading patterns but I really just think USDT is a convenient and easy to understand intermediary trading pair vs how you wrap your mind around how many BTC another coin like Ripple, Ethereum or Litcoin is worth etc…
What do you think?
Cheers!
-A. Yasir
