Tether role in Bitcoin price manipulation investigated by US officials

Lizzy Murray

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The US Department of Justice started a criminal investigation in May 2018, looking into a potential involvement of traders in manipulating Bitcoin’s price when it reached the all-time highs in December 2017.

Attorneys now have a new suspicion that Tether and crypto exchange Bitfinex which have the same management team may have used the stablecoin to boost Bitcoin’s price.

According to a Bloomberg report, the US Department of Justice is investigating Tether’s and Bitfinex’s possible engagement in illicit trading activities focused on increasing Bitcoin’s price last year. The inquiry comes at the same time with another investigation conducted by the Commodity Futures Trading Commission regarding the activities of Bitfinex and Tether Ltd. It looks like the two regulators will launch a coordinated investigation into both cryptocurrency companies.

So far the details of the investigation have been kept away from the public. It remains unclear if only the trading activities on the Bitfinex platform are analyzed or the exchange’s executives are also under scrutiny. According to the report:

“It couldn’t be determined whether government officials are solely investigating activity that occurred on Bitfinex or if exchange executives are suspected of illegal behavior. Neither the Justice Department nor the CFTC has accused anyone of wrongdoing, and authorities may ultimately conclude that nothing illicit occurred.”

Tether and Bitfinex have been linked to Bitcoin’s price manipulation in the past as well. In June 2018, a finance professor at Texas University analyzed Tether’s role in the inflated prices of Bitcoin and other crypto assets last year. The research relied on algorithms and found a meaningful connection between Tether and price spikes. According to the report:

“By mapping the blockchains of bitcoin and tether, we are able to establish that entities associated with the Bitfinex exchange use tether to purchase bitcoin when prices are falling. Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention. These effects are present only after negative returns and periods following the printing of tether.”

These allegations have been denied by Tether who has a circulating supply of 1.8 billion. The company declared that each unit of USDT is backed by $1.00 stored in one of the company’s bank accounts.

Mike Novogratz sais that Tether’s ability to redeem over $1 billion worth of USDT when the crypto asset’s price dived below $1.00 in October is a clear sign that the token is indeed fully-backed by the US dollar. There are also others who think Tether had no impact on Bitcoin’s price such as the University of Queensland Business School. Nevertheless, now that the currency and the Bitfinex exchange are being investigated the truth should surface.