Hook, line and sinker, amid bulls and whales.
The days of bitcoin at $20,000 seem long ago and far away. That was nearly two years ago.
And it may have all been a big splash caused by a big whale who in turn sparked a running of the bulls.
We’ll use the animal imagery sparingly from this point on.
News comes that two academics have stated that the huge swing upward in the marquee cryptocurrency’s price has in fact been tied to market manipulation. Those two researchers, John M. Griffin, who serves as professor of finance at the University of Texas, and Amin Shams, finance instructor at the Ohio State University, said this month — building on research from June of 2018 — that the outsized gains came from a single entity.
The pair had said in the past, as detailed via Bloomberg, that analyzing transactions across the blockchain show that the whale would have been able to send bitcoin prices higher if and when they slipped below certain levels.
And in terms of mechanics, the transactions that helped send bitcoin soaring were reliant on Tether, a digital token that in turn had been pegged to the U.S. dollar. Tether, the academics contend, had been used to provide some pricing support for bitcoin across Bitfinex, an exchange in turn owned and operated by the same executives tied to Tether.
“Our results suggest instead of thousands of investors moving the price of Bitcoin, it’s just one large one,” Griffin said in an interview with Bloomberg. “Years from now, people will be surprised to learn investors handed over billions to people they didn’t know and who faced little oversight.”
Griffin and Shams have said that Tether was created without dollars in place to “back” it and the Tether was in turn used to buy bitcoin, driving it up.
“This pattern is only present in periods following printing of Tether, driven by a single large account holder, and not observed by other exchanges,” the researchers wrote in their new, peer-reviewed paper, set to be published in a forthcoming Journal of Finance, according to the report. “Simulations show that these patterns are highly unlikely to be due to chance. This one large player or entity either exhibited clairvoyant market timing or exerted an extremely large price impact on Bitcoin that is not observed in aggregate flows from other smaller traders.”
The transactions took place between March 1, 2017 and March 31, 2018.
Tether has stated that the research is “foundationally flawed” and relies on insufficient data.
There’s an ongoing investigation, by the Justice Department, into whether Tether might have been used to manipulate bitcoin.
And, mechanics aside, the idea that huge price swings occur over lightly regulated or unregulated exchanges is nothing new. Consider the fact that bitcoin, depending on where you look, is quoted at different prices. And the regulatory landscape is less framework than patch quilt.
The larger question is: Absent the speculative element of bitcoin, what’s left? The promise of bitcoin in mainstream use has been a breathless one for years. But the reality has been slow to halting to materialize.
In one example of just how long the journey takes, months ago it was envisioned that Starbucks would accept bitcoin directly. And now the coffee giant has said that it will integrate the Bakkt cryptocurrency payment service into its payment choices. Payments would come through an app, and the target rollout seems to be in the middle of 2020.
We note that the announcement from Bakkt at the end of last month does not delve into exactly how a futures exchange and digital platform (that’s Bakkt’s niche) can help maneuver bitcoin into the mainstream. More widespread adoption of crypto in an everyday world would mandate ease of use, a sense of security, and of course that transactions can be fast, which may be a stumbling block if crypto/fiat/dollar conversions are still in the offing.
Coimap.org, after all, shows that the number of retail locations worldwide accepting bitcoin stood at a bit more than 15,000, up 18 percent from last year. Not a bad growth rate, but far less than disruptive technology would suggest. Perhaps, then, cards and (real) wallets and cash work just fine — leading those awaiting a crypto sea change believing in whales that are really … minnows.