Controversy continues to build around Tether (UDST), a stablecoin pegged to the US-Dollar that boasts a $2.7 billion market cap, as a new research report details potential price manipulation on Kraken, one of the world’s most popular cryptocurrency exchanges.
According to the report published by Bloomberg that cites its own research and the work of New York University Professor Rosa Abrantes-Metz and former Federal Reserve bank examiner Mark Williams, a number of red flags have been discovered in Tether trading patterns that suggests potential market manipulation via wash trading, a practice where an investor simultaneously sells and buys the same financial instruments.
First, the researchers have shown that large block trades move the price of Tether about the same as small trades. For instance, on May 9, eight rapid sell orders totaling 13,076.389 Tether did not effect Tether’s price. However, the next buy order of 75 was enough to push the price up $0.0001.
The second major red flag comes in the form of “oddly specific” order sizes. Examining trade data between May 1 and June 22 showed that three specific trade volumes made up 7.9% of all trading. These amounts include 75, 1,000 and the incredibly specific 13,076.389 Tethers. Adding to Bloomberg’s suspicions, other frequent order volumes go out to five decimal places, including numbers like 34.08652
This data is in stark contrast to the trading logs for bitcoin over the same period, where the distribution follows a clean logarithmic scale. According to the analysis, blocks of 0.01, 0.1 and 1.0 bitcoins accounted for 8.1% of trading activity
Taken together, Bloomberg believes these two major red flags work to add further suspicions around the activity and manipulation of Tether, as well as its associated markets.
On June 13, a paper was published by a professor at the University of Texas titled “Is Bitcoin Really Un-Tethered?” claiming that fraudulent transactions of Tether were responsible for approximately 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies.
Quickly responding to the paper, Tether released its own report claiming that all of its coins in circulation as of June 1 are fully backed by existing U.S. dollar reserves.
In the company’s Transparency Update, Tether shared that it had engaged Freeh, Sporkin & Sullivan LLP (FSS) earlier this year to review bank account documentation and to perform randomized inspections on the currency reserves.
FSS, a Washington-based law firm founded by a former Director of the FBI, conducted a number of comprehensive in-person examinations and telephone interviews of key personnel at Tether and its banks to confirm balances in accounts owned or controlled by Tether.
There is no indication at this time to suggest Kraken’s involvement or awareness of any manipulation, and the Kraken team has yet to comment on the report. However, the impact of this report is likely diminished by the fact that many of the red flags proposed are simply the byproduct of a bot-driven, low-volume market of a currency-pegged asset.
Related: Researchers Claim Bitfinex Used Tether to Drive Bitcoin’s Price up 50% in 2017, Tether’s ‘Transparency Update’ Claims USDT Is Fully Backed by USD Reserves
Disclaimer: This article’s author has cryptocurrency holdings that can be tracked here. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.