Debate Over Allegations of Tether Being Used For Manipulation

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Debate Over Allegations of Tether Being Used For Manipulation

By Benson Toti - min read

A massive dispute within the crypto community has broken out amid allegations that a single trader might have caused the entire bull run of 2017. Circle CEO Jeremy Allaire claims that researchers are wrong in their assertion and that a single Tether wallet was used to run up the price of Bitcoin

Bitcoin’s all-time high of $20k is shown to have coincided with a single wallet’s purchases. As researchers from the Universities of Texas and Ohio found: 

“Purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month-ends.”

There is currently a $1.4 trillion lawsuit against Tether for their manipulation of the cryptocurrency market, and this is just another piece of evidence being used against them. This stablecoin is shown to have a strong correlation between the issuance of tokens and jumps in the price of Bitcoin. 

Apparently, the transactions in question were so well-timed that even a clairvoyant couldn’t have done so well. They provided support to Bitcoin in key times and simulations show they are unlikely to be due to chance, especially as more Tether was required to be created along the way for this to occur. 

In Tether’s Defense

The rebuttal to this claim is that more Tether should not logically dictate a higher Bitcoin price. It seems like bad science, or at least a case of equating correlation and causation, to say that just because more Tether was being minted, it was the cause of Bitcoin’s stratospheric run-up. 

Also in support of Tether is the fact that this would have been an omnibus wallet that pools all the customers’ balances. This is common practice for many crypto exchanges, so it is really just a large purchase on the aggregate that is being attributed to a single whale. 

One easy point this side can make is that Tether’s market capitalization has continued to climb, while Bitcoin’s is approximately half of what it was at the end of 2017. With a market capitalization of $4.1 billion now and a market capitalization of approximately $1 billion in 2017, this seems like a loose connection. 

Manipulation is a Reality In All Markets

A third position is that manipulation takes place everywhere we go nowadays. Any tweet can influence people and the way the media is distributed allows for anyone to change the price of a publicly-traded asset. With this being the case, it is difficult to say if it even matters as long as nothing explicitly illegal was done. 

On a larger scale, this debate is over the credibility of Bitcoin and whether it can be trusted as an asset. If it were actually possible for a single exchange to manipulate the price, that would lead to investors perceiving it as a riskier asset. 

Ideally, only market forces guide the price of an asset. It is often possible for a single buyer to move the market if they have enough funds, but as long as they don’t use this to cause bull runs and then bail out with their profit, that is not as much of a worry. In a day and age where technology is so advanced that the price of almost any asset can be manipulated at a low level, this is a very difficult issue to mitigate entirely.