Tether and Bitfinex would manipulate the Bitcoin price
Rumor has it that Tether and Bitfinex would manipulate the Bitcoin price with false dollars. Is there something in it - or is it just a scare? We'll take a closer look.
For several months, a user named "Bitfinex'ed" via Twitter and Medium warns of alleged fraud by Bitfinex and Tether. The story goes something like this: Tether creates digital dollar tokens out of thin air, with which a trader or a group of traders manipulates the Bitcoin price at will, placing targeted offers that suggest a demand that does not exist. According to these rumors, the big dollar bourse BitFinex is somehow involved in the manipulation.
With about 200 million fresh tethers coming on the market over the last two weeks, the tether thesis also floated on popular Bitcoin forums and some Bitcoin media (Coincodex, Cointelegraph). It is noticeable that it is mainly followers of Bitcoin Cash, who point with the finger on Tether and Bitfinex - possibly because they are looking for an explanation why Bitcoin continues to rise, rather than in the long-awaited death spiral of high fees fizzle.
A real answer to the question of whether to take the tether theory seriously or hysteria, I can not give here. But I try to illuminate the individual components, so that you can make yourself a picture. We come across alternative explanations of the tether-glut and a labyrinth of interactions between regulation, banking, tether and bitcoin rally.
But please do not forget to treat all that I write with the necessary amount of skepticism.
Tether
Tether has realized the long-standing dream of bringing dollars or euros to a blockchain. The company, which is registered in Hong Kong, uses the Omni protocol, which can be used to transfer any token with a Bitcoin transaction. You can imagine it like writing a voucher on a bill.
According to the FAQ, Tether deposits the tokens 100 percent with the respective currency at two Taiwanese banks. The dollar, the euro and the Japanese yen are accepted, but the absolute bear's share consists of dollar tethers. With these tokens you can transfer, receive and save dollars without banks or payment service providers. The omni wallet is everything you need.
One of the differences with Bitcoins is that Tether has to be trusted by Tether to keep the dollar in stock. Upon request, it is possible to trade tethers for dollars or euros after going through the company's KYC process. However, for regulatory reasons, Tether reserves the right not to comply with any request for an exchange.
Doubting whether the tokens are really 100 percent dollar-backed, the company enters an official audit of a New York company.
Tether has become a popular replacement for Fiat transactions on Bitcoin exchanges, especially when it's difficult to work with banks. Among others, tethers are accepted by BitFinex, Poloniex, Kraken, Bittrex and HitBTC.
BitFinex
BitFinex has been the top-selling Bitcoin dollar exchange for several years. The fact that the Hong Kong company has kept this rank, after the incidents of recent years on a small miracle:
In early August 2016, BitFinex was hacked. The stock exchange initially passed on the loss of 119,756 Bitcoin to the customers, who in return received a BitFinex token based on Omni. This year, BitFinex has repurchased the tokens, completely paying off its debts.
The second major event was a massive problem with dollar payouts. The Taiwanese banks, which have executed bank transfers for both BitFinex and Tether until April 2017, have been notified by the US bank Wells Fargo that they will no longer handle international transactions for the two companies. The reason is likely to be a stricter regulation of international dollar transactions. Although BitFinex and Tether have sued the bank, dollar payments are still difficult.
According to a May announcement, BitFinex has withdrawn the dollars from the Taiwanese banks and can pay them off again. However, according to the announcement only payments from $ 50,000 processed. On social media, one usually gets the recommendation to switch the dollar to dollar tether or bitcoin, transfer it to another exchange and sell it there for cash that can be paid out.
The third major event was the separation from the US market. In a statement on August 12, BitFinex announces that it will immediately stop the verification of US citizens and stop the service for US citizens completely within the next 90 days. The main reason was that BitFinex still has problems paying money into US citizen accounts.
However, all of this has not stopped BitFinex from remaining the strongest selling dollar exchange. A crucial help might have been Tether.
The tether money creation
By early 2017, the total number of dollar tethers had stagnated at about $ 10 million. It then rose to 60 million by May.
Since the end of April, it is no longer possible for Tether to receive dollars. "All incoming international referrals to tethers will be blocked and rejected by our Taiwanese banks," Tether writes in May, "so we do not expect the number of tethers to increase substantially unless these restrictions are resolved."
It came, however, different. The amount of available tethers has skyrocketed since June, rising to 210 million by the beginning of July, rising to 316 million by the beginning of August, rising to just under $ 450 million by September and adding another $ 220 million since November 1, to currently 676 Million dollars.
In the course of 2017, despite the blockade of US bank transfers, Tether has increased the number of dollar tokens from 10 million to more than half a billion.
Meanwhile, Tether has been looking for new partners and probably already found some. "We have been diligently building a global network of money transfer channels that is resilient to further aggressive actions by corresponding banks. We also started a trust-based relationship with an institution in the US to serve qualified corporate clients, "Tether said in another announcement. While the company reveals no details, it states that large customers continue to be able to switch dollars to tether and vice versa, while smaller customers have problems in some jurisdictions.
According to Bitfinex'ed, a payout of dollars is not possible at all: "Tether has never paid off a single dollar, because the issued units always rise and never fall. Theoretically, the market capitalization of tether should rise and fall as people pay in and out. But the truth is, nobody can pay. They want to make people believe that someone has bought 550 million worthless tethers for a product that does not even work. "
There may also be a connection between BitFinex and Tether: Both companies are based in Hong Kong, use Taiwanese banks, and have filed lawsuits against Wells Fargo. According to Bitfinex'ed, there are also personnel overlaps in the management. But this is something that I can not possibly test.
Spoofing and Wash Trading
If you look at the release of new tethers, you notice that they often coincide with a rise in bitcoin price.
The creation of new tethers seems to accompany the monstrous rally that lifted Bitcoin from $ 1,000 to $ 8,000 in 2017.
This can be exemplified by the turbulence of recent weeks. After dropping SegWit2x, the Bitcoin price plunged from around $ 7,500 to $ 5,500, only to rise again and reach new highs of more than $ 8,000. In parallel, tethers worth nearly $ 200 million were created within less than 10 days:
20 million on the 8th of November,
30 million on 10th November,
60 million on November 11,
20 million on the 16th and
60 million on 17 November.
It is not clear whether the tether issue precedes or underlies a price increase. Later, we will discuss alternative explanations for the relationship between BitFinex, Bitcoin Rally, and Tether. First, however, we come to the conspiracy theory of price manipulation as rumored by Bitfinex'ed and an increasing number of Bitcoin cash supporters.
Bitfinex'ed called the rally a "Wash Trade Rally" in mid-July. The following happened: Tether released 25 million new units. Almost immediately thereafter, the total amount of available dollars in the margin lending marketplace rose from 58.5 million to 79.3 million. A few days later, the Bitcoin price climbed $ 1,000.
Margin lending means giving money on a stock exchange to other traders who "trade leverage". It's not so complicated: A trader lends money to duplicate his bet. For example, he can bet that Bitcoin will go "long" and multiply its use by lending money to the Margin Lending Marketplace. With daily interest rates of less than 1 percent, margin lending is a very attractive business, while the lending money is covered by other positions of the lender (such as Bitcoin or Ether).
The conspiracy theory is that BitFinex tethers dollars and throws them into the margin lending market. By doing so, BitFinex creates liquidity that does not exist and earns interest. By possibly accepting their own bids with the wrong dollars or building positions, BitFinex can manipulate the price upwards and encourage other traders to "go long" by margin. Further, the wrong dollars can be used to make offers on the market Marketplace to accept. This is the so-called "wash trading"
Finally, it is speculated that "spoofing" occurs on BitFinex. "Spoofing" means that an actor "sends one or more sales or purchase orders that are large in relation to the normal trading volume, which he immediately withdraws from the market before they are executed," says Wikipedia. "This affects the other market participants, because they adjust the prices of their sales and purchase orders accordingly. The spoofer then uses this market movement for its own benefit and can then sell more expensive or buy cheaper. "In the US, there have been repeated criminal convictions for spoofing since 2015.
"Spoofy raises the price if he wants it to go up, and Spoofy drops the price if he wants it to fall," writes Bitfinex'ed. Spoofy is said to be a trader on BitFinex, who manipulates the market with $ 20-60 million through neatly placed orders, which the tidings allegedly connive to tolerate. BitFinex itself denies that this is happening.
The dramatic consequence is, so the conspiracy theory: The Bitcoin price is driven by arbitrarily generated digital money upwards. The scene is not much different than the stock markets, where a bubble is obtained through newly printed money. Just unregulated and therefore worse. As soon as the house of cards breaks in - and it does - a huge crash will crush Bitcoin, other cryptocurrencies and exchanges like BitFinex. It's going to get worse than Mt. Gox.
Other theories on the relationship between BitFinex, Tether, and Bitcoin
Of course, what Bitfinex'ed writes is pure speculation, perhaps even malicious reputational damage to an otherwise innovative stock market, possibly even deliberately diversified FUD to push the bitcoin price. There are many more theories that can be found about how this mesh of BitFinex, Tether and Bitcoin is related.
Let's start by saying that it's not puzzling, it's just natural that BitFinex works more with Tether after bank transfers in May became problematic. Similarly, investors wishing to trade on the high-volume and liquid stock market BitFinex are likely to switch their dollars to tethers. Like the banking blockade of WikiLeaks in 2010 were an incentive to use Bitcoins instead of Mastercard, the BitFinex banking blockade from April 2017 may have been the occasion to use tethers instead of dollars. Every new technology needs its key moment. BitFinex is not the only exchange that uses tethers. The Tether-Richlist is not headed by BitFinex, but by Bittrex and Poloniex.
These two exchanges dominate the Altcoin market. For her, tether is particularly attractive. The two exchanges have their origins in the pure trading of Bitcoin with other cryptocurrencies; Bank transfers were and are in this model a bulky, overloaded by regulation foreign body. Thanks to Tether, they can now service the lucrative currency pairs Bitcoin Dollar or Ethereum Dollar without bothering with banks. The rise of tether is not, as Bitfinex'ed speculates, in contrast to the blockades of banks in Taiwan since April - he is the direct result of this. The explosion in tether levels since May may have been a direct result of US fiscal regulators adopting stricter international dollar settlement rules in the spring. Just as a river flows downhill, money flows past regulation. Bitcoin is an alternative to the monopoly of the dollar. Tether breaks banks' monopoly on dollar transfers. At the same time, BitFinex repeats what people already know about Mt. Gox: when dollar payouts fail to go through, people buy bitcoins to withdraw money. As a result, the price of Bitcoin increases.
The cryptocurrency benefits from regulation tightening the dollar flow. The massive rise in the bitcoin price may have further fueled the tether hype, which explains the rapid pace of issuing new tethers. The 200 million tethers that were minted in less than 10 days in November may not be the cause of the rally, but their consequence: the markets were keen to get into Bitcoin, and other ways are barred.
For several months, a user named "Bitfinex'ed" via Twitter and Medium warns of alleged fraud by Bitfinex and Tether. The story goes something like this: Tether creates digital dollar tokens out of thin air, with which a trader or a group of traders manipulates the Bitcoin price at will, placing targeted offers that suggest a demand that does not exist. According to these rumors, the big dollar bourse BitFinex is somehow involved in the manipulation.
With about 200 million fresh tethers coming on the market over the last two weeks, the tether thesis also floated on popular Bitcoin forums and some Bitcoin media (Coincodex, Cointelegraph). It is noticeable that it is mainly followers of Bitcoin Cash, who point with the finger on Tether and Bitfinex - possibly because they are looking for an explanation why Bitcoin continues to rise, rather than in the long-awaited death spiral of high fees fizzle.
A real answer to the question of whether to take the tether theory seriously or hysteria, I can not give here. But I try to illuminate the individual components, so that you can make yourself a picture. We come across alternative explanations of the tether-glut and a labyrinth of interactions between regulation, banking, tether and bitcoin rally.
But please do not forget to treat all that I write with the necessary amount of skepticism.
Tether
Tether has realized the long-standing dream of bringing dollars or euros to a blockchain. The company, which is registered in Hong Kong, uses the Omni protocol, which can be used to transfer any token with a Bitcoin transaction. You can imagine it like writing a voucher on a bill.
According to the FAQ, Tether deposits the tokens 100 percent with the respective currency at two Taiwanese banks. The dollar, the euro and the Japanese yen are accepted, but the absolute bear's share consists of dollar tethers. With these tokens you can transfer, receive and save dollars without banks or payment service providers. The omni wallet is everything you need.
One of the differences with Bitcoins is that Tether has to be trusted by Tether to keep the dollar in stock. Upon request, it is possible to trade tethers for dollars or euros after going through the company's KYC process. However, for regulatory reasons, Tether reserves the right not to comply with any request for an exchange.
Doubting whether the tokens are really 100 percent dollar-backed, the company enters an official audit of a New York company.
Tether has become a popular replacement for Fiat transactions on Bitcoin exchanges, especially when it's difficult to work with banks. Among others, tethers are accepted by BitFinex, Poloniex, Kraken, Bittrex and HitBTC.
BitFinex
BitFinex has been the top-selling Bitcoin dollar exchange for several years. The fact that the Hong Kong company has kept this rank, after the incidents of recent years on a small miracle:
In early August 2016, BitFinex was hacked. The stock exchange initially passed on the loss of 119,756 Bitcoin to the customers, who in return received a BitFinex token based on Omni. This year, BitFinex has repurchased the tokens, completely paying off its debts.
The second major event was a massive problem with dollar payouts. The Taiwanese banks, which have executed bank transfers for both BitFinex and Tether until April 2017, have been notified by the US bank Wells Fargo that they will no longer handle international transactions for the two companies. The reason is likely to be a stricter regulation of international dollar transactions. Although BitFinex and Tether have sued the bank, dollar payments are still difficult.
According to a May announcement, BitFinex has withdrawn the dollars from the Taiwanese banks and can pay them off again. However, according to the announcement only payments from $ 50,000 processed. On social media, one usually gets the recommendation to switch the dollar to dollar tether or bitcoin, transfer it to another exchange and sell it there for cash that can be paid out.
The third major event was the separation from the US market. In a statement on August 12, BitFinex announces that it will immediately stop the verification of US citizens and stop the service for US citizens completely within the next 90 days. The main reason was that BitFinex still has problems paying money into US citizen accounts.
However, all of this has not stopped BitFinex from remaining the strongest selling dollar exchange. A crucial help might have been Tether.
The tether money creation
By early 2017, the total number of dollar tethers had stagnated at about $ 10 million. It then rose to 60 million by May.
Since the end of April, it is no longer possible for Tether to receive dollars. "All incoming international referrals to tethers will be blocked and rejected by our Taiwanese banks," Tether writes in May, "so we do not expect the number of tethers to increase substantially unless these restrictions are resolved."
It came, however, different. The amount of available tethers has skyrocketed since June, rising to 210 million by the beginning of July, rising to 316 million by the beginning of August, rising to just under $ 450 million by September and adding another $ 220 million since November 1, to currently 676 Million dollars.
In the course of 2017, despite the blockade of US bank transfers, Tether has increased the number of dollar tokens from 10 million to more than half a billion.
Meanwhile, Tether has been looking for new partners and probably already found some. "We have been diligently building a global network of money transfer channels that is resilient to further aggressive actions by corresponding banks. We also started a trust-based relationship with an institution in the US to serve qualified corporate clients, "Tether said in another announcement. While the company reveals no details, it states that large customers continue to be able to switch dollars to tether and vice versa, while smaller customers have problems in some jurisdictions.
According to Bitfinex'ed, a payout of dollars is not possible at all: "Tether has never paid off a single dollar, because the issued units always rise and never fall. Theoretically, the market capitalization of tether should rise and fall as people pay in and out. But the truth is, nobody can pay. They want to make people believe that someone has bought 550 million worthless tethers for a product that does not even work. "
There may also be a connection between BitFinex and Tether: Both companies are based in Hong Kong, use Taiwanese banks, and have filed lawsuits against Wells Fargo. According to Bitfinex'ed, there are also personnel overlaps in the management. But this is something that I can not possibly test.
Spoofing and Wash Trading
If you look at the release of new tethers, you notice that they often coincide with a rise in bitcoin price.
The creation of new tethers seems to accompany the monstrous rally that lifted Bitcoin from $ 1,000 to $ 8,000 in 2017.
This can be exemplified by the turbulence of recent weeks. After dropping SegWit2x, the Bitcoin price plunged from around $ 7,500 to $ 5,500, only to rise again and reach new highs of more than $ 8,000. In parallel, tethers worth nearly $ 200 million were created within less than 10 days:
20 million on the 8th of November,
30 million on 10th November,
60 million on November 11,
20 million on the 16th and
60 million on 17 November.
It is not clear whether the tether issue precedes or underlies a price increase. Later, we will discuss alternative explanations for the relationship between BitFinex, Bitcoin Rally, and Tether. First, however, we come to the conspiracy theory of price manipulation as rumored by Bitfinex'ed and an increasing number of Bitcoin cash supporters.
Bitfinex'ed called the rally a "Wash Trade Rally" in mid-July. The following happened: Tether released 25 million new units. Almost immediately thereafter, the total amount of available dollars in the margin lending marketplace rose from 58.5 million to 79.3 million. A few days later, the Bitcoin price climbed $ 1,000.
Margin lending means giving money on a stock exchange to other traders who "trade leverage". It's not so complicated: A trader lends money to duplicate his bet. For example, he can bet that Bitcoin will go "long" and multiply its use by lending money to the Margin Lending Marketplace. With daily interest rates of less than 1 percent, margin lending is a very attractive business, while the lending money is covered by other positions of the lender (such as Bitcoin or Ether).
The conspiracy theory is that BitFinex tethers dollars and throws them into the margin lending market. By doing so, BitFinex creates liquidity that does not exist and earns interest. By possibly accepting their own bids with the wrong dollars or building positions, BitFinex can manipulate the price upwards and encourage other traders to "go long" by margin. Further, the wrong dollars can be used to make offers on the market Marketplace to accept. This is the so-called "wash trading"
Finally, it is speculated that "spoofing" occurs on BitFinex. "Spoofing" means that an actor "sends one or more sales or purchase orders that are large in relation to the normal trading volume, which he immediately withdraws from the market before they are executed," says Wikipedia. "This affects the other market participants, because they adjust the prices of their sales and purchase orders accordingly. The spoofer then uses this market movement for its own benefit and can then sell more expensive or buy cheaper. "In the US, there have been repeated criminal convictions for spoofing since 2015.
"Spoofy raises the price if he wants it to go up, and Spoofy drops the price if he wants it to fall," writes Bitfinex'ed. Spoofy is said to be a trader on BitFinex, who manipulates the market with $ 20-60 million through neatly placed orders, which the tidings allegedly connive to tolerate. BitFinex itself denies that this is happening.
The dramatic consequence is, so the conspiracy theory: The Bitcoin price is driven by arbitrarily generated digital money upwards. The scene is not much different than the stock markets, where a bubble is obtained through newly printed money. Just unregulated and therefore worse. As soon as the house of cards breaks in - and it does - a huge crash will crush Bitcoin, other cryptocurrencies and exchanges like BitFinex. It's going to get worse than Mt. Gox.
Other theories on the relationship between BitFinex, Tether, and Bitcoin
Of course, what Bitfinex'ed writes is pure speculation, perhaps even malicious reputational damage to an otherwise innovative stock market, possibly even deliberately diversified FUD to push the bitcoin price. There are many more theories that can be found about how this mesh of BitFinex, Tether and Bitcoin is related.
Let's start by saying that it's not puzzling, it's just natural that BitFinex works more with Tether after bank transfers in May became problematic. Similarly, investors wishing to trade on the high-volume and liquid stock market BitFinex are likely to switch their dollars to tethers. Like the banking blockade of WikiLeaks in 2010 were an incentive to use Bitcoins instead of Mastercard, the BitFinex banking blockade from April 2017 may have been the occasion to use tethers instead of dollars. Every new technology needs its key moment. BitFinex is not the only exchange that uses tethers. The Tether-Richlist is not headed by BitFinex, but by Bittrex and Poloniex.
These two exchanges dominate the Altcoin market. For her, tether is particularly attractive. The two exchanges have their origins in the pure trading of Bitcoin with other cryptocurrencies; Bank transfers were and are in this model a bulky, overloaded by regulation foreign body. Thanks to Tether, they can now service the lucrative currency pairs Bitcoin Dollar or Ethereum Dollar without bothering with banks. The rise of tether is not, as Bitfinex'ed speculates, in contrast to the blockades of banks in Taiwan since April - he is the direct result of this. The explosion in tether levels since May may have been a direct result of US fiscal regulators adopting stricter international dollar settlement rules in the spring. Just as a river flows downhill, money flows past regulation. Bitcoin is an alternative to the monopoly of the dollar. Tether breaks banks' monopoly on dollar transfers. At the same time, BitFinex repeats what people already know about Mt. Gox: when dollar payouts fail to go through, people buy bitcoins to withdraw money. As a result, the price of Bitcoin increases.
The cryptocurrency benefits from regulation tightening the dollar flow. The massive rise in the bitcoin price may have further fueled the tether hype, which explains the rapid pace of issuing new tethers. The 200 million tethers that were minted in less than 10 days in November may not be the cause of the rally, but their consequence: the markets were keen to get into Bitcoin, and other ways are barred.
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