Two academics from the University of Texas have published a paper in which they analyze if and how Tether (USDT) is responsible for the price swings of bitcoin and the other cryptocurrencies.
The mainstream media has reported that the recent dip was because of the CoinRail hack while other analysts are blaming the futures markets or the cryptocurrency exchanges which provide the data for the price of bitcoin.
On the same subject, two academics from the University of Texas believe that USDT has been and is currently used to change the courses of the cryptocurrency market.
Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices, they say in the summary of the paper.
The paper analyzed the changes between USDT and bitcoin from March 2016 to March 2018 with a predominant focus on the year of 2018. The researchers came up with a hypothesis that USDT can be used to stabilize the bitcoin price.
However, they added that at the same time the cryptocurrency could be used to manipulate the price of bitcoin and the other cryptocurrencies. They have explained that because USDT can be created on demand, it is used to buy up cryptocurrencies in periods when the market is low.
“When prices are falling, the Tether creators can convert their Tether into Bitcoin in a way that pushes Bitcoin up and then sell some Bitcoin back into dollars to replenish Tether reserves as Bitcoin price rises,” reads the paper.
The CEO of the cryptocurrency exchange Bitfinex and the creator of Tether declared:
“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.”
The analysts also explained in one hypothesis that USDT should be printed when the USD increases and not when the price of the cryptocurrency decreases.
“Tether flows should be strongly related to the changes in Tether-USD exchange rate.”
Another mindblowing hypothesis is that the exchange owners who convert their incomes into USDT when the market is in a downtrend can invoke a hack to make money disappear.
“The founders of Tether have a valuable option to not redeem Tether to dollars, and possibly experience an inside ’hack’ (perhaps, similar to the one on Mt. Gox) when Tethers and/or their associated dollars suddenly disappear.”
Since the CFTC and the US Department of Justice announced investigations on the subject of cryptocurrency price manipulation, the market dropped once again to the lows that we’ve seen in February 2018.
The analysis concludes with the idea that the cryptocurrency market is being manipulated. The authors of the paper, Professor John Griffin, and Amin Shams are suggesting that the regulators need to monitor the market intensely and to create sound regulatory frameworks for the “cryptocurrency markets to be legitimate stores of value and a reliable medium for fair financial transactions.”