Flawed Study: Bitcoin Was NOT Manipulated By One Trader
By Dr. Chris Kacher of Hanse Digital Access, KJA Digital Investments and Virtue of Selfish Investing on ALTCOIN MAGAZINE
Cryptotechnologies… Cryptonite for Governments™
Over the years, many claims have been made that bitcoin is being manipulated by one or two whales, ie, individuals who hold a huge number of bitcoin. This claim is made over the course of an entire bull market. None have ever been proven.
In prior bubbles over the last few centuries, it was a combination of the ‘madness of crowds’ that created dramatic rises in price and thus the bubble. Likewise, similar claims have been made in other markets including the dot-com boom of the late 1990s against companies such as Amazon (AMZN) whose dramatic ascent in price defied logic, since AMZN had zero earnings. Manipulation by a sole individual can only occur for so long as fundamentals eventually catch up with and thus affect the price.
The recent study that a single bitcoin trader manipulated the price of bitcoin using tether on the crypto exchange Bitfinex to push its price to its near-$20,000 top in 2017 is flawed for the following reasons:
➼ The purported conclusions reached by the authors lack a complete dataset. The authors looked at transactions of Tether and Bitcoin on their respective blockchains between March 2017 and March 2018. Tether officials said,
“The authors do not possess or reference any data disputing that Tether has sufficient reserves to back up Tether token issuances in circulation. To reduce the spike in the bitcoin price in 2017 to such simplistic terms is facile. It is also an insult to the millions of people in our community that believe in the sound principles governing the digital currency economy. Tether and its affiliates have never used Tether tokens or issuances to manipulate the cryptocurrency market or token pricing.”
John Griffin, one of the two authors, rebutted by saying,
“A common theme throughout the history of all fraudsters is that they attack their accusers instead of admitting the fraud. I’m used to it by now.”
Griffin’s statement is illogical as he basically is saying if you defend yourself, you are fraudulent. If you admit the fraud, you are fraudulent. QED? LOL.
➼ Exchanges including Bitfinex use omni-bus wallets that pool all customer balances and transactions on and off the exchange. So an analysis that shows that ‘a single wallet’ was involved in transactions from Bitfinex to other exchanges is meaningless. All it shows is that traders were trading, and the trend was up. In other words, a classic bull market.
➼ In trending markets, more traders and investors jump on board to ride the trend. It is the natural cause-and-effect of human psychology which helps spur the trend. It is never just one person moving the market higher (or lower).
➼ Bloomberg writer Elaine Ou helps to explain the dramatic price rise in 2017 in this article.
She writes exchanges were unprepared for the consequences of Beijing’s ban on crypto trading. Chainalysis said Chinese investors had stockpiled bitcoin using yuan in advance. According to Ou,
“Once the ban was in effect, the traders had no way to trade crypto back to yuan, so they shifted to using Tethers on overseas exchanges as a substitute for fiat currency (after all, the yuan is roughly pegged to the dollar). Coinbase saw so much trading activity that the exchange ‘broke.’ And the idea that a lone whale fueled this yearlong Bitcoin bull run is more than a little silly.”
In the final analysis, every market is ‘manipulated’. Everybody tweeting something about the price of a certain asset is ‘manipulating’ the market. Every news article for or against bitcoin is manipulating the market. A single manipulator could fuel the trend by adding to his position on the way up. But this does not mean he is the only one driving the price higher. If he is wrong, the trend will reverse at some point as fundamentals win out in the end. Even on a short term basis, if one whale drives up the price of a cryptocurrency or stock too far, sellers come in and drive the price down.
As with stocks, bitcoin is a free market. If it did not have real utility or value for people, it would have collapsed to zero after the first of many bubbles blew apart years ago. The reality is there is a fixed supply of bitcoin. Increasing demand for numerous reasons such as ones I cite in my other articles such as this one means the price of bitcoin will continue its dramatic ascent. Indeed, $1 in bitcoin in 2009 is worth nearly $10 million today. Nothing in the history of speculation even compares.
(͡:B ͜ʖ ͡:B)