In his paper, Griffin says that the U.S. dollar-pegged cryptocurrency tether was used to buy bitcoin at the times that the latter was falling, which helped "stabilize and manipulate" the cryptocurrency's price.
A recently published paper by Professor John Griffin and graduate student Amin Shams examined the traffic of cryptocurrencies on the Bitfinex exchange and found a correlation between price slumps in Bitcoin and other coins and instances when Tether was issued and sold by the owners of the exchange.
Griffin and Shams' study shines a light on the possibility that Bitcoin's price manipulation was precipitated by a handful of cloak-and-dagger players and not genuine demand from investors. "Tether issuances can not be used to prop up the price of Bitcoin or any other coin/token on Bitfinex".
It continued on to note that generally, the token is not redeemed by the issuer, "and the major exchange where tether can be exchanged for USD, Kraken, accounts for only a small proportion of transactions".
Tether [USDT], one of the most traded cryptocurrencies supported by platforms like Bitfinix, ShapeShift, Bittrex, and Omni, shows an indication of being spent on Bitcoin in its critical moments, according to research by a University of Texas professor.
Tether is a cryptocurrency supposedly backed by the USA dollar one-for-one, offering the stability of the currency but the flexibility and functionality of cryptocurrency.
Cryptocurrency exchange Bitfinex is the creator of Tether and controls its supply, and its involvement in the price surges is mentioned extensively in the study. Indeed, even less than 1% of extreme exchange of Tether for Bitcoin has substantial aggregate price effects. Several exchanges have been using Tether as a way to quickly facilitate fund transfers, replacing the need to depend on banks.
The researchers found that tether issuances rose a year ago during periods when the price of bitcoin was dropping.
Philip Gradwell, the chief economist at Chainalysis, a firm that analyses blockchain data, also said the study "seems credible".
Griffin has a history of spotting fraud and corruption in financial markets. This isn't the first time the dollar-pegged stablecoin has been blamed for market manipulation, but is the most compelling evidence to date that 2017's record highs may not have been entirely organic. "Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention", they wrote.
"There were obviously tremendous price increases a year ago, and this paper indicates that manipulation played a large part in those price increases".