In a recent article released by The Block, the cryptoanalyst and economist Alex Krüger analyses the paper released by John Griffin and Amin Shams that investigated whether the stablecoin Tether (USDT) was used to manipulate Bitcoin (BTC) prices.
During 2018, several reports were linking Tether with market manipulation. Perhaps, the most popular article related to this issue was released by Bloomberg back in June 2018. According to the investigation conducted by Griffin and Shams, Bitcoin was manipulated by using the Tether stablecoin.
At that time, Griffin said that he has looked at several markets and if there is fraud or manipulation it is possible to see it on the available data. According to him, the data that they have is very consistent with a manipulation hypothesis.
As per the paper, purchases with USDT are timed following market downturns, which results in Bitcoin price increases. At the same time, the paper concludes that these patterns are consistent with USDT is used to provide price support and manipulate crypto prices.
Krüger explains that he found the analysts made unwarranted conclusions showing a lack of understanding of financial markets. However, according to Krüger, the paper has not yet received peer review.
The financial analyst explains that there is nothing extraordinary in witnessing the purchases of BTC with USDT after market downturns. This shows that there are investors that prefer to purchase the asset during market drops rather than when its trading higher. The paper seems to ignore market strategies of buying retracements and also it confuses speculation with manipulation.
Alex Krüger explains that when the price of Tether deviates considerably from $1, arbitrageurs tend to bring USDT back to synchronization. This is why it is not strange to see large USDT flows from Bitfinex to Tether exchanges to purchase Bitcoin.
As Krüger illustrates, large market participants that provide price support happen in different markets and this does not mean that there is market manipulation.
As per the paper, USDT flows tend to be highly sensitive to the BTCUSD pair but bears little relation to the USDTUSD pair.
“In fact, the flow is not sensitive to the first and second lags of USDTUSD,” reads the report. “It does become marginally significant at higher lags, but the magnitude is considerably smaller than the BTCUSD pair.”
However, Alex Krüger says that these statements are misleading since it classifies the relationship as ‘highly sensitive.’ For him, a more accurate approach would be to say that Bitcoin returns are related to USDT flows in a small, but yet statistically significant way.
Furthermore, the adjusted-R squared value is extremely small. This suggests that between 0.4% and 1.5% of the total variance of these dependent variables is explained by the regression model. Thus, the results are not significant.
Krüger concludes by saying that Bitcoin purchases using USDT are related to market downturns. Nevertheless, this does not mean that there was manipulation in the market, but instead, it could be related to investors ‘buying the dip’ or just arbitraging spreads across exchanges.