Tsai Kai-lung: Bitcoin price is being manipulated! Do you still dare to hold it?
If the price of Bitcoin turns out to be manipulated, would you still dare to hold it? Do you still dare to invest in institutional investments? Are regulators still relieved to let ordinary investors join the digital currency investment boom?
A recent study proving that the price of Bitcoin is being manipulated is about to be published in the Journal of Finance, the top academic journal in the financial world. It attracted a great deal of attention and was widely reported and discussed by the Wall Street Journal, CNBC, and Bloomberg.
In this 119-page article, entitled “Is Bitcoin Really Unrelated to TEDA?” (IS BITCOIN REALLY UN-TETHERED?) In the academic paper, John Griffind, a finance professor at the University of Texas, and Amin Shams, a finance professor at Ohio State University, used blockchain and market data from March 2017 to March 2018 to arrive at the following main opinions through various rigorous methods and different perspectives:
1. In order to manipulate the price of Bitcoin, TEDA misuses the stablecoin USDT, fabricating false demand,It is used to significantly raise the price of Bitcoin. The specific manifestation is that when the price of Bitcoin falls, or every time it falls to a key price position, TEDA issues coins drastically, and not all of these coins have increased due to actual demand.Moreover, all operations stemmed from a huge account, and it can be confirmed that this account single-handedly brought Bitcoin to an all-time high of $18,000.
2. USDT does not have sufficient reserves of 1:1 dollars. At the end of every month, in order to cope with audits and cover up bugs, TEDA sells Bitcoin in exchange for US dollars, and all operations originate from the same huge account.
In their summary, the two professors pointed out thatThe price of the Bitcoin market is seriously manipulated. It is not a fair and reliable market. Digital currency transactions require strict supervision.It is inappropriate to launch derivatives and ETFs with such an unstable foundation.
Among the hundreds of digital currency academic papers that Uncle Kai has read, this is probably the most powerful critical academic study on digital currency so far.
I say it has the most weight because when evaluating the weight of an academic paper, the easiest standard is what level of journal it was published in. Journal of Finance is one of the top journals in the financial world. The requirements for publication of articles are extremely high, so the amount of money is sufficient. All finance professors have worked hard all their lives to get their papers published in the Journal of Finance.
A tracking chart of USDT transactions in the two professors' papers
This paper has gone viral in the digital currency research community. At the same time, it has also caused an uproar in the traditional financial community, and has received close attention from regulators. However, the digital currency industry appears to be particularly calm. There aren't many reports on this. Among the few media reports on this in the coin industry, two practitioners raised questions about the research.
Ari Paul, chief information officer at BlockTower Capital, tweeted that the scholar's research was based on misunderstandings about how financial assets work. Samson Mow, chief strategy officer of cryptographic technology company Blockstream, also said in an interview with the media that the paper's premise was ridiculous. The two people don't believe that a giant whale account can manipulate the market, but they can't give any reason. Compared with the scholar's strict and meticulous reasoning, their objections are extremely pale and weak.
After reading through the full article, Uncle Kai believes that the hypotheses and reasoning of the two scholars were flawed, and that the methods they used were not fundamentally wrong.
The digital currency industry clearly underestimated the long-term and far-reaching impact of this paper, as well as the dramatic changes that could cause the industry to collapse.
The topic of “market manipulation” is sensitive
The digital currency represented by Bitcoin uses blockchain technology based on consensus generated by algorithms to get rid of the shortcomings of central control in a centralized system. Through 11 years of development, digital currencies have begun to gradually penetrate the mainstream financial system, and regulators in various countries are studying how to adjust to meet the challenges posed by digital currencies. The reason why the regulatory authorities have been slow to give the green light to digital currencies is that they are worried that the digital currency market will be manipulated and become a tool for certain institutions and individuals to plunder people's wealth, and that the digital currency industry will become a leek farm.
Compared to other digital currencies, Bitcoin is more thorough in decentralization, so it is gradually being accepted by the regulatory authorities and traditional financial institutions, allowing open transactions in regulated futures markets. This decision mainly takes into account that futures customers are institutions, which have strong risk identification and tolerance. However, for ETFs aimed at individual investors, US regulations have rejected more than 10 related applications. The central bank of China even ordered in 2017 that all publicly traded digital currencies are illegal.
Market manipulation is an opportunity for very few people to become rich, a curse for most people, and a deadly enemy in the eyes of regulators.
Today, it has been proven that the price of Bitcoin, which is the symbol of digital currency, can actually be controlled by an account. This will disrupt everyone's perception of Bitcoin and digital currency, and shake the foundation of the entire digital currency.
The target of the accusation is significant
Digital currencies do not have a recognized value system, and prices fluctuate greatly, and cannot be used as a measure of value. Therefore, starting in 2017, stablecoins became very popular. Today, stablecoin transactions have surpassed Bitcoin, and USDT issued by Tether accounts for more than two-thirds of the stablecoin market and is widely used for digital currency transactions. It's no exaggeration to say Tether is the “central bank in the digital currency world.” Given the huge stablecoin market, it has also attracted internet giants such as Facebook to participate in issuing Libra. Central banks, such as the Central Bank of China, are preparing to launch the DECP central bank digital currency.
However, Tether lacks credibility and is unable to provide a credible certificate of US dollar reserves. Even now, it is unable to provide an audit report. No bank is disclosed to the public, and the industry generally lacks confidence in it. According to the Wall Street Journal, in April of this year, court documents showed that Tether admitted that it had issued a total of 3/4 of the USDT reserves.
US regulation has long focused on Tether and its parent company Bifinex. Investigations against them have already begun, mainly FinCEN, which is responsible for anti-money laundering, and the Securities Regulatory Commission SEC, which is said to have set up a joint law enforcement team. Now academia has sent sufficient ammunition to prove that Tether manipulates the Bitcoin market. At this time, the CFTC, which is responsible for supervising the Bitcoin futures market, will take the lead, because Bitcoin futures are approved for trading under the CFTC of the US Commodity Exchange Control Commission, and the futures are manipulated by the market to make futures the best helper for profits. The CFTC must make an account to the public no matter what. The addition of the CFTC is expected to significantly speed up regulatory enforcement actions. For Tehter and Bifinex, they are faced not only with violating anti-money laundering laws or securities laws; the first two can be settled with fines, but the crime of manipulating the market, which is enough to make the offenders sit back on their feet.
The general counsel of Bitfinex came out to put out the fire and said that the paper was not academically rigorous, but he did not point out any lack of rigor. A thousand words are not as good as a definitive proof, but neither Bitfinex nor TEDA can provide evidence that can stand up to review, such as bank dollar reserve records and actual transaction records.
Originally, the industry had a lot of concerns about Tether and USDT, but now it's even more reassuring. Any future regulatory action against them will undoubtedly cause a crowding crisis, and USDT will instantly go up in smoke at that point. That will surely trigger an earthquake in the digital currency industry, and the industry landscape will be rewritten.
Subsequent influence will continue to spread
The most direct impact is on academia, and the findings and direction of academic research will be affected by this.There has been more and more research in academia on the impact of digital currency on the economy in recent years. Most studies use the Bitcoin market price as an external variable. Assuming that the Bitcoin price is the result of a balanced market game, these studies now have to reconsider their hypothetical basis and readjust their conclusions. On the other hand, research on how to set up a market transaction mechanism to prevent digital currency market manipulation in the segmented field. Research on market micro structure (Market Micro Structure) will become a hot topic for studying digital currencies. This is also Uncle Kai's current research direction.
Don't underestimate the influence of academia on supervisory authorities. In terms of regulation, digital currency ETFs have basically been sentenced to death, and derivatives will be even more difficult to release in the future. At the same time,Regulators should pay more attention to managing stablecoins and exchanges to crack down on stablecoins and illegal exchanges that manipulate the marketAt the same time, it supports existing compliant stablecoins, and licensing formal exchanges will also be put on the agenda, and it will also speed up the introduction of central bank digital currencies.As for some researchers who think China will lift the ban on digital currency transactions because of the importance it places on blockchain technology, Uncle Kai thinks this is too optimistic.
For the industry in the long run, this study is a good thing for the industry.A fair and healthy digital currency trading market is the foundation for the long-term development of the industry.However, the industry will suffer in the short to medium term. The future of the Bitcoin futures market depends on regulations determining whether the spot market is being manipulated. As a result, institutional customers will be very concerned and afraid to intervene in digital currency transactions in a big way, and a few institutional customers will even panic for a short time. For example, CME Bitcoin futures on the Chicago Mercantile Exchange crashed 1,000 points without warning on Tuesday, but the spot did not change much. This was definitely not due to a mistake, as explained by some analysts. The timing coincided with the time of media reports. It is likely that institutional customers are fearful that the market is being manipulated. Compliant stablecoins will be popular, and decentralized exchange DEX and DeFi decentralized finance applications will take the opportunity to develop.
For individuals, it is recommended to carefully consider holding large amounts of USDT for a long time; this is a ticking supernuclear bomb.
The two professors' research report stated that “the world of cryptocurrencies flaunting decentralization is actually controlled by centralized exchanges and stablecoin issuers that control circulation. This is certainly extremely ironic.”
Either it is truly decentralized, or it must be strictly regulated. This is a difficult problem facing the digital currency industry.
Follow the official website: IT_Finance (it_finance) to view the original paper.
Author: Choi Kai-lung. Financial commentator, senior researcher at the Institute of Fintech at Renmin University of China, former Huobi Group Chief Strategy Officer and Huobi US CEO, and co-founder of the Internet Finance Thousand Talents Association.
