The Malaysian Reserve

It’s getting harder to pump up prices in crypto markets

By BLOOMBERG

LOS ANGELES • It’s getting hard to pump amid the dump in the US$209 billion (RM858.99 billion) cryptocurrency market.

At least that appears to be the case when you look at tether, one of the most-traded digital assets and also one that’s allegedly been used to manipulate the price of bitcoin.

Over half a billion dollars of tether has been created in August alone, a move that in the past would have often coincided with a rally in bitcoin, yet the larger cryptocurrency has fallen 15%.

The assets moved much more in lock step last year, when bitcoin hit an all-time high, according to a University of Texas professor whose research showed that “tether seems to be used both to stabilise and manipulate bitcoin prices”.

Questions about tether and Bitfinex, one of the world’s largest crypto exchanges that also shares the same management team, have dogged the virtual currency world since last year, when Bitfinex lost banking relationships yet continued to operate.

The US Commodity Futures Trading Commission subpoenaed both firms in December, seeking proof that tether is backed by a reserve of US dollars, as it claims. British Virgin Islands-based Bitfinex and tether haven’t been accused of wrongdoing.

To date, US$2.8 billion tether have been issued, according to the company’s website. The digital currency generally trades for around US$1 because each coin is supposed to be backed by US$1 of fiat money in a bank.

The currency, which started trading in 2015, is pitched as a stable alternative to bitcoin’s volatility, acting as a haven for crypto investors.

But tether has also been implicated as a way to move the price at will of smaller digital coins, according to a recent research paper by Chainalysis.

Last year, tether was linked to bitcoin, ether and litecoin about 85% of the time, according to the paper.

When prices crashed early this year, that correlation fell by an average 93%. But between January and June, EOS and NEO maintained a high correlation to tether use.

“While on-chain transaction activity was in decline for the major cryptocurrencies, traders were still seeing opportunities for profit with some of the newer, lower-volume cryptocurrencies,” according to the Chainalysis paper.

“High volatility for low-volume tether trading pairs is a typical sign of pump and dump activity,” the paper concluded, in part. “A sudden spike in a particular trading volume followed by an abrupt decline is characteristic of price manipulation.”

Liam Murphy, an outside spokesman for Bitfinex and tether, declined to comment.

Tether has created US$515 million of new tokens this month, according to blockchain data. All of those new tethers were sent to Bitfinex, the data show. That’s backed up by the Chainalysis report.

“After issuance, all tether passes through the Bitfinex trading platform, tether’s only direct client,” Chainalysis said. From Bitfinex, about 80% of the tether is then moved to six other exchanges — Bittrex, Poloniex, Huboi, OKEx, Binance and Kraken.

Yet, not even more than half a billion in new tether has been able to affect the price of EOS and NEO in August. From July 30 to Aug 21, EOS has fallen 37% and NEO is down 44%, according to data collected by Coinmarketcap.com.