I read through the Tether manipulation paper. IMO it made two convincing points:
#1 Someone has a habit of doing this:
- Issuing new USDT
- Within days, moving that USDT to BitFinex, Bittrex, and/or Poloniex
- Using that USDT to buy crypto (seemingly a portfolio of BTC & others). They especially like to buy crypto when the price is just below whole numbers.
- Moving the resulting crypto back to BitFinex
- Rarely or never selling the crypto for USDT again
The authors argue that this is Tether/BitFinex themselves, and I think that this is in fact the most likely explanation. But the authors didn't address the alternative possibility of this being a particularly ham-fisted whale who is a close partner of Tether.
Bitfinex has been tailoring their operations over the past year and a half or so to appeal to institutions, and apparently have attracted a decent number of institutional customers. Also, if you believe their published orderbook, their BTC/fiat orderbook is by far the most liquid among exchanges. Bitfinex also has an OTC trading desk that apparently has been fairly successful (when a trader buys BTC via OTC from bitfinex, then the OTC trading desk will be effectively short BTC [at an above market basis], and will need to buy BTC to cover their position). #1 Someone has a habit of doing this:
- Issuing new USDT
- Within days, moving that USDT to BitFinex, Bittrex, and/or Poloniex
- Using that USDT to buy crypto (seemingly a portfolio of BTC & others). They especially like to buy crypto when the price is just below whole numbers.
- Moving the resulting crypto back to BitFinex
- Rarely or never selling the crypto for USDT again
The authors argue that this is Tether/BitFinex themselves, and I think that this is in fact the most likely explanation. But the authors didn't address the alternative possibility of this being a particularly ham-fisted whale who is a close partner of Tether.
With the above being said (using made up numbers), if someone wanted to 5000 BTC at no more than 102% of the current trading price, they might be able to buy up 4000 BTC on the bitfinex orderbook at that price, but if the orderbook of poloniex and bittrex are also used, they might be able to buy the entire 5000 BTC they want. This could be done by an institutional trader, or by bitfinex themselves to cover an effective short position caused by an OTC trade.
Unfortunately, I am unable to account for the month end price decline issue. Maybe this is noise, maybe there is some other explanation, or maybe the authors are right. I would tend to think this is probably noise.
I've thought for a long time that USDT is almost certainly a scam, and this paper makes me think so even more. Though I was actually a little surprised that this provides evidence (via the end-of-month trading) that USDT ever had any real USD.
Bitmex published a research report on tether this past February in which they found a bank in Puerto Rico they believe is likely holding the USD deposits of tether and bitfinex, as according to publicly available data (that I believe is not available in real time), had USD deposits grow at rates above the growth of USDT in circulation. Further, tether has shown what is nearly proof of funds in the amount of ~$442 million as of September 2017, which exceeded the amount of USDT in circulation at the time.
The late months of Mt Gox showed what happens when customers are unable to withdraw USD from an exchange -- the price trades at a premium to other exchanges. Gox customers would deposit BTC into their Gox account, sell their BTC, request a USD withdrawal, and eventually cancel their USD withdrawal use that USD to purchase BTC to withdraw and eventually deposit and sell on another exchange. In the case of bitfinex, the USD price of BTC is almost always the same (for all intents and purposes -- it is generally within 30 basis points) of other major exchanges.
Kind Regards
Panthers52