While there is little public information on about how Tether was created, it generally exchanges for around $1 as each coin is supposed to be backed by $1 of fiat money in a bank. Evidence of price manipulation was found in all of those, too. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical United States dollars.
What is interesting is that Griffin and Shams's paper describes Tether as being primarily used by Bitfinex, a major crypto-exchange, to purchase Bitcoin tokens from two other exchanges and most importantly did this only after periods of Bitcoin price declines.
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"Overall, we find that Tether has a significant impact on the cryptocurrency market".
Regulators worldwide are increasing their scrutiny of cryptocurrency markets. Although their findings don't definitively prove collusion or price manipulation, the Tether-Bitcoin buys had obvious benefits. "Such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies", the researchers claim. Bitcoin's price reached a record high of $20,000 in December, but its value has since dramatically fallen to $6,300.
The Commodity Futures Trading Commission subpoenaed both Bitfinex and Tether in December, over concerns about if Tether is actually by the reserve of US dollars it claims it has. Indeed, even less than 1% of extreme exchange of Tether for Bitcoin has substantial aggregate price effects. "These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free", they conclude. They wrote that bitcoin's surge in late 2017 correlates with movement of Tether from Bitfinex to other exchanges in the hours before the valuation increased.
"Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation", Bitfinex CEO JL van der Velde told Bloomberg in an e-mailed statement.