Bitfinex has been accused of manipulating the price of the Bitcoin for some time. Last November, the U.S. Justice Department, together with the CFTC Commodity Futures Trading Commission, launched a criminal investigation against the cryptocurrency exchange and Tether.
U.S. authorities are trying to figure out how an additional issue of the USDT token could have affected the growth of Bitcoin’s exchange rate in 2017 when the asset’s price increased by 20 times and set a record value of $20,000.
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Concerns surrounding Bitfinex
The financial regulator is concerned that crypto exchanges could create artificial activity in the market to mislead traders. It is not only the U.S. government that suspects Bitfinex of illegal activities. In addition to unsubstantiated accusations from the crypto community, professionals such as professors at Texas University or Bloomberg analysts have also expressed this view.
Professors John Griffin and Amin Shams discovered that Bitcoin purchases at Bitfinex consistently increased when the value of the cryptocurrency fell by a certain amount. Experts are confident that the exchange issued USDT tokens for no purpose other than to inflate the price of Bitcoin.
Each year, the accusations against Bitfinex and Tether have become more substantiated and serious. The company is facing a $1.4 trillion class-action lawsuit due to alleged market manipulation in 2017. The USDT issuer is denying everything, calling the claims “ridiculous” and accusing those who disagree of incompetence.
Inspection for fraudulent activity
No judicial decisions have been taken in this matter against Bitfinex, and no formal charges have been brought by the U.S. government. This means that so far all assumptions about the impact of the exchange on the price of Bitcoin are no more than a theory.
According to Alpari analyst Vladislav Antonov, it is unlikely that the exchange is manipulating prices. The expert asserts that the market is unregulated, but the owners of the stock exchanges understand that sooner or later any deceptions will come to the surface during the regulators’ inspection. It is not the exchanges themselves who are manipulating prices but the market makers.
“I have no doubt that prices are being manipulated on crypto exchanges. I look daily at the tick data, the stock market and see how large players check it for liquidity, so that they can carry out a massive attack with aggregated deals – deals broken down into small amounts. For example, a $3 million deal may consist of 1,300 positions with an average of $2,300. When trial deals are made, they allow you to check the reaction of active speculators to the price movement. If it does not exist, then after a certain period of time the amount of $10 to $30 million is already being reduced in the market. Their task is to involve people and bots in the market as much as possible, in order to break the protective stops on the opposite side. Sharp fluctuations in the crypto market last from 3 to 10 minutes. The movement rarely lasts more than three hours,” Antonov explained.
Problem in decency of market participants
He added that the problem is not in the stock exchanges, but in the decency of market participants. In some cases, large players make limit orders invisible (allowed by exchanges), but it is also possible that the exchange through the API “leaks” data on stop orders to large players, the analyst said.
“Therefore, who knows where the accumulation of stop orders is, knows what amount is needed to move the market by X%. Who has access to such data and how much it costs, is kept in strict confidence. Most of all price manipulations are observed on the Bitmex exchange. I can’t say anything about the Bitfinex exchange. The exchanges are linked by arbitrators, so if the transactions are planned on all exchanges, the effect will be stronger,” – concluded the expert.
CEO of Chronopay, Pavel Wroblewski also believes that any major crypto exchange can manipulate the rate covertly, through its traders, dramatically raising the offer or lowering it.
Ivan Petukhovsky, the EXMO stock exchange’s co-founder, believes that Bitfinex can still influence the Bitcoin rate. The expert stressed that this is evidenced by the relationship between additional issues of USDT and changes in the exchange rate of Bitcoin. Only those who possess insider information will be able to give an unambiguous answer.
Development Director Maria Stankevich added that there are many ways to manipulate the price of Bitcoin. For example, geopolitics, media guides, and the arrival of major market makers and institutional investors.
At the moment it is impossible to confirm the fact that Bitfinex is manipulating the price of Bitcoin. However, such assumptions cannot be called unfounded, but only official statements from the US courts or authorities will be able to resolve the issue. If the information will be confirmed, the market of cryptocurrency expects a sharp fall as its considerable part is occupied by USDT stable coin, capitalization of which exceeds $4 billion. However, at the moment, it does not seem that there is any progress, therefore, probably, in the near future, the questions surrounding crypto market manipulation will not be solved.
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First published in РБК, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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