While many believed Facebook’s entry into the cryptocurrency market sparked renewed interest in cryptoassets and drove Bitcoin to an 18-month high this month, Tether may also have had a significant impact in the rally.
It is true that the latest price surge coincided with Facebook’s announcement that it was to lauch a new cryptocurrency called Libra. News that a major corporation is climbing aboard the crypto train helps instil confidence that asset class is gaining mainstream acceptance and that it will remain well supported.
However, as any statistician knows, correlation does not imply causation.
Newly Printed Tether
But another digital token may have been responsible. Will Harborne, founder of the Ethfinex exchange in London, says Tether (USDT) has printed $600 million worth in the past month to meet the demand of a number of wealthy clients who then dump them on the market to snap up Bitcoin before it begins to surge.
The implication is that Tether – which is a stablecoin that is fully-backed by US dollar assets – is actually creating tokens that are not dollar-backed and using them to buy Bitcoin, driving up its price through highly-liquid exchanges.
Harborne says that some of Tether’s biggest customers are over-the-counter trading desks. He tells Decrypto.co:
An OTC desk might do a large deal selling BTC to a large buyer in the US, and then will convert the dollars to Tether in order to spread the other side of the order across Bitfinex and Binance where there is more liquidity.
Harborne is not the only one who believes Tether trade is complicit in pumping the price of Bitcoin. Following the record surge in December 2017 a thesis was written by an author who signed the paper using a public hash of his name to help preserve his anonymity.
His claim was that Tether may be printing USDT unfettered by meaningful oversight, transferring to Bitfinex and other exchanges to pump the price of Bitcoin and return BTC and USD to Tether/Bitfinex controlled accounts.
The author examined transaction data, the timing of major Tether mintings and corresponding rallies in the price of Bitcoin and concluded:
The price data suggests that Tether may not be minted independently of Bitcoin price and may be created when Bitcoin is falling; it also rejects the notion that Tether is not having a great influence on the Bitcoin price. One interpretation of the data suggests that Tether could account for nearly half of Bitcoin’s price rise, not even allowing for follow-on effects and the psychological effects of rallying the market repeatedly.
Tether has repeatedly denied all claims against it, as have any exchanges that may have been implicated by such reports.