Blockchain News, Cryptocurrency, Token Sale

Is USDt and Bitfinex manipulating Litecoin (LTC), Ethereum (ETH), and Bitcoin (BTC) prices?

We looked at Tether and USDt recently with some skepticism about a hack that was announced with a specific number of $30 million USDt stolen and isolated to an unauthorized wallet. We advised caution and more research while we waited for further information about the hack which has not come from Tether.

Now some of the biggest names in crypto currency are even growing concerned about the practices of Tether and USDt which are used as an exchange token and tied to the value of $1. Tether claims each USDt is backed by $1 which maintains the pegged price to USD. Some would like a proper accounting to find out if this is true.

Tether claims in its own whitepaper that it will subject to regular audits of deposits but no such audit has been performed in two years. “Since tethers live on the Bitcoin blockchain, the provability and accounting of tethers at any given point in time is trivial. Conversely, the corresponding total amount of USD held in our reserves is proved by publishing the bank balance and undergoing periodic audits by professionals.” It is this periodic audit some are calling for.

The concerns arise from the interesting pattern of new USDt release which seems to coincide with price declines in Bitcoin and other currencies traded on Bitfinex. As USDt are used on Bitfinex exchange to purchase other cryptocurrency any non-backed coins used to purchase Litecoin (LTC), Bitcoin (BTC), Ethereum (ETH), Monero (XMR), Ripple (XRP), mIOTA (IOTA) or other currencies listed would then be used to make purchases and artificially increase demand for those coins traded. If the wallets the non-backed USDt were added to were controlled by Bitfinex or Tether then an exchange is occurring to purchase coins without fiat currency. This undermines the entire “pegged” USDt if no equal deposits are held on hand.

USDt market valule vs Bitcoin (BTC) declines

There is an emerging pattern of $20-30 million in USDt added to the market at just about the time Bitcoin decreases in value. Suddenly flushing new coins in to Bitfinex which can only be used to purchase crypto would help to support the price of purchased coins and stop or slow a decrease in price. We paid our graphics guys with much pizza and beer to put together these charts to see the timing from 1-7 November. Remember that USDt is pegged to the USD so any increase in USDt market cap is associated with an increase in the number of USDt in the market.

Three separate USDt adds to market

Compared to BTC price at time of add

In each case we see three distinct adds to market when BTC was showing weakness or in full decline. One week though does not make a pattern. Below is the following week from 8-15 November and shows another form of possible economic stimulus or market manipulation via inflation of the “pegged” USDt to $1.10. This would increase the market cap of USDt by 10% or about $60 million at the time it occurred.

Three adds in the decline which did not halt the BTC decrease. Then a sudden 10% inflation which stopped the decline.

Three adds then the sudden 10% inflation of a “pegged” USDt resulting in a $60 million increase in market cap.

None of this is obvious market manipulation. Think about the add of USDt to the market though. As customers sign up they must deposit the equivalent of $1 USD fiat currency to purchase USDt and trade on Bitfinex. Customers do not sign up in $10-30 million dollar increments and only during market declines. With a 24 hour market and worldwide customers the increase in USDt should be a steady increase rather than large blocks. And yet we see the circulating coins maintain the sale value for hours or even days at a time. Again though, none of this indicates foul play and are just patterns.

Conclusion

The previous largest bust of a crypto market was the well publicized Mt. Gox which at the time was handling 70% of the world’s Bitcoin trades. While the market value was much lower the Mt. Gox episode was very influential on the entire crypto market due to the volume control. Luckily Bitfinex does not control 70% of Bitcoin trades and runs #1 to a very close Bithumb out of South Korea. The wider effects on the market would be harsh but not like the Mt. Gox episode. For now all of the above are just patterns but there is growing concern in the community and it would do well for Bitfinex and Tether to provide the public accounting as stated in the whitepaper for Tether.

For those around the crypto game since and before Mt Gox understand that the only safe coins are ones stored in a secure offline wallet and not left on any market exchange. While the value may decrease, in the end you will still have your coins/tokens. Only keep on any online exchange what you can afford to lose. Bitfinex and Tether would go a long way to ease the fears of customers by providing the public accounting of deposits as promised in the Tether whitepaper.