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Is Bitcoin Really Untethered?

Read the paperopens doi.org in a new tab

What they found

Using blockchain data, the authors traced flows of Tether (a dollar-pegged stablecoin) between the issuer, the Bitfinex exchange, and other exchanges during the 2017 Bitcoin bubble. Tether was printed and used to buy Bitcoin at times when Bitcoin's price was falling, the purchases came from one large player, and they were followed by Bitcoin price increases. The pattern was consistent with Tether being used to support the price rather than being issued in response to demand, and the flows around round-number price thresholds looked like a deliberate support strategy. About half of Bitcoin's 2017 rise coincided with these flows.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Support, resistance and the flip between themA price path bouncing three times off a horizontal support line and turning back three times at a resistance line, then breaking above it and settling back onto the same level.RESISTANCESUPPORT62.0056.00breaks aboveold resistance,now supportIllustrative price path: the level stays the same, its role changes.
Support, resistance and the flip. Support is a price where buyers keep stepping in and the fall stops; resistance is a price where sellers keep stepping in and the rise stops. Once price closes above an old ceiling, that same level often acts as the new floor.

What you can use

  • A large share of the 2017 crypto bull market was associated with stablecoin printing by a single entity, not organic buying.
  • Stablecoin issuance is a key variable to watch in crypto: it is the on-ramp for new money and potentially for manipulation.
  • Blockchain transparency lets researchers trace flows in ways impossible in traditional markets, which makes crypto manipulation detectable after the fact.

Caveats

Tether and Bitfinex dispute the findings; the evidence is statistical and the authors cannot prove intent. The 2017 market structure differs from today's.

Tags: crypto, tether, stablecoins, manipulation

Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.