Researchers debunk theory that single whale caused 2017’s Bitcoin bull run Story by 62 Shares
Specialist blockchain research ers have debunked an academic paper that claimed Bitcoin ‘s astronomical price surge duri ng the infamous 2017 cryptocurrency bull r un was caused by a single whale .
The paper, which Hard Fork previously reported on , claimed a whale on cryptocurrency exchange Bitfinex was allegedly able to spike Bitcoin ‘s price when it dro pped below specific levels.
Written by the University of Texas professor John Griffin and Ohio State University’s Amin Shams, the paper’s thesis hones in on the theory t hat Tether tokens are crea ted wi thout the dollars to back them, then used to purchase Bitcoin , thus driv ing up its price .
Now, a study by LongHash says that the paper’s only supporting evidence about Tether being unbacked by cas h “is a circuitous hypothesis r elated to how cash management works for Tether auditing.”
“The authors hypothesize that since Tether is due to be audited each month, it needs to sell some of its Bitcoin holdings at t he end of each month if large amounts of Tether have been issued that month, which then causes the price of Bi tcoin to drop near the end of each month.The authors present evidence that out of the 24 months in their sample, the end of month effect is indeed found to be statistically significant,” LongHash’s analysis reads.
LongHash research ers say the paper failed to account for other reasons why this may occur at the end of the month.Additionally, researchers point out how the academics themselves acknowledged that once the two most significant months, December 2017 and Jan uary 2 018, were dropped, the end-of-month effect fails to be statistically significant.
“[…] the auth ors ob serve that the Tether flowing from one cluster of whale accounts (known as 1LSg) on Bitfinex favor trading just below cut-off Bitcoin prices of around $500 increments.Using a statistical model , the authors found a large effect of these whales ‘ trading on Bitcoin price within a three-hour window , and the effects are stronger after new Tether authorization,” LongHash’s researchers said.
“The authors interpret this finding to be evidence of price manipulation .But it is widely known that whales can move short term crypto prices due to exchange slippage, so this part of the paper does not seem to contribute to its main thesis.Overall, the paper does a very poor job of convincing us that Tether is manipulating the market ,” they add.
The research
In order to assess Tether’s potential impact on the Bitcoin market , LongHash calculated a metric called the Tether Purchasing Power by dividing Tether’s market cap by that of Bitcoin.
The metric measures the amount of Bitcoin BTC that can be bought with all the Tether supply in the market at its current spot price.The higher the ratio, the more likely it is that manipulation could have taken place with Tether.
Graph via LongHash
According to the graph, Tether Purchasing Power increased until the summer during the 2017 bull run, then progressively declined until the end of the year.
It then rose significantly during the bear market, hitting its peak value at the end of last year.
According to the researchers, the data suggests that even if Tether were manipulating the market , its ability to do so was actually strongest when Bitcoin ‘s price declined — thus contradicting previous claims that Tether’s issuance generated the 2017 bull market.In fact, the data suggests that Tether ‘s supply failed to keep up during the height of the bull market.
Additionally, the researchers say Tether ‘s potential influence on Bitcoin prices tends to happen during bear, and not bull markets.
“As more and more stable coins enter the marketplace , some of the controversies surrou nding T ether may also gradually dissipate,” they added.
Published November 18, 2019 — 15:15 UTC November 18, 2019 — 15:15 UTC Read more .
