Is Tether Manipulating the Market?
Produced | Odaily (ID: o-daily)
Produced | Odaily (ID: o-daily)
As an important part of the encryption ecology, the stablecoin USDT issued by Tether currently ranks fourth in market value and occupies more than 80% of the stablecoin market.
However, the company has always been controversial: inflating stablecoins without asset support; manipulating the market to affect the price trend of cryptocurrency (BTC); money laundering and so on.
Especially in May of this year, Tether was exposed to misappropriating user funds to fill the $850 million loss of the encryption exchange Bitfinex, and was subsequently sued by the New York State Attorney General's Office (NYAG).
A few days ago, a New York judge rejected the request of the NYAG, which required Bitfinex and Tether to collect all documents related to the cover-up of $850 million in lost funds and a $900 million line of credit. However, the NYAG's injunction prohibiting Tether from continuing to provide any funds to Bitfinex was approved.
secondary title
Is the decline of Bitcoin the fault of USDT?
According to Coindesk, recently, five investors filed a class action lawsuit in the U.S. District Court for the Southern District of New York. The defendants include Bitfinex, Tether and its associated business (Crypto Capital), including companies and executives.
It is worth mentioning that the attorneys representing the plaintiff are Vel Freedman and Kyle Roche, who have considerable practical experience in class action lawsuits and have successfully sued Craig Wright before.
This time, the reasons given by the plaintiff include: market manipulation, bank fraud, money laundering, etc. The plaintiff believes that the defendant's illegal behavior has caused a large amount of economic losses to itself (the specific amount was not mentioned), and the claim may exceed US$1.4 trillion. This is also the largest amount claimed in a U.S. civil lawsuit to date.
1.4 trillion US dollars, what kind of concept is this? According to data from the US Department of Commerce, the total US GDP in 2018 was only US$20.5 trillion, and the market value of Apple (NASDAQ: AAPL) was only US$1.07 trillion.
So how did the figure of $1.4 trillion come about?
The plaintiff stated in the indictment that the defendant's multiple illegal acts violated the "Commodity Exchange Act" and the "Federal RICO Act" and other laws and regulations.
The indictment mentioned: Between 2017 and 2018, Tether issued an additional USD 2.8 billion in USDT, which poured into the Bitfinex exchange and used to purchase other cryptocurrencies, which artificially exaggerated the demand for cryptocurrencies and caused prices to soar . When the cryptocurrency market reached a frenzy, Tether's large-scale issuance of USDT created the largest bubble in human history; when the bubble burst, more than $450 billion in value disappeared in less than a month. This incident also continues to affect the cryptocurrency market, causing prices to drop below unmanipulated levels.
In other words, the plaintiff believes that the defendant's actions caused the entire encryption market to lose $450 billion.
After inquiring relevant literature, Odaily found that if market players really violated the Commodity Exchange Act, CFTC (U.S. Commodity Futures Trading Commission) and other regulatory agencies can use administrative penalties to force illegal players to pay fines or return illegal gains. It shall not exceed the greater of the following two: (1) US$140,000; (2) three times the amount of profit from each spoofing transaction of the responsible person.
secondary title
iFenx made a profit of 400 million U.S. dollars, and it has to lose 1.4 trillion?
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(iFinex Profit Report)
On the one hand, assuming that the market really lost $450 billion, did all of these losses go into the pockets of Tether?
On the other hand, the evidence currently provided by the plaintiff is all the research reports of some scholars or institutions (discussed later), and these scholars have also made statements that their own reports cannot fully explain the market situation, and there may be errors. In other words, the authority of the report is not high, and it is difficult to serve as strong evidence.
Bitfinex & Tether responded that the arguments and conclusions of these articles are based on wrong assumptions, incomplete and carefully selected data, and wrong demonstration methods.
And Bitfinex & Tether will also fight back, with spokesman Joe Morgan saying the companies are expected to respond to "an unpublished, non-peer-reviewed paper that falsely assumes that Tether's issuance was responsible for manipulating the cryptocurrency market." " and filed a lawsuit.
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(Summary of relevant cases, source "Securities Law and Supervision")
"Individuals do not have an advantage over the prosecution cases of regulatory agencies. The investigation capabilities and prosecution resources of regulatory agencies and DA are far superior to lawyers." Lawyer Jiang Huijie told Odaily.
However, it is worth noting that the U.S. Department of Justice has been involved in the investigation of Tether. According to Bloomberg News, last year the U.S. Department of Justice (DOJ) began to devote energy to the investigation of Tether’s market manipulation, and it took a month before and after.
However, a year has passed, and there is still no new action from the DOJ, and no lawsuits have been filed.
Back to the case itself, U.S. regulatory and government investigation lawyer Braden Perry recently pointed out that due to the lack of public investigation results from the Department of Justice and CFTC, the case is now only a pure accusation of the plaintiffs’ class action, and the filing of the lawsuit will not have real consequences for Bitfinex and Tether. damage.
secondary title
"Tether manipulating the market" has become a kind of political correctness?
I don’t know when, a theory began to circulate in the cryptocurrency field: Tether manipulated the market.
Moreover, these arguments have gradually developed into a kind of political correctness. When some emerging regulated stablecoins were first born, they would also privately publicize: Tether manipulates the market, but we are compliant and will not manipulate the market.
How exactly is Tether manipulating the market? The general view is that Tether buys at the bottom when Bitcoin plummets by issuing additional stablecoin USDT; by pulling the market, it creates market heat, fools people into buying, and sells it when the price of Bitcoin rises, in exchange for more USDT; Finally, destroy the additional USDT to realize profit.
However, this "manipulation theory" is difficult to verify.
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(Yellow circles represent additional issuance)
From the picture above, we can see that during September 6th, 7th, 14th, 25th and other time periods, although Tether issued additional tokens, it still did not prevent the price of BTC from falling.
Secondly, in theory, Tether can also use the contract to make a profit, and it is not necessary to only play the spot: when the price of the currency rises and the futures market is opened simultaneously, it can easily make a profit; when the price of the currency falls, it can also be profitable. The term "manipulation theory" also seems to have some limitations.
All in all, there is currently no direct evidence to prove that the additional USDT issued in 2017 is an inflated increase rather than a real user behavior.
Circle, a subsidiary of Goldman Sachs Group, also released a report stating that the ICO financing in 2018 was as high as US$12.6 billion, a year-on-year increase of 96%; 209% more than the previous year. In addition, the profit of Binance in Q4 of 2017 was as high as 200 million US dollars, and the profit in 2018 was 400 million US dollars. These seem to indicate that when Tether issued additional USDT, the market activity was not low.
In response to Tether being sued for manipulating the market, Larry Cermak, director of research at The Block, also tweeted: "As one of the people who was previously dissatisfied with the way Tether operates, I read it (indictment) and found out that this new class action Very weak. It uses a lot of outdated or wrong information, and a lot of the claims are unsupported."
VanEck's Director of Digital Asset Strategy also defends Bitfinex and Tether: "I'm tired of stupid academics, hyped media, and ignorant lawyers trying to ruin the hard work and structural innovation that Tether and Bitfinex have built. They have provided many cryptocurrency companies with other The service companies are failing to deliver. Please stop the persecution and protect innovation!"
secondary title
Where does the report of Tether manipulating the market come from?
At present, the market's conclusions about UDST manipulating the market are mainly derived from several research reports.
The first was an anonymous report in January 2018 titled "Quantitating Tether's Impact." The report argues that:
Price data suggests that Tethers may not be generated independently of Bitcoin price, but rather when Bitcoin falls;
During the study period, BTC price increases occurred 48.8% of the time within two hours of transfers to Bitfinex wallets from 91 different Tether accounts;
This also denies the statement that "Tether has little effect on the price of Bitcoin."
However, the authors concluded by saying: "Of course, there is a wealth of proprietary data that is not included in this analysis and report and is not available. The statistics presented in this paper do not prove wrongdoing, but merely suggest that the observed The behavior observed appears to be questionable and should be further scrutinized. It is possible that Tether is operating exactly as stated, but we ask that they conduct an audit and share other meaningful and reasonable information about their business operations."
In other words, the author only believes that Tether will have an impact on the price of Bitcoin. As for whether these Tethers are the real purchase needs of users or inflated, it is unknown. There is no direct evidence that Tethers manipulate the market.
However, this report was interpreted by the outside world as strong evidence that "Bitcoin's rise was manipulated by Tether."
Another report comes from Professor John Griffin, a well-known Wall Street fraud expert.
In June 2018, John Griffin published a paper titled "Is Bitcoin Really Untethered?" ". The paper covers the one-year transaction behavior from March 2017 to March 2018, and the author lists 87 transaction samples during the period. Finally came to the conclusion:
Using algorithms to analyze blockchain data, we found that purchases using Tether tended to follow market downturns, leading to large increases in Bitcoin prices. In such an intensive transaction, Tether affected 50% of Bitcoin and 64% of the surge of other major cryptocurrencies in less than 1% of the time. These phenomena cannot be explained by a proxy for investor demand, but are most consistent with supply-based assumptions that Tether is used to provide price support and manipulate cryptocurrency prices.
Compared with the previous anonymous report, Professor John Griffin is more direct: Tether company manipulates the market.
However, the above two reports have also been questioned. Dr. Wang Chunwei, a lecturer at the Business School of the University of Queensland in Australia, refuted the "manipulation theory". In his paper "Tether's Impact on Bitcoin," he wrote:
“Our findings suggest that Tether issuance may follow a Bitcoin drop, followed by an increase in BTC/USDT trading volumes…However, the impact of Tether on Bitcoin returns is not statistically significant, so Tether cannot be an Effective tool for Bitcoin price."
postscript
postscript
Regarding the conclusion of Tether manipulating the market, no authoritative organization has yet confirmed it. However, as the anonymous report said, the doubts and distrust of the outside world are more from the opacity of Tether itself.
Among them, the opacity of assets is the most critical element. After all, Tether claims to have 100% asset reserves, but this year Stuart Hoegner, the general counsel of Tether and Bitfinex, broke the news that only 74% of USDT is supported by cash and equivalents.
For Tether in the future, perhaps embracing supervision and truly practicing the spirit of openness, transparency and decentralization of the blockchain is the ultimate way out.
