After bitcoin reached a peak of 20,000 U.S dollars last December, studies have cropped up trying to figure out what happened. The cause for the meteoric rise and fall has finally been unearthed by John Griffin and Amin Shams both of whom are finance professors at the University of Texas. In their research findings which were released today, Tether is to be blamed for bitcoin price fluctuations.
In their study, “Tether seems to be used both to stabilize and manipulate Bitcoin prices.”
The two finance professors decided to,
“Set out and understand how the 2.5 billion Tether coins in existence have flowed through markets. While little public information exists about how Tether is created, it generally trades for around $1 because each coin is supposed to be backed by $1 of fiat money in a bank.”
After carefully following through the Tether coins in existence, John and Shams found a pattern of bitcoin price support.
Griffin noted that, after Tether Ltd creates Tether coins in huge sums, almost “all new coins then move to Bitfinex. When Bitcoin prices drop soon after the issuance, Tethers at Bitfinex and other exchanges are used to buy Bitcoin “in a coordinated way that drives the price,”
John added that with his kind of experience studying financial markets, manipulation is bound to leave a trace which, in the case of bitcoin, is ‘very consistent with a manipulation hypothesis’
The academic continued to note that during the study, they found that when bitcoin price fluctuated downwards, purchases using Tether increased which helped to reverse the decline. But to protect bitcoin prices during downturns, tether purchases did not reduce with an increase in the price of bitcoin.
According to Bloomberg, Griffin “zeroed in on 87 of the largest purchases of Bitcoin with Tether from March 2017 to March 2018. In the cases examined, new Tether had been issued within the prior three days, and Bitcoin’s price had fallen in the prior hour. What followed were increases in Bitcoin’s price — and those gains added up.”
Do you agree with Griffin and Shams that Tether is to blame for bitcoin price fluctuations?
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