Two researchers penned a paper about Bitcoin price manipulation that received much fanfare, but there has been some pushback over their logic.
Two observers of the crypto space partnered to pen a paper about Bitcoin’s price soaring to record highs all because of market manipulation.
The pair is made up of University of Texas at Austin finance professor John Griffin and graduate student Amin Shams.
While their logic garnered plenty of attention this week, skeptics stepped forward to counter the pair’s arguments. In this piece, we’ll bring you the counter arguments.
Let’s get right to it.
Fake Bitcoin boom?
Bitcoin soared within a few hundred bucks of $20,000 in December. The impressive gains the crypto made over the course of 2017 had many believing its success would continue through this year. However, that’s not happened, and the crypto has struggled to even get back to $10,000.
As the hysteria over the crypto has waned, the pair of skeptics put together a paper based on their investigation over whether Tether, the digital currency the note is pegged to U.S. dollars, influenced Bitcoin and other cryptocurrency prices during the recent boom.
In the paper, they note that they used algorithms to analyze the Blockchain data and found that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies, the two concluded.
The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends. These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.
The pair wrote that there are patterns that show Bitcoin and Tether price manipulation. Those patterns can’t be explained by investor demand proxies, but are consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.
The conclusion to be drawn is that speculators were likely behind not just Bitcoin’s, but other cryptos’ price run-up, too.
Some of the arguments lobbed against the pair came from Bloomberg. The author found a “disconnect between the research paper and the press coverage in terms of quantification.”
Bloomberg points out that the researchers had to do a considerable amount of guesswork to collect their data. Given the complexity of the analysis, their conclusions are “more likely to be noise than signals.”
As far as the 50% “meteoric rise” claim, it’s found to be significant by the researchers based on them picking 10,000 sets of 87 hours at random, but none of them averaged a 1.2% return for Bitcoin.
That is indeed strong evidence that the 87 hours following the hours with the largest Bitcoin and tether flows are not random. But we already knew they weren’t random, they were times of high transaction volume, which would be expected to have more volatile prices than average, and trading volume was much higher on the upswings than the downswings. – Bloomberg
The pair’s research highlights an area that has garnered more and more attention over the past few weeks. While it is compelling, crypto players should not fear the space because of the pair’s findings. Instead, they should treat the research as they do most findings about the space given its relative newness.