
Lone Bitcoin Whale Likely Fueled 2017 Price Surge, Study Says - pseudolus
https://www.bloomberg.com/news/articles/2019-11-04/lone-bitcoin-whale-likely-fueled-2017-price-surge-study-says
======
neiman
It's impossible to have a discussion based on news reports, so here's a link
for the original paper. I copied the title and abstract below.

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

I browsed through the paper. Their main result, if I understood correctly, is
that they found "considerable evidence that Tether is used to purchase Bitcoin
following Tether authorization and a drop in Bitcoin price, and that this
phenomenon has a sizable relation to future Bitcoin prices and other coins."

This result, if true, does not imply directly the conclusion ("rally caused by
single whale").

First, it doesn't explain the original raise of the price before the fall
(that followed with tether purchases). Second, these results can have, I
think, alternative explanations. For example, Tether was used as a tool for
shorting Bitcoin, hence it makes sense that it be sold after Bitcoin price
drops.

I write this with knowing that perhaps my interpretation of the paper is
wrong, since it relies heavily on professional jargon I'm not familiar with.

\------------------------------- title: Is Bitcoin Really Un-Tethered?

Abstract: This paper investigates whether Tether, a digital currency pegged to
the U.S.dollar, influenced Bitcoin and other cryptocurrency prices during the
2017 boom. Using algorithms to analyze blockchain data, we find that purchases
with Tether are timed following market downturns and result in sizable
increases in Bitcoin prices. The flow is attributable to one entity, clusters
below round prices, induces asymmetric autocorrelations in Bitcoin, and
suggests insufficient Tether reserves before month-ends. Rather than demand
from cash investors, these patterns are most consistent with the supply-based
hypothesis of unbacked digital money inflating cryptocurrency prices.

~~~
Animats
Tether is starting to look like a Madoff-scale Ponzi scam. What maintains the
$1 price of Tether is a continual net inflow of cash. Tether is known not to
be backed with sufficient real assets.[1] If there's a period of net outflow
from Tether, the whole house of cards comes crashing down.

[1] [https://www.marketwatch.com/story/tether-reverses-claim-
of-1...](https://www.marketwatch.com/story/tether-reverses-claim-
of-100-dollar-backing-sparking-criticism-2019-03-14)

~~~
ur-whale
> Tether is known not to be backed with sufficient real assets.

You just gave a definition of fractional reserve banking.

~~~
Animats
No, fractional reserve banking does not work that way, despite what the
cryptocurrency community thinks. Most of a bank's assets are in the form of
loans to others, usually with real assets, like houses or cars, behind them.
The risks are loans going bad, and owning long term loans while taking short
term deposits.

------
iagovar
The more I know about cryptos, the more I remain skeptical. The only people I
know that uses cryptos seriously are acquaintancies from latin america, and
none of them for storing value, with the exception of Venezuelans. Not even
argentinians, that just buy as many dollars they can.

IMO this is a thread worth reading on this topic:
[https://www.reddit.com/r/worldnews/comments/dj2jro/the_large...](https://www.reddit.com/r/worldnews/comments/dj2jro/the_largest_dark_web_child_pornography_site_in/f41kuy9/)

~~~
vbezhenar
With current Bitcoin volatility it's crazy to store money with it. I really
love tech which allows me to remember passphrase and having all money locked
inside my brain, so I would certainly use it if it weren't so volatile.

~~~
kozak
Which is fine until you want someone to be able to inherit your money.

~~~
tyre
Put the secret key in a safe deposit box and inherit the key

~~~
justin66
If you're passing down a single bitcoin as an eccentric memento, okay.
Otherwise you should take into account:

[https://www.nytimes.com/2019/07/19/business/safe-deposit-
box...](https://www.nytimes.com/2019/07/19/business/safe-deposit-box-
theft.html)

------
buboard
I can't find a link to the paper not here nor in other websites. Is this
correlation passing as causation?

OTOH, this: "will be surprised to learn investors handed over billions to
people they didn’t know and who faced little oversight"

will surprise nobody. It's exactly the reason why BTC was created

edit: I see the paper now
[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066)

 _" First, following periods of negative Bitcoin return, Tether flows from
Bitfinex to Poloniex and Bittrex, and in exchange, Bitcoin is sent back to
Bitfinex. Second, when there are positive net hourly flows from Bitfinex to
Poloniex and Bittrex, Bitcoin prices move up over the next three hours,
resulting in predictably high Bitcoin returns. The price impact is present
after periods of negative returns and periods following the printing of
Tether, that is, when there is likely an oversupply of Tether in the system.
This phenomenon strongly suggests that the price effect is driven by Tether
issuances"_

I don't see if the researchers checked to see whether the wallets used were
exchange wallets, and what happens to the coins exchanged. It could easily be
bot actions that purchase altcoins when bitcoin is going down (poloniex having
more altcoins than bitfinex), or just plain arbitrage bots. Is this evidence
considered solid? It seems flimsy

------
deweller
Clickbait title. The subtitle is probably more accurate:

"The series of $1,000 days that brought BTC to a record above $19,600 could
have been the work of one entity"

I'm very skeptical. It is certainly possible that a single entity may have
encouraged the rally. But there is no way that a single entity actually moved
the markets this much. The amount of cash required would be significant.

During this time, there were shops in Korean cities advertising cryptocurrency
sales in their store windows. This was not entirely the work of a single
whale.

~~~
7777fps
You're implying a single exchange moving the market needs cash to move it.

If the ecosystem has decided one exchange is the lead price, then they
manipulate the price without needing the underlying assets.

Furthermore, bitcoin is one of the only markets I've seen which rewards
"whales" instead of punishing them, because in most markets moving the market
you will lose money to slippage. The market price will retract after you bump
it. In bitcoin markets if you move out the price no-one is trading the
'fundamentals' so it just stays at the new price. Instead of losing money to
slippage you gain money from it.

Magic internet money indeed!

~~~
wpietri
That's an interesting way to think about it. When you say "no one is trading
the fundamentals", is that because of some sort of market flaw? E.g., hard to
trade that way? Or because there really are no fundamentals to Bitcoin?

By the latter I mean that most tradeable instruments are based in some sort of
value external to the trading. Stocks have income streams and assets.
Commodities have use value. Currencies have national economies (plus central
banks who will defend the price). But I'm having trouble thinking of what a
Bitcoin fundamental could be.

One might say it's the collective belief its fans, I guess. But given that
Coinbase now supports 30 instruments, it seems like the supply of digital
currencies is potentially infinite. Which suggests the fundamental value will
tend toward zero.

~~~
ufo
Even if we assumed that bitcoin had fundamentals, they wouldn't matter in the
end of the day. There is too much fraud and price manipulation in the system,
which prevents any chance of market self-regulation.

~~~
wpietri
Don't those go hand in hand? It seems to me that fraud and price manipulation
are much harder in, say, commodities markets or large-cap stock markets,
because people are willing to make big bets on a return to fundamentals. E.g.,
look at the willingness of people to short stocks that seem overhyped.

------
ajaimk
News via Chinese Whisper? This is getting a bit out of hand since the actual
paper/study is not available. Even the discussion at
[https://news.ycombinator.com/item?id=21440947](https://news.ycombinator.com/item?id=21440947)
only links to the previous paper these guys published.

* No one seems to have read the full paper * Is the title misleading? Discussion seems to indicate that this study only addresses the end of year Surge and not the year long surge through 2017.

------
nroets
BitCoin was mentioned at nearly every party at the end of 2017. Google Trends
showed massive growth in the search term. Many unsophisticated investors
poured money in solely based on past performance.

It was not a single whale. It had all the hallmarks of bubble like tulip mania
or Internet stocks in 1999.

~~~
ceejayoz
That attention was generated _by_ the skyrocketing price, though. No one in
the general public or news media really cared until it had _already_ shot up
substantially.

~~~
Cthulhu_
It was a self-reinforcing snowball effect, because news coverage of BTC was
pretty constant for a good while. Feedback loop kinda thing.

I for one am sure people are being paid to hype up or report on BTC so that
the people paying for those "news" reports can profit from the increased
price.

~~~
SI_Rob
It's even more insidious than that. An astonishingly high fraction of people
in both the news media (and particularly in the financial news media) as well
as in variously leveraged positions of power in government and quasi-
governmental bodies, were primed to talk up Bitcoin wherever possible due to
having taken some position in it (or in one of its boutique gateway drugs
alts) "just to see how it works."

This position being facilitated either by direct action or, more frequently,
by enthusiastic prompting from a "blockchain consultant" acquaintance who
offered to walk them through setting up a wallet (or even a miner / mining
contract) and show them how to use it. You know, "just to see how it works."

Now that their curiosity has been elevated to, as Bitcoiners love to quip,
actual "skin in the game" (both in terms of time/material investment and
reputational commitment), they are biased to repeat the pro-bitcoin messaging
points they've been spoonfed by what they believe to be a helpful, fashionably
libertarian insider geek contact, but is in effect merely this generation's
reboot of the garden variety penny stock shill.

------
wruza
For tech’s sake in this cryptoeconomy PhD thread, working with Bitfinex API
was a pleasure. A simple websocket protocol with concise deterministic event
packets and clear documentation. The only limitation is $1k barrier even for
testing purposes, but no big deal. These guys know their ropes.

Opposed to say Bitmex, which rolled out a braintrashing overengineered
differential update protocol, so hard to scratch that we just opted out of its
implementation. I believe that was inspired by bare fix/fast, with all strings
attached (pun intended).

~~~
andreygrehov
Can you point me to the $1k limit?

~~~
wruza
Time passed since then, but this is it:
[https://www.bitfinex.com/posts/243](https://www.bitfinex.com/posts/243) I
don’t remember dates exactly, maybe we entered with $10k even, because I
worked with it around Mar 2018.

------
andreygrehov
It could be possible, but I doubt it. Here is the growth of Bitcoin before
Tether was created [0]. Within 3 years, the price went from $0.05 to $1177 and
then settled at $220. I remember there was an article claiming that even this
growth was caused by a single whale [1], but again, was it really? In
comparison, here is the price of Gold within the last 40 years [2]. Looking at
this chart, one could say that the price was also artificially inflated during
those years. And if someone chimes in claiming that of course it was, then,
well, is it the nature of markets?

[0] [https://imgur.com/a/D5NrGok](https://imgur.com/a/D5NrGok)

[1] [https://techcrunch.com/2018/01/15/researchers-finds-that-
one...](https://techcrunch.com/2018/01/15/researchers-finds-that-one-person-
likely-drove-bitcoin-from-150-to-1000/)

[2] [https://imgur.com/a/JPOVkSk](https://imgur.com/a/JPOVkSk)

~~~
empath75
The run up to 1100 was also due to rampant fraud and theft on mtgox

------
biolurker1
"research". As with all things crypto, by no means there is an expert or
authority that you can actually trust.

~~~
Cthulhu_
Is it any different for stock exchange / company news though? It's all written
with an agenda, even the time of publication matters. Bloomberg is a party
that tries to be neutral in that regard, but even there, whoever gets and
absorbs the news the fastest will have an edge over the rest of the market.

Anyway it's neither here nor there what the research says to be honest;
there's major, wealthy players that see (saw?) an opportunity in crypto,
pumped up the price (if it happened via Tether then it was via freely
generated, pre-mined coins), then gradually cashed out again but in real
dollars this time from the somewhat lagging "plebs" who wanted to follow the
upwards rollercoaster.

------
auiya
Cryptocurrency is just penny stocks (before regulation). Same pump-and-dump
manipulation occurs. Why is this surprising?

~~~
sanbor
What about the flash crash of stock market by a single individual?
[https://en.m.wikipedia.org/wiki/2010_Flash_Crash](https://en.m.wikipedia.org/wiki/2010_Flash_Crash)

~~~
papln
Your source says that the cause of the flash crash is unknown and not shown to
be caused by a single individual.

~~~
sanbor
Thanks for pointing that out. I missed that part. Anyway in one report it says
that "high-frequency traders did not cause the Flash Crash, but contributed to
it by demanding immediacy ahead of other market participants."

------
sek
Prediction: Bitcoin will crash together with a general financial crisis /
recession.

People hold their bitcoin, because they don't know where else to put it right
now. With low interest rates everybody is apparently doing well.

If the market crashes, some people are worried, or have some assets outside of
bitcoin which they have to offset.

They will start to dump their bitcoin, but where is lower bound? There are no
hard assets backing it like a stock.

Maybe it's a few "believers", "whales" and exchanges who value bitcoin no
matter what. But what is their total buying power? If there is a strong
devaluation, those people or companies would be the ones who were hit the
hardest, so how much can they afford to put aside for preppin up Bitcoin?

~~~
fourstar
Then open up a short ;)

Keep in mind BTC is deflationary by nature and was the result of the last
financial crisis/recession.

~~~
blobster
Shorts are really good for...well, short-term betting. Sustaining a short
position even just medium-term, is extremely expensive.

------
magnamerc
The Bitcoin rally of 2017 was caused by Ethereum, specifically the rise of
ICOs.

~~~
Slartie
The last spike in 2017, $10k-$19k, is what this article refers to as „the
rally. That was not caused by ICOs, but likely by a single entity (I was
witnessing it in real-time back then on multiple exchanges and the price
action definitely looked like one entity with ultra deep pockets was running a
buying bot with no limits whatsoever - I had this theory back then already,
although I got the exchange wrong, I thought the action originated from GDAX,
but the paper here says Bitfinex).

However, the ascent from $500 upward, which mostly happened in the entirety of
2017, was clearly caused by free money on the streets in the early ICO craze.
That drove people into cryptos, mostly Ethereum as an on-ramp to ICOs, but
subsequently also Bitcoin and all the others.

~~~
magnamerc
Yes I remember this as well, but the real rally was from 1.2k to 10k from
January to November. I do remember the spike from 10k to 20k in December, and
it did seem very unnatural to me, but it could have also partly been due to
euphoria.

ICO mania really started in April, and the ETH/BTC ratio rose to its ATH in
June/July. This drove a ton of hype into cryptocurrencies, and naturally every
single crypto rose spectacularly. BTC would have never gotten to 10k if it
wasn't for the ICO mania of Summer 2017, IMO.

------
seibelj
Bitcoin is worth what someone will pay for it. While printing tethers is lame,
I don’t really see how it’s different from a central bank printing trillions
of USD to prop up bonds, housing, etc. other than it’s the antithesis of what
Bitcoin is supposed to be.

If tether was truly under attack it would trade for under $1 against trusted
stablecoins like USDC, but it hasn’t yet. This has happened before, but it
isn’t today.

Crypto traders simply don’t care, they appreciate USDT _because_ it’s sketchy.
Something that is more regulated would make them less likely to use it.

~~~
JumpCrisscross
> _If tether was truly under attack it would trade for under $1_

You’re assuming efficient markets. (Also, Bitfinex has admitted in court
filings that Tether isn’t fully backed.)

I have capital, have spent my career trading securities and think Tether is a
scam. But I’m not going to short it, for a variety of reasons, one big one
being the main places it trades are controlled by Bitfinex.

------
PhantomGremlin
This Bloomberg article has a lot more detail, but all the discussion is taking
place at:

[https://news.ycombinator.com/item?id=21440947](https://news.ycombinator.com/item?id=21440947)

------
aazaa
No link to the original paper. There's really no excuse for that kind of
sloppiness.

------
vkoskiv
Any exchanges accepting and trading Tether should be considered fraudulent.

~~~
dheera
They could always base themselves in a jurisdiction where it isn't considered
fraudulent, then. The whole point of crypto is de-centralization, de-
regulation, and anarchy. Anyone trading crypto should model the world on those
assumptions and trade according to human behavior under anarchic conditions,
not modeled according to the SEC-regulated world.

Yes, I understand the "problems" with Tether, but it has objectively succeeded
in holding up its market price of ~$1 USD for more than a couple years now, so
it has functionally served its purpose to its customers needing to make short-
term exchanges. To a great degree the fact that the black box's inputs and
outputs work is all that really matters, not what's inside the black box.

Might it implode one day? Maybe -- that's life in a financial anarchy. But
that should be part of your model. For example, minimizing the time you hold
USDT and using it purely as a medium to facilitate other transactions reduces
your risk.

------
gkfasdfasdf
Crazy use for Bitcoin: mine Bitcoin in satellites with giant solar arrays, at
a capacity that makes it cheaper than terrestrial mining. Since terrestrial
mining no longer economical, it ceases altogether resulting in reduction of
energy consumption. I.e. space Bitcoin mining captures solar energy in space
and sends it to earth in the form of coin, which is much safer than beaming
the energy itself.

I'm sure there are many reasons this wouldn't work, but it's fun to think
about.

~~~
_Microft
Instead of launching solar panels into space and getting free energy there,
they could be placed on Earth to save the launch costs and get free energy
_here_. Let's ignore that because the following is far more interesting ;)

To give you an idea of the scale of the problem that such an enterprise would
be dealing with: the ISS has a cooling capacity of less than 100kW and current
mining infrastructure has a power consumption in the order of gigawatts. This
energy ends up as waste heat that needs to be dumped into space at the same
rate. So for every gigawatt, there is 10000 times the cooling capacity of the
so-far largest human-made object in space required.

~~~
gkfasdfasdf
> Instead of launching solar panels into space and getting free energy there,
> they could be placed on Earth to save the launch costs and get free energy
> here.

I suppose Solar panels in space can be arranged such that that it's always
solar noon, and it's never cloudy. So more efficient at collecting than on the
ground, in theory.

------
mattferderer
I recall reading a story in a book of a technique in horse racing where a
person slowly makes a lot of bets to change the odds & then watches people
poor in cash on what looks like a rising star. Then the initial person places
a bet with better odds somewhere else.

I've always been curious how well this works in other markets, especially the
smaller cryptocurrency alt coin markets.

------
LAMike
I enjoy reading comments about Bitcoin on this site because the valuation of
this 11 year old decentralized startup has a bigger than all of Y Combinator
companies COMBINED, and people are still doubting if it's useful.

If you still think Bitcoin is a fad or toy, just wait until summer 2020 when
the supply shock makes 2017 look like a blip.

------
londons_explore
Did the study think to _ask_ the person doing the transactions who they were
or why they were transacting? They would have been happy to say if only they'd
been asked...

------
DavidSJ
You know, I originally read this title to be referring to the marine mammal,
and it didn't really seem that discordant to me, given the absurdities in the
cryptocurrency world.

------
brentis
Pretty sure lone bitcoin bear created bitcoin fall via futures as well - the
CTFC.

The U.S. Commodity Futures Trading Commission (CFTC) is an independent agency
of the US government created in 1974, that regulates futures and option
markets. The Commodities Exchange Act ("CEA"), 7 U.S.C. § 1 et seq., prohibits
fraudulent conduct in the trading of futures contracts.

------
mancerayder
That speaks to Bitcoin's price spikes, but it doesn't explain why almost all
the other ones moved almost in exact lockstep, at least in terms of momentum
up and down?

------
corford
WilyBot v2....
[https://willyreport.wordpress.com/](https://willyreport.wordpress.com/)

------
kneel
okay...

and all the people who went cryptocurrency crazy late 2017 were just lying
about throwing their money in?

it was absolute mob greed that drove the price up

------
eappleby
This would make for a good Michael Lewis book.

~~~
scottlocklin
Yes, as in the author making baseless assertions about something they very
obviously know nothing about.

------
Glosster
I don't like Bitcoin because of its energy use, I definitely prefer future
Ethereum w/ staking and current Nano, but the last "research" of these guys
was just them not understanding basics of trading. For this reason, I'm
definitely not wasting time again looking over what they wrote. I'm even
amazed that they got so many upvotes; they should have had a negative
reputation by now.

------
ur-whale
[http://archive.is/dQ4XL](http://archive.is/dQ4XL)

------
neonate
[http://archive.is/dQ4XL](http://archive.is/dQ4XL)

------
pseudozach
this is just non-existent science plus lazy journalism. The source paper is
pulled and is to be published in the future. Nice clickbait article for
skeptics to easily confirm their bias.

------
casedup
One of the best reads in a long time. Thanks for sharing.

------
AtomicOrbital
Any complex system like a crypto trading ecosystem will exhibit Scaling Law
behavior ... You will see similar big whale players driving say the NY Stock
exchange dynamics

------
DagAgren
And?

------
strasse86
so where is the paper ?

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

[https://whartonliquidity.files.wordpress.com/2018/09/is_bitc...](https://whartonliquidity.files.wordpress.com/2018/09/is_bitcoin_really_untethered.pdf)

~~~
strasse86
Thanks but that is their past paper and not the latest one as I understand

~~~
tokai
It is that paper. It isn't properly published yet, and is still under review.

------
freejulian85
I think everyone knows someone who bought bitcoin in 2017. Hardly a single
person.

------
xkcdfan001
Exchanges had to literally stop registration, because they couldn't scale,
apparently of the same user creating accounts. Seriously this is a terrible
article.

