According to three sources to Bloomberg, a broad investigation into manipulation of cryptocurrency markets initiated last year by the US Department of Justice is now focussing on alleged Bitcoin price manipulation by creators of the Tether cryptocurrency and its origin exchange, Bitfinex.
The two businesses are under the same management.
Whistleblowers, including the academic John Griffin of the University of Texas and the anonymous tweeter “Bitfinex’ed” have alleged for some time that Bitfinex has been using tethers, a digital USD proxy, to flood crypto markets with fake capital, driving up prices.
Finance Professor Griffin and grad student Amin Shams used data analysis to produce a paper last May in which they claimed direct correlations between the issuing of tethers on Bitfinex and subsequent run-ups in the prices of various cryptocurrencies.
The academics concluded that tethers appeared to be issued and strategically applied to buy bitcoins at key points in 2017 to prevent market corrections and give the impression that there was more demand for the coins than there actually was.
In the fall of 2017, the price of Bitcoin went from around $6900 to $20 000 in 33 days.
CryptoTwitter skeptic “Mr. Giancarlo” tweeted this following the release of the Griffin/Shams paper:
"Ethereum, for example, experienced near 2400% return during this period, while it would alternatively experience around 900% return if the Tether-related hours were excluded."
— 📖Auditcarlo📖 (@CasPiancey) June 13, 2018
The whistleblower “Bitfinex’ed” started his or her Twitter account in April 2017 for the express purpose of calling out fraud at Bitfinex, where new tethers are introduced into the crypto trading realm and then quickly dispersed by arbitrage across many other exchanges.
Many crypto exchanges have had trouble maintaining and providing swift fiat onboarding and off-boarding channels, and tethers became a faster way to go after “hot” new tokens, especially on small, minimally-regulated international exchanges where low liquidity can and has been easily manipulated.
For almost a year, a majority of CryptoTwitter ridiculed “Bitfinex’ed” for the outrage he or she expressed while providing charts linking tether to market boosts.
In early 2018, Bitfinex exchange management was thought to be behind threats made against the whistleblower, and the lawyer Stephen Palley issued a cease and desist letter to the exchange advising them that action would be taken if they were ever linked to the threats.
The rumours against Tether/Bitfinex allege that it is unlikely that every one of the almost $2 billion dollars of tethers the exchange has circulated are actually backed one-to-one by fiat reserves, as the company claims.
Tether Ltd has never completed a credible audit, though it was audited and cleared by its own law firm.
This type of audit, however, has been questioned by licensed accountants, who are held to higher standards when they perform an audit as their licenses are on the line.
When Professor Griffin, who regularly consults with the US government on fraud cases, released his and Shams’ report on Tether, he alluded that he was presently working with the government in some anti-fraud capacity, but he did not qualify the allusion.
According to Bloomberg, Bitfinex/Tether CEO JL van der Velde has denied the Griffin/Shams allegations entirely, stating, “Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.”