The paper, which was published by University of Texas Professor John Griffin and Ohio State University Assistant Professor Amin Shams, proposes that a single “whale” in the Bitcoin ecosystem single-handedly caused the massive Bitcoin bubble of late 2017, and that that Tether and Bitfinex played a massive role in pumping up the price of BTC in late 2017.
In order to calculate exactly what effect Tether had on the Bitcoin market, LongHash created a metric called “Tether Purchasing Power,” which calculated by dividing the market cap of Tether by the market cap of BTC.
“We find the current evidence that Tether is manipulating Bitcoin prices to be lacking.”
“It measures how many Bitcoins can be purchased with all the Tether supply in the market at its current spot price,” LongHash’s study explained. “The higher the ratio, the more potential manipulation could have been perpetrated with Tether.”
According to LongHash’s calculations, Tether’s purchasing power in 2017 was highest during the summer (June-July) before gradually decreasing until the end of the year; during the bear market in 2018, Tether’s Purchasing Power shot up significantly.
“This suggests that even if Tether were indeed manipulating the market, its ability to do so actually is strongest when the Bitcoin price falls,” LongHash concludes, adding that Tether’s market share in the stablecoin market has decreased significantly since December of 2017.
Our data analysis found that if Tether is manipulating the market, its ability to do so is strongest when the Bitcoin price FALLS. This contradicts the claim that Tether issuance drove the 2017 bull market https://t.co/whYNrJ1bkb
— LongHash (@longhashdata) November 18, 2019
Therefore, LongHash “[finds] the current evidence that Tether is manipulating Bitcoin prices to be lacking.
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“Furthermore, our original research suggests Tether’s potential influence on Bitcoin prices to be maximal during bear, not bull, markets. As more and more stable coins enter the marketplace, some of the controversies surrounding Tether may also gradually dissipate.”
”The paper’s only evidence supporting that Tether is unbacked is a circuitous hypothesis”
LongHash also pointed out several flaws in the research methods employed by Griffin and Shams, as well as the language that was used in the paper.
Specifically, LongHash called out the fact that the language of the paper was rather unequivocal, a factor that is “unusual for an academic paper.”
LongHash said that “we don’t know whether the published version of the paper will retain this strong language. But after a close reading of the evidence presented, we are not convinced that the strong conclusion is warranted.”
The analytics firm also pointed out that “the paper’s only evidence supporting that Tether is unbacked is a circuitous hypothesis related to how cash management works for Tether auditing,” and that the paper doesn’t account for other factors that may have caused the crypto boom in late 2017.
For their own part, Bitfinex and Tether have both vehemently denied the claims that Griffin and Shams have made.
Tether Response to Flawed Paper by Griffin and Shams https://t.co/7yS3S2vgxs
— Bitfinex (@bitfinex) November 7, 2019
Tether called the latest version of the paper “a watered-down and embarrassing walk-back of its predecessor that still suffers from the same methodological defects, coupled with the clumsy assertion that one lone whale may be responsible for the rise of bitcoin in 2017.”
However, LongHash’s report also points out that Tether’s “claimed level of transparency has changed from ‘professional audits’ to no outside audit at all.” Tether has been criticized for a lack of transparency in the past.