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Bitcoin manipulation study off the mark

Tony Zerucha



The recent University of Texas report assessing the possibility of Tether and Bitcoin’s manipulated price inflation through Bitfinex is mostly much ado about nothing, an experienced cryptocurrency researcher believes.

Nathan Bauerle is the director of research at CoinDesk and the author of the quarterly State of Blockchain Report. Since 2013, CoinDesk has produced its Bitcoin Price Index, which represents an average of bitcoin prices across leading global exchanges that meet specific criteria. It is intended to serve as a standard retail price reference for industry participants and accounting professionals.

The paper’s authors used algorithms to analyze blockchain data and learned purchases with Tether are timed following market downturns, producing sizable bitcoin price increases. Less than one per cent of hours with heavy Tether transactions are linked with half of Bitcoin’s rise and 64 per cent of those of other top cryptocurrencies.

For starters, experienced Bitcoin investors understand the subtext behind the Bitcoin/Tether pattern, Mr. Bauerle explained.

“Bitcoin is a super volatile asset driven by a global retail investment crowd. Everyone who watches this crowd knows they use Tether to take a ‘dollar’ position when bitcoin dips. They reenter the bitcoin market when they feel the price is at a floor with the goal to have more bitcoin than at the start of the dip. So, when the study observes Tether use to buy bitcoin after dips, it’s true, but hardly news.”

The study’s authors didn’t exactly compare apples to apples either, Mr. Bauerle added.

“Where the study perhaps errs is the conclusion that through pattern recognition, the dip buys with Tether confirm market manipulation versus investment demand. The benchmark of this pattern recognition is based on highly regulated, much less volatile, controlled and mature markets.

“There is no control in their methodology for a super volatile, under-regulated global market of retail investors that trade a super liquid asset. So, the benchmark used in their conclusion is potentially useless. It compares traditional mature and regulated markets to super volatile, under-regulated, global and super liquid Bitcoin. All that can be concluded is that Tether is used to buy bottoms, not that it was used for manipulation.”

Tony Zerucha

Tony Zerucha is an alternative finance journalist with more than seven years experience in the space. The author of more than 1,000 articles, Tony was named LendIt's 2018 Journalist of the Year.

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