
Bitcoin’s Price Was Artificially Inflated Last Year, Researchers Say - Osiris30
https://www.nytimes.com/2018/06/13/technology/bitcoin-price-manipulation.html
======
kgwgk
Today Matt Levine talks about this paper in his daily column:

[https://www.bloomberg.com/view/articles/2018-06-13/judge-
rul...](https://www.bloomberg.com/view/articles/2018-06-13/judge-rules-at-amp-
t-merger-will-be-fine)

"of these two explanations—

1) Bitcoin’s rapid and sustained rise is due to the fact that it satisfies a
real economic need in an elegant way, and people have responded to that; or

2) Bitcoin’s rapid and sustained rise is due to a magical fountain of fake
dollars that everyone just decided to treat as real dollars, and that can be
used to manipulate its price any time it’s in danger of falling—

the second is possibly more impressive. Like, creating billions of dollars’
worth of value by building a useful thing is relatively straightforward.
Creating billions of dollars’ worth of value with a ridiculous perpetual-
motion fake-dollar-printing machine is a real innovation."

~~~
gowld
What's the difference between a real dollar and a fake dollar?

All dollars are first-order fake.

~~~
skybrian
What's the difference between a fake promise and a real promise?

The government guarantees that dollars are acceptable for paying taxes. For a
promise, that's about as real as you're going to get.

~~~
trendia
This may be true, but the government also has the power to control inflation,
which limits the purchasing power of those dollars.

See: Venezuela, Zimbabwe, Germany ~1920

~~~
Spooky23
Debt instruments are based on faith and credit.

Those events are indicative of scenarios where the market lost confidence in
the faith and credit of those nations. When you can't sell bonds anymore, you
implicitly borrow by devaluing the money.

That's where the derogatory treatment of "fiat" money by goldbugs and
cryptocurrency advocates falls down. A government can declare that something
is worth a dollar, but the market determines what a dollar is worth.

~~~
pluto9
> A government can declare that something is worth a dollar, but the market
> determines what a dollar is worth.

So what happens when the government declares that a candy bar is worth a
dollar, but the market determines that a dollar is worth half a candy bar?

------
craigc
I am fully prepared to receive negative points for this comment, but I do not
believe there is anything new here. This narrative has been pushed by the
media for almost a year now. The article even claims:

> This method is not conclusive, but it has helped government authorities and
> academics spot suspicious activity in the past.

I haven’t read the entire 66 page report yet, but assume for a second that the
relationship between Tether and US dollars is 1:1. This would mean that during
a bull market, when the price started to decline, big players invested money
to buy up the available supply. Nothing about that seems suspicious to me.
They may have chosen to use Tether instead of US dollars for any reason.
Perhaps because there are more exchanges that have USDT trading pairs than
there are with USD pairs. Or perhaps because it made arbitrage easier
(transferring USDT from one exchange to another is much simpler than USD where
you would have to first move it to a bank account then wait days for a new
transfer to take place).

There is a chart at the end of the report that shows that the Tether issuance
continued to increase even as the BTC price was falling. Also it shows that
less than 25% of BTC trading volume came from Tether while over 60% came from
USD (page 38).

It is funny that claiming that the price decline in BTC since December is
manipulation will lead to you getting flamed here and people will tell you
that it is just going to its “natural value of zero”, but the idea that there
was a conspiracy to pump up the price last year is greeted with open arms, and
everyone latches onto it (The reality is probably somewhere in between). The
math regarding Bitcoin’s price increase is actually pretty sound, and I
encourage anyone who disagrees to read this article:

[https://medium.com/the-crypto-times/why-is-everyone-
investin...](https://medium.com/the-crypto-times/why-is-everyone-investing-in-
bitcoin-1e8d88fe6b3)

\---

As a side note, I think if you said this exact same thing about the stock
market, it would not be big news at all: “US dollars were used to pump up the
stock market after it experienced big dips”. And meanwhile BTC is 0.3% the
size of the stock market.

~~~
yifanl
The issue with using Tethers to pump up the price is that it implies there's
billions of U.S. dollars backing up that Tether. If there isn't billions of
USD to be found then... what?

The USD pumping up the stock market is undeniably there, but if the Tether
pumping up BTC isn't real (real being defined by the 1 USDT = 1 USD), then the
price is essentially being pumped up by nothing.

~~~
craigc
But the article and report do not prove that Tethers are not backed by USD. In
fact, it constantly says, “If Tether is not fully-backed by dollars”. All it
definitively claims is that Tethers were used to buy Bitcoin when the Bitcoin
price fell last year.

~~~
ceejayoz
There's exceedingly strong _evidence_ Tethers are not backed by USD - the
Tether website claims "frequent professional audits", but they never completed
their first one, were fired by their auditor, and cited a document explicitly
stating it was "not intended to be, and should not be, used or relied upon" as
proof of their reserves.

It's a demonstrably fraudulent claim right there on their home page.

~~~
craigc
That is not strong _evidence_ that they are not backed by USD. That is strong
suspicion.

> Lack of transparency does not necessarily indicate fraud

[https://blog.bitmex.com/tether/](https://blog.bitmex.com/tether/)

~~~
jandrese
Shouldn't it be incumbent on them to prove that they are backed by USD and not
on me to disprove it? They are the ones making the extraordinary claim here.

Given the little we do know about the company the most reasonable assumption
is that it is a slightly reworked Ponzi scheme.

~~~
craigc
What makes the claim extraordinary? If I wanted to make an easily tradable
form of USD on the blockchain, I would take a similar approach. Take deposits
in US Dollars and issue an equal number of “dollar backed coins” on the
blockchain that can then be sent around from exchange to exchange. Nothing
about that seems extraordinary to me.

It is very likely the federal reserve is going to do something very similar in
the coming years. They will also print more of their coin at will, but no one
is going to make a stink about that cause they have already been doing it for
a hundred years.

~~~
jandrese
The extraordinary claim that people pumped billions of real US dollars into an
upstart exchange with no proper accounting.

~~~
craigc
Ahhhh. Okay that makes more sense. Although at the time they _did_ have
accounting and audits. The last audit was September 2017, I believe.

~~~
ceejayoz
No, Tether never completed an audit. Their auditor fired them. Their claimed
"frequent professional audits" on the home page encompasses precisely _zero_
completed audits.

[https://www.coindesk.com/tether-confirms-relationship-
audito...](https://www.coindesk.com/tether-confirms-relationship-auditor-
dissolved/)

> Given the excruciatingly detailed procedures Friedman was undertaking for
> the relatively simple balance sheet of Tether, it became clear that an audit
> would be unattainable in a reasonable time frame. As Tether is the first
> company in the space to undergo this process and pursue this level of
> transparency, there is no precedent set to guide the process nor any
> benchmark against which to measure its success.

~~~
craigc
Wrong. They were fired after their audit in September 2017 which is available
here:

[https://tether.to/wp-content/uploads/2017/09/Final-Tether-
Co...](https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-
Report-9-15-17_Redacted.pdf)

~~~
ceejayoz
That's _not an audit_. It's a memo.

It _explicitly_ states on the first page that it cannot be relied upon.

When Tether posted it ([https://tether.to/announcement-transparency-
update/](https://tether.to/announcement-transparency-update/)) they stated "
These consulting services _do not constitute an audit_ or attestation
engagement, which would include a significantly expanded scope of procedures
and take substantially more time to complete."

------
albertwang
Link to the research paper:
[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066)

From the abstract: Using algorithms to analyze the blockchain data, we find
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 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.

~~~
galaxyLogic
What if most BitCoin owners know that buying Tether this way is a way to bump
up Bitcoin. Therefore they decide to do their part. They don't need to agree
on anything with anybody they just understand this is THE way to bump up the
price of BitCoin. Is it still a conspiracy?

~~~
kadenshep
Yeah, in the same way people might understand how MLM's work but don't need to
explicitly agree to take part in the less savory aspects of why it might be
lucrative. You can understand the game and play it with other actors without
any set of well defined rules, as long as you're all working towards
relatively the same outcome and you all have the same assets that need to be
treated in a particular way to get that outcome ("I'll get mine").

But, I don't think that's sufficient to explain what's been happening in
cryptocurrency markets. There's a reason analogous regulations exist in Real
(TM) trading. As it stands, it's too easy for bigger (or sufficiently
pocketed) entities to manipulate the markets. There's no way to stop them, no
way to REALLY track them, and there's every reason for them to do it as long
as people keep buying into these coins/exchanges.

I'd wager that people who don't think this is happening are blindlingly
optimistic about what's going on.

------
josu
I don't know, I followed all the ride very closely, and I don't think that
manipulation played that big of a role. Bitcoin was clearly undervalued at the
beginning of the year, when its price was around $1,000. Bitcoin needed a
protocol update, however, the community couldn't agree on how to proceed, and
there was the threat of a contentious fork, where bitcoin would split in 2. In
the end, the protocol update was carried out (SegWit) and while there ended up
being a fork (Bitcoin Cash) it wasn't the contentious fork everybody feared.

So once that all those threats were out of the way, the price of bitcoin
started climbing really fast. Korean and Japanese people started buying
cryptocurrency like there was no tomorrow and the market started to overheat.
Koreans wanted to buy crypto so badly, that they were paying premiums of more
than 40% compared to the rest of the world. Taxi drivers in the US were
promoting ICOs, EOS had huge billboards in Times Square and the euphoria that
goes hand in hand with every bubble started settling in.

But everybody knew that the price growth was outpacing the increase in usage
of the technology, so once the CME futures launched in December, there were no
more huge news in the horizon, and the price started deflating.

So was there some kind of price manipulation going on? Probably. But looking
back there is really no need for price manipulation, you can explain the price
increase using any economics textbook.

~~~
paulpauper
_Bitcoin was clearly undervalued at the beginning of the year, when its price
was around $1,000._

how could such a determination be possible?

~~~
vkou
Spirit animals.

~~~
thecrazyone
lol. That's a keynesian reference if anyone was wondering :)

------
paulgb
What I don't get about the theory that Tether was used to intentionally
manipulate markets, is that if you have a money-printing machine, you don't
need to manipulate markets as a business model. You can just print money,
that's the business model.

Of course it's possible that that influx of capital will move a thin market.
But Occam's razor seems to imply that that's a side effect rather than the
intent.

~~~
Scott_Sanderson
It's a money printing machine in the sense they printed 100s of millions of
tethers whenever they wanted. Problem is no one will give you $1 for a tether
(except a very thin market on Kraken). Instead, they used the tethers to buy
bitcoin and pump the price, then cashed out their bitcoin to fiat in over-the-
counter deals.

~~~
paulgb
Say you print $100M USDT and do this, and the market moves up 10%, and you get
lucky enough to find an OTC buyer willing to give you the market price. You
rake in 110M for printing 100M. This is still a money printing business model,
the market manipulation is just icing on the cake.

~~~
gph
But printing the money is only useful in that it manipulates the market price
to go that 10% higher which is where you make the profits.

If they printed that money and everyone found it worthless and the market
didn't response they wouldn't have a business model.

Edit: I guess I should say that's the conjecture of those saying Tether was
created purely for profit based on market manipulation. I don't have an inside
knowledge on what was going through the heads of those at bitfinix who created
it.

~~~
paulgb
> But printing the money is only useful in that it manipulates the market
> price to go that 10% higher which is where you make the profits.

If you print money you have free money. That's pure profit. Anything else is
just a bonus.

------
mirimir
> The new paper helped push down the already sinking price of Bitcoin and
> other cryptocurrencies on Wednesday. The price of Bitcoin fell as much as 5
> percent after the report was published, approaching its lowest point of the
> year. Bitcoin is now down more than 65 percent from the highs it hit late
> last year.

Well, then. An obvious question is who involved in this paper has just sold
Bitcoin short.

Maybe there's a disclaimer. But I've had no luck getting the paper. I've tried
to get it from Sci-Hub, but they don't seem to have it yet. And Elsevier
doesn't seem to accept Bitcoin. Anyone know a source?

~~~
grafporno
[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066)

~~~
mirimir
Nope. I clicked "Download This Paper" several times, and nothing happened. But
then, I don't have an SSRN account, so that's not too surprising.

------
burger_moon
They seemed to have stopped posting in April but this person on Twitter was
very active during the bull market in calling out the market manipulation by
Bitfinex, [https://twitter.com/bitfinexed](https://twitter.com/bitfinexed) I
cannot speak to the credibility but at the very least it was entertaining to
read the tweats and responses.

------
chx
And this is news how? That Tether is a nothing has been painfully obvious to
anyone paying attention. Of course, anyone paying attention has been avoiding
comedy gold...

~~~
ufo
The news is that now we have a detailed 66 page economics paper written about
it.

------
ethn
Ridiculously terrible analysis. The obvious assessment is that when people use
their tether to buy coins, thereby leaving exchanges, the price goes up as
there is more demand. This generally occurs when investors believe they can
get an asset for a steal, such as when the Bitcoin price goes down.

------
FundThrowaway
One part of the article I really don't understand, "The researchers relied on
the millions of transaction records that are captured on the public ledgers of
all virtual currency transactions, known as the blockchain, to spot patterns."
Why is he looking at the blockchain for trading irregularities? Nearly all of
the big exchanges just use a database to record trades and no actual
cryptocurrency is transferred around except at withdrawal and deposit, so how
can the blockchain possibly provide any insight?

------
tedeh
Any ideas on why "they" appear unable to keep the price up at this point in
time and continue fueling the hype? Already cashed out or just impossible to
stem the tide of disillusioned people taking their losses and exiting?

~~~
rtkwe
Maybe they realized people were getting really suspicious of Tether and they
couldn't keep creating tether ex nihilo?

~~~
paulie_a
The people behind tether need to be put in handcuffs

------
martin1975
It's kind of amazing to me that to this day Tether has yet to release an audit
that proves a 1 to 1 relationship between USD to Tether.... We might not have
seen the real bottom yet, if suspicion about Tether's insolvency eventually
turns out to be true.

------
lend000
This all rests on the assumption that Tethers are not backed by dollars as
they are supposed to be. If they are backed, it is just a form of liquidity
which is in no way manipulating the market, just creating ease of capital
transfer between exchanges.

~~~
pimmen
They have not completed any audits, and that astronomical dollar value backing
up Tether is an extraordinary claim lacking extraordinary evidence. So, I
would say it rests on the assumption that Tether is lying and have something
to hide, backed by the fact that they haven't completed an audit.

The alternative, that this is not market manipulation, rests on blindly
trusting that Tether is backed up by the dollars they claim.

------
hellbanner
[https://hackernoon.com/meet-spoofy-how-a-single-entity-
domin...](https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-
the-price-of-bitcoin-39c711d28eb4)

------
od320
“The stock market — the daytime adventure serial of the well-to-do — would not
be the stock market if it did not have its ups and downs. (...) And it has
many other distinctive characteristics. Apart from the economic advantages and
disadvantages of stock exchanges — the advantage that they provide a free flow
of capital to finance industrial expansion, for instance, and the disadvantage
that they provide an all too convenient way for the unlucky, the imprudent,
and the gullible to lose their money — their development has created a whole
pattern of social behavior, complete with customs, language, and predictable
responses to given events. What is truly extraordinary is the speed with which
this pattern emerged full blown following the establishment, in 1611, of the
world's first important stock exchange — a roofless courtyard in Amsterdam —
and the degree to which it persists (with variations, it is true) on the New
York Stock Exchange in the nineteen-sixties. Present-day stock trading in the
United States — a bewilderingly vast enterprise, involving millions of miles
of private telegraph wires, computers that can read and copy the Manhattan
Telephone Directory in three minutes, and over twenty million stockholder
participants — would seem to be a far cry from a handful of seventeenth-
century Dutchmen haggling in the rain. But the field marks are much the same.
The first stock exchange was, inadvertently, a laboratory in which new human
reactions were revealed. By the same token, the New York Stock Exchange is
also a sociological test tube, forever contributing to the human species'
self-understanding. The behaviour of the pioneering Dutch stock traders is
ably documented in a book entitled “Confusion of Confusions,” written by a
plunger on the Amsterdam market named Joseph de la Vega; originally published
in 1688, (...)” — John Brooks, in “Business Adventures” (1968)[32]

------
asdfman123
Wow, who would have thought that crazy things could have happened in the
absence of a centralized authority?

------
mythrwy
Every time a bubble pops it seems people look for someone to blame that isn't
the themselves, (i.e the people who rushed out and put more than they could
afford to lose on a risky FOMO decision). I don't know about Tethers
involvement, but that is what makes a bubble at the end of the day, not sure
how much "manipulation" is needed once it gets started.

Expecting these types of articles will sell pretty well in coming weeks/months
as people nursing their wounds look for the "people responsible".

------
whoisninja
wall streeters are liars, opinionated and biased bunch, if there was any
manipulation in unregulated crypto markets because they were nascent shouldn't
surprise you, why? ponder upon the following:

home prices were not artificially inflated during 2008 crisis

usd or other fiat currencies are not artificially inflated (hint: negative
interest rates)

stock buybacks are not artificially inflating stock prices

negative interest rates and bond buyback programs are not inflating economies

hedge funds are not inflated, they just market themselves with buzz words like
quant investing, alpha etc. yet most of them can't beat S&P and charge 2-20

business of banks are not inflated, they use 50 year old technology like
mainframes and are overstaffed and charge $50 to wire $10 internationally

tech companies are not inflated, they sell your freaking data and sell you ads
so that you can buy $hit you don't need

\---- where there are humans involved, there will be greed

------
paulpauper
It's worth noting, SSRN is not peer reviewed, but the NYTimes by omitting this
important fact, one can mistake this paper for having the same credibility and
soundness as a peer-reviewed paper. Anyone can submit to SSRN. The editorial
standards are almost non-existent.

~~~
rayuela
Yeah it's like you omitting the fact that it was published by two reputable
finance professors who's research specializes in financial market
manipulation.

~~~
zerostar07
Which is a major reason why peer review exists, to prevent authoritative
people pushing their agenda.

------
jpatokal
What continues to weird me out here is that Tether's price is _still_
basically $1, and there's basically no risk premium for those exchanges that
trade BTC against Tether instead of actual USD. But when the two start
spreading, the shit will _really_ hit the fan...

[http://www.untether.space/](http://www.untether.space/)

------
kerng
So, the Bitcoin price rose because people bought it (via Bitfinex). The price
fell when it was sold. I imagine doing a similar study on transactions from
Coinbase (which has a big user base and volume) might reveal similar results.

Is there evidence that this was orchestrated or was done maliciously by a
small group of actors. The headline is written like there is more to it.

~~~
jonknee
You missed the part about the owners of Bitfinex running a pretend currency
and bidding up BTC with it. That's why Bitfinex is different than Coinbase. It
was like clockwork, you'd see a dip, a huge amount of Tether's would come
online and boom huge volume at Bitfinex buying the dip and surging to new
heights.

------
rblion
Called it. I tried to tell this petroleum engineer from Texas last December
that this whole thing, as awesome as blockchain is, is very suspect and that
the market will crash unless the energy solved is solved simultaneously. The
concept is brilliant but human beings are involved, so greed will be a factor
too.

There you have it.

------
AzzieElbab
I wonder how soon they are going to draw a connection between this and sec
approved bc futures

------
ibmocy
Both Ethereum and Bitcoin mining is very centralized, with the top four miners
in Bitcoin and the top three miners in Ethereum controlling FAR FAR more than
51 % of the hash rate.

~~~
victor22
Can you back that up?

------
arisAlexis
The biggest bank of the Netherlands is holding an account of Tether. Do you
think they are holding billions of fraudulent money without doing due
diligence?

------
hulton
You don't say? That wasn't obvious at all or anything. Good thing the nytimes
was able to let us know in this hard-hitting report!

------
fixermark
... as opposed to all other times, when its value is finding a natural balance
and not at all driven by speculation, no sir. ;)

------
arisAlexis
statistical study finding __no correlation __with Bitcoin prices here.

[http://forklog.net/so-have-we-got-tethered/](http://forklog.net/so-have-we-
got-tethered/)

Since both of them appear quite well researched you can deduct why one got 500
upvotes and the other one 98. Power of emotions..

------
yuhong
This reminds me of paying off debts using Bitcoin, where the dollars have to
come from somewhere.

------
emilfihlman
Surprised were _, _ and of course _.

------
arisAlexis
this is simply not true. the causation and correlation was biased. Tether
needs to print when there is volatility is just how the system works to keep
the peg

------
jamesrom
In other news, water is wet.

------
fiatjaf
Tether is just like a normal bank creating fake dollars. Nothing new or
unexpected here.

------
shreybear
don't big whales have a lot of power in the Bitcoin market?

------
mrybczyn
Shocking.

I mean, a monetary system based on gambling, drugs, and smuggling can't be all
bad?

------
gcatalfamo
Omg, no shit? (If you downvote it’s fair, I just couldn’t resist it)

------
glbrew
No. Fucking. Shit.

------
thewordpainter
love to know how much of the HN community suspected this -- when can we get an
instagram poll?? :)

------
fortythirteen
In other news, water is wet.

------
psyclobe
No shit sherlock

------
ejstronge
Could we change the title to that of the article, "Bitcoin’s Price Was
Artificially Inflated Last Year, Researchers Say"? It currently implies that
the New York Times did independent research ("NYT and UT Austin: Bitcoin
Prices Manipulated by Tether and Bitfinex") which does not seem to be the
case.

I think this is a subtle point but, with the tension surrounding 'fake news',
it's critical to distinguish reporting on another's research from disclosing
one's own results.

~~~
lallysingh
Do people take the 'fake news' claims seriously? Even here in HN?

~~~
Larrikin
Active measures show up on here, this is a pretty big forum with a larger than
average number of influential users after all. But typically those posts are
down voted pretty quickly.

------
dustingetz
Real central banks share an incentive to inflate asset prices just as much as
Crypto exchanges do (altcoin exchanges take profits in crypto and thus are
exposed). The parallels to central banking are astounding to me. Except in
crypto this happened at internet speed instead of over 50 years.

(I am not talking about money printing and interest rates, I'm talking about
actual assets in bubbles like houses and stocks and cryptoassets. Central
banks = nation states and nation states want growth in assets)

~~~
ceejayoz
Real central banks regularly raise interest rates to _prevent_ over-inflation
of asset prices.

~~~
Consultant32452
I think banks have an equal and opposite position. Our debts are their assets.
Inflation reduces the value of their assets.

~~~
compcoffee
> _Our debts are their assets. Inflation reduces the value of their assets._

And our assets are their debts.

~~~
mishad
So for states which have net debt position (including the US), it is to their
advantage to have steady price inflation (i.e. currency value steadily being
worth less and less in purchasing power), so that the debt is steadily reduced
in "real terms" size. And this is in fact exactly what many/most governments
seek to do, using a combination of fiscal policy levers, including issuing
debt (government bonds) and also measures such as QE.

Note the "steady" in the above - part of the value of a fiat currency is in
its price stability (which is linked/coupled to the confidence people have in
it and in the issuing government).

In both direction (inflationary Vs deflationary) and in stability, this is
markedly different from what is happening with BTC.

~~~
dustingetz
I think you can factor inflation out of it at the international level; USA
wants more things priced in dollars (like oil) because we can manufacture
dollars but nobody else can – an enormous edge. Which explains why USA foreign
policy is what it is in one sentence.

