By now, news about the Tether cryptocurrency has reached across the Blockchain industry and into the traditional world of finance, more than once. Despite everything, it appears that the saga is far from over.
Today, a study was released by the University of Texas-Austin, which reported some significant findings related to widespread speculation on whether Tether is actually a legitimate cryptocurrency, or not.
Before delving into what this study discovered, it is important to make clear, that of course, these researchers cannot, in good faith, imply with complete certainty that they have uncovered Tether’s true usage. As with any serious academic research, all findings are related to implied facts from hard data and therefore, correlation rather than causation.
Secondly, it is important to quickly make sure that everyone is, in fact, clear on what Tether is. On the most basic level, it is based on the Blockchain, like any other cryptocurrency, but what differentiates it is the fact that it is secured by reserves of US dollars.
The controversial part of this that has often been questioned by the media as well as industry insiders is that Tether has never undergone a professional, outside audit to prove their cash reserves. One was attempted, but it failed with little explanation as to why.
Furthermore, when Bitcoin falls below a certain level, some have claimed that Tether is “printed,” which is synonymous with releasing more cryptocurrency coins into the market, to push Bitcoin and others back up to a certain price level.
Through two hypotheses, which amounted to assuming that Tether is supply-driven or demand-driven, John M. Griffin and Amin Shams aimed to discover exactly what Tether’s relationship with the Crypto-exchange, Bitfinex, is, as well as what Tether’s influence on the overall Crypto-market is.
In short, through using several complex algorithms to simplify the analysis of the Tether and Bitcoin blockchains, Griffin and Shams ended up going through more than 200 gigabytes of data from over ten different sources, including Blockchain.info, Coin Desk, and CoinAPI, as well as Coinmarketcap.com, which are some of the most well-known and well-respected sources from real-time market data.
In the end, what they found through their analysis seemed to strongly support the idea that Bitfinex provides the cash reserves for Tether. In connection with this idea, they also found that it is likely that each time Bitcoin’s price falls below a certain level, Bitfinex props it back up by sending cash to Tether, with which it purchases Bitcoin.
In other words, as a Coin Desk report on the subject states, when there’s a large bear run, it is suggested that Bitfinex and Tether work together to manipulate the market to stabilize it.
To add to these somewhat disturbing findings, the study might have suggested that Poloniex and Bittrex were also likely involved in market price manipulation to some degree, though it should be made clear that this was a secondary observation that was made by Coin Desk.
What all of this means is that first, their results showed strong support for the idea that Tether is sent out to investors as a sort of scam to keep cryptocurrency prices up. Even so, they conceded that there does seem to be some sort of investor demand for Tether as well, which could indicate more natural price movement.
In the end, it is essential to remember that this paper has been out for less than twenty four hours. It will be truly interesting to see how Tether and the exchanges that were suggested to be involved respond to this and also, where government entities go from here, since the study suggested that their results support “external capital market surveillance and monitoring.” Does this mean that every Crypto firm will soon find the SEC knocking on their door with pointed requests? Only time will tell.
By: BGN Editorial Staff