The study said that a giant whale on Bitfinex has shaken the bull market in 2017. Is it a real hammer?

Author: LY

Source: Shallot blockchain

Editor's Note: The original title is "The study said that a giant whale on Bitfinex has shaken the bull market in 2017, is it a bit of a hammer? 》

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According to Bloomberg News, University of Texas professor John Griffin and Ohio State University's Amin Shams updated their first paper published in 2018. In last year's paper, they claimed that the soaring bitcoin in 2017 may be triggered by manipulation. Now, they have come up with a new claim that a large cryptocurrency giant whale on Bitfinex may be the driving force behind the soaring price in 2017, which seems to have the ability to change prices at will.

According to his research with another scholar, Amin Shams, an entity in the Bitfinex exchange can use Tether to buy bitcoin and push up Bitcoin prices when Bitcoin falls below a certain threshold. John Griffin said in an interview: "The price of bitcoin is not driven by thousands of investors, but a giant whale (large institution)."

This giant whale dealer is likely to be related to Bitfinex and Tether. In addition, the paper points out that there are suspected manipulations, but Bitfinex and Tether do not agree with the conclusion of the paper and indicate that the paper has “basic defects”. Many market views also consider the viewpoint of the paper. Unreliable.

Suspicion of the market's giant whales and Tether manipulation

Scallion APP consulted the paper and learned that the paper mainly studied the role of the largest stable currency in the cryptocurrency market, Tether, and its price on bitcoin and other cryptocurrencies, and explored the driving force behind the 2017 bull market. Scholars believe that entities in the cryptocurrency market are largely unregulated by financial regulators and have limited transparency, and manipulations are likely to exist.

The paper makes two assumptions to argue their views: one Tether is “pull” (driven by demand) and the other two Tether is “push” (driven by supply/supply). The premise of the first hypothesis is that Tether (the impact on the market or cryptographic assets) is driven by the legitimate needs of investors who use Tether as a medium of exchange to put the French currency into the cryptocurrency market. In this case, Tether's impact on the price of (cryptocurrency assets) reflects natural market demand.

But under the "supply-driven" assumption, Bitfinex issues Tether directly without considering the needs of fiat investors. In this case, the additional supply of Tether may cause inflation in bitcoin prices, which does not come from real capital flows. In this case, there may be several potential motives (to make a profit) for the Tether controller/holder.

First, if the founders of Tether hold as much Bitcoin as most early cryptocurrency adopters and exchanges, they usually profit from the rise in cryptocurrency prices .

Second, there is an opportunity to manipulate cryptocurrencies. When prices fall, Tether's creators can convert their large amount of Tether into bitcoin, pushing up the price of bitcoin , and then selling some bitcoins into dollars to complement Tether's reserves.

Finally, if the cryptocurrency price plummets, the Tether founder is basically equivalent to having a put option that can default when redeeming Tether, or it can be "hacked" or under-stocked in a Tether-USD-related place, thus disappearing.

Scholars point out that historically, rapid price increases are related to innovation and (market) growth, but also to evil activities that lead to capital mismatches.

The author of the paper said that it can be determined that along with the Tether issuance activity, a big player on Bitfinex uses Tether to buy a lot of bitcoin when bitcoin prices fall. This price support activity is successful because bitcoin prices will rise after expectations. In fact, even in the extreme case of 1%, the exchange of bitcoin with Tether has a huge price effect. Below the apparent integer price threshold, where price support may be most effective, the use of Tether to purchase bitcoin will be more frequent.

Scholars studied the Tether and Bitcoin transactions from March 1, 2017 to March 31, 2018, and concluded that bitcoin purchases on Bitfinex increased whenever the value of Bitcoin fell by a certain amount. .

Scholars say their findings are most consistent with supply-driven assumptions. In general, the findings support the notion that price manipulation can have a significant distortion effect on cryptocurrencies. Our findings support a historical narrative: suspicious activity is associated with bubbles and may lead to further price distortions.

Tether: The paper "has a fundamental flaw"

Tether objected to the suspicion that Tether had manipulated the market, and its general counsel, Stuart Hoegner, argued in the statement that the paper “has a fundamental flaw” and that the paper is based on an insufficient data set. He also added that the study may have been published to support a "parasitic lawsuit."

In addition, both Bitfinex and Tether have issued statements stating that they know that "an unpublished, non-peer-reviewed paper mistakenly believes that the issuance of Tether is the reason for manipulating the cryptocurrency market." Also, Bitfinex and Tether also want to hire a lawyer to file a lawsuit.

BeInCrypto reports that the cryptocurrency community is not buying the results of this study. Su Zhu, CEO of Three Arrow Capital, said that the scholar in charge of the paper "starts with a conclusion and then tries to find data to support it." Mati Greenspan, market analyst at eToro, believes this conclusion is completely out of touch with his own experience. Greenspan said that in the 2017 uptrend, he witnessed the opening of “millions of retail accounts” on eToro.

Weibo users also said that the paper said that the single giant whale driving the bitcoin price soaring and Bitfinex's alleged manipulation of the market is not reliable. User @fhrp said that Bitfinex was busy dealing with Taiwanese banks at the time and had no time to manipulate the market; @ blockchain William said that the bull market could not happen just because of a single whale.

However, the current updated paper has been peer reviewed and will be published in the forthcoming Journal of Finance.

Previously, there were countless reports on the alleged manipulation of Bitfinex and Tether, and the two were constantly involved in litigation due to allegations of manipulation and transparency. For example, the New York Attorney General's Office (NYAG) filed a lawsuit against Bitfinex and Tether this year, alleging that Bitfinex had misappropriated Tether's $850 million in reserve funds to fill the huge funding gap.

The stable currency USDT issued by Tether has also been controversial because of the lack of regular auditing plans, serious centralization, and alleged random issuance, and the dollar reserve of bank accounts is not transparent enough. Shrimp has previously compiled the time node of the USDT centralized issuance from April to June this year. It is no coincidence that the BTC immediately ushered in a sharp rise after the USDT wassuance.

As shown in the above table, although the BTC's performance in the first time of the USDT is not obvious, there is almost a 10% band increase in the period after the issuance, including a wave at the end of April. In the first time when the concentration of large-scale additional issuance, BTC showed a relatively obvious price correction, but then quickly entered the rhythm of “off-the-ground take-off”. The price soared by 3,000 US dollars with almost no callback, and it was completed directly. A leap from 5,000 to 8,000.

Although many evils have been brought to Tether, if Tether disappears in the market, the sudden collapse of one of the most important and largest entities in the cryptocurrency ecosystem may also cause the market to “explode” to a certain extent, Tether The importance of the USDT with this ecology is no less than that of Bitcoin.

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