Nolan Bauerle, director of research at CoinDesk

Bitcoin price manipulation study mostly hot air

Mainstream media ate up the results of a study published earlier this week by the University of Texas that purported to show a strong correlation between Tether purchases timed during market downturns and Bitcoin price surges. Less than one per cent of hours with heavy Tether purchases are associated with 50 per cent of Bitcoin gains and 64 per cent of those of other top cryptocurrencies.

Sounds convincing? Not so fast, Nathan Bauerle said. Mr. Bauerle is CoinDesk’s director of research and the author of the quarterly State of Blockchain Report.

Most of those aghast at the news have clearly not embraced cryptocurrencies, Mr. Bauerle began.

Nolan Bauerle, director of research at CoinDesk

“Bitcoin is a super volatile asset driven by a global retail investment crowd. Everyone who watches this crowd knows they use Tether to take a ‘dollar’ position when bitcoin dips. They reenter the bitcoin market when they feel the price is at a floor with the goal to have more bitcoin than at the start of the dip. So, when the study observes Tether use to buy bitcoin after dips, it’s true, but hardly news.”

The authors may have erred by applying traditional measure to a so far nonconforming industry, Mr. Bauerle suggested.

“Where the study perhaps errs is the conclusion that through pattern recognition, the dip buys with Tether confirm market manipulation versus investment demand. The benchmark of this pattern recognition is based on highly regulated, much less volatile, controlled and mature markets. There is no control in their methodology for a super volatile, under-regulated global market of retail investors that trade a super liquid asset. So, the benchmark used in their conclusion is potentially useless. It compares traditional mature and regulated markets to super volatile, under-regulated, global and super liquid bitcoin. All that can be concluded is that Tether is used to buy bottoms, not that it was used for manipulation.”

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