The Tether Report, a pseudonymously authored analysis examining the speculative assertion that bitcoin price volatility is highly correlated to the issuance of new USDT, has claimed that approximately 48.8% of bullish price movements have occurred within the two-hours immediately following ninety-one individual Tether grants.

Pseudonymous Author Scrutinizes Tether’s Operations

The Tether Report is authored under a pseudonym comprising a long string of alphanumeric symbols – with the author attributing such to their desire not to be identified out of concerns relating to the possibility of a “backlash” in response to their findings. Tether is described as a “stablecoin” – a cryptocurrency of which the tokens seek “to maintain a stable value of one USD per Tether or ‘USDT’.”

The report states that “Tether in its current incarnation is a 2014 rebranding of Realcoin [that] ostensibly function[s] by taking USD deposits from customers and exchanging them for an equal amount of USDT.” The author describes “the ability to price digital assets in USD without having USD-denominated bank accounts” as a major function enticing exchanges to adopt the cryptocurrency, stating that “the extreme difficulty many exchanges have faced in maintaining banking relationships” makes USDT “quite attractive.”

Tether Subject to Speculation Regarding Suspicious Activities During 2017

The report states that “A number of worrying events […] brought attention to Tether throughout 2017.” During April, Tether and Bitfinex “revealed that their banking relationships in Taiwan had been severed,” – which “led to a general suspension of deposits and withdrawals for retail customers.” Then, in April, the number of Tether issued began to undergo “a massive expansion,” despite the company’s “self-proclaimed inability to accept deposits from non-Taiwanese bank accounts.”

In early September 2017, Tether sought to reject suspicions that the company may be undercapitalized, “promis[ing] a historical audit that is still incomplete” to this day. Instead, the company “produced an internal document” later that month, which “purport[ed] to show USD balances back the then modest amount of [approximately] 440 [million] USDT. The internal memorandum did not divulge the “service agreements and institutional names attached to these funds,” comprising a “reduction of transparency since their April report,” which “establish[ed] the names of their earlier banking partners.

In November, Tether revealed that it had suffered a hack which was quickly “mitigated via an amendment to the Tether network code.” The next month, the company then announced that “the existing platform would be phased out and no further deposits [to] the current wallets should be attempted.”

Despite the many hurdles recently faced by Tether, the number of USDT in issuance has “increased ten-fold in only 5 months” following the release of September’s memo.

Report Finds USDT Issuances and Bitcoin Price Volatility to be Highly Correlated

The dramatic explosion in the number of USDT has led to speculation that Tether has been used as a means by Bitfinex to in order to maintain liquidity on the exchange following the loss of its banking partners – with some analysts going as far as to accuse Tether of mass-producing USDT as a means to manipulate the price of bitcoin.

The report seeks to test this assertion using empirical data, providing analysis of the relative price volatility experienced by bitcoin leading up to and immediately following the issuance of new Tether. The article concludes that “48.7% of bitcoin’s price growth between 3/29/17 and 1/4/18” took place during the “two-hour blocks” immediately following the ninety-one individual grants of new USDT – the collective time of which “total[s] less than 3% of the trading hours during that time period.” Transversely, the report concludes that “the average price behavior on a 2-hour timescale the compounded growth is just 6.5%,” leading the researchers in estimating that “a rough estimate of [approximately] 40% price growth attributed to Tether is defensible.

Damning Conclusions

The report makes a number of damning assertions, including the assertion that “extremely significant deviations from the shape of natural transaction data” across leading cryptocurrency exchanges may suggest that “coordinated market manipulation could be occurring” across the bitcoin markets.

Of Tether, the data is said to indicate that USDT “may be created when bitcoin is falling,” concluding that “Tether could account for nearly half of bitcoin’s price rise, not even allowing for follow-on effects and the psychological effects of rallying the market repeatedly.” The research emphasizes that “The statistics presented herein do to not establish wrongdoing but merely give rise to the opinion that the observed behavior appears questionable and should be further examined.”

Ultimately, the report advocates that Tether should “Conduct an audit by a reputable auditor,” adding that given the scale of the company’s operations that a “Big Four” accounting firm should be employed. The report suggesting that “The audit [should] not solely include a snapshot of accounts on a single date. It should also confirm that each Tether is backed by a dollar now and was for all points in Tether’s history. More than confirming that accounts of the proper amount do and have existed, the nature of those accounts and the service agreement between the banks and Tether should be divulged to show that these accounts exist solely for the benefit of Tether holders.”

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