An investigative article raising concerns about possible market manipulation of tether has sparked a social media firestorm, with the dollar-pegged cryptocurrency’s detractors, supporters and seemingly everyone in between weighing in.
In an incendiary combat an already controversial topic, Bloomberg analyzed tether trading data from the Kraken crypto exchange and located several “red flags,” because the headline described them.
Complete with colorful annotated charts and interactive data visualizations, the article published Friday sought to characterize the marketplace for tethers, also referred to as USDT, as defying the laws of supply and demand, going thus far on say it's implicational wash trading – a maneuver “in which cheaters trade with themselves to make a misunderstanding of market demand.”
Some hailed the info analysis, which pulled from quite 56,000 trades on Kraken over a period of eight weeks, as a “deep dive into suspicious trading patterns,” and a major illustration of “why institutional money is staying out of the market.”
Release the Kraken
But then Bloomberg, for better or for worse, became a part of the story.
On Sunday, Kraken published a characteristically combative blog post rebutting the analysis by the four Bloomberg reporters who contributed to the article.
The post, whose very title (“On Tether: Journalists Defy Logic, Raising Red Flags”) was a dig at Bloomberg’s headline, went thus far on suggest that the authors of the piece lacked material expertise, saying:
“It’s scary to think that our lawmakers are reading these things . The title sure was sensational, and it undoubtedly grabbed eyeballs but what of the readers who aren't following the outrage on Reddit and Twitter? What of these who believe the journalistic integrity and expertise of their news sources?”
Others seemed to agree, with varying degrees of tact.
But the pushback wasn't limited to ad hominems. Specifically addressing the article’s contention that heightened demand for USDT on Kraken should have temporarily driven the coin’s price up to $1.10, one Reddit user argued that arbitrage opportunities keep the worth on the brink of $1, writing:
“Of course we’re not seeing that as Kraken USDTUSD divergence from $1 is adequate to Bitfinex cryptoUSD premium or discount. A 1.1 dollar USDT would mean a ~10% discount on Finex. It shouldn’t be that tough to grasp .”
Still, longtime critics of tether remained unconvinced by such arguments.
Despite the extreme debate, there's actually one thing tether’s defenders and doubters seem to agree on: not all trades during this crypto asset are done out of a human-driven profit incentive.
If you accept the premise that certain amounts of tether are purposefully injected into the markets and alternatively bought from the markets by “bots” with the only intention of maintaining parity with the dollar, the oddly specific order sizes and their frequency as depicted within the data by Bloomberg start to form sense.
As another commentator on Reddit explained,
“As long as there are a lively party doing market intervention to take care of the peg i'm sure you'll see some strange action within the order book… Tether is actively managing this on all exchanges that have the USDTUSD cross. If they didn't provide ‘unlimited’ liquidity on both buy and sellside the peg would break.”
In other words, the odd patterns reported by Bloomberg may suggest actions by Tether, the corporate behind USDT, to issue coins when the worth is high and pip out up when the worth is low, so as to take care of its value at $1.
But if so, this points to a different , longstanding controversy around Tether: the potential for the corporate at some point in time to issue more currency than it actually has the reserves to back, which some are quite adamant is already the case.
Nevertheless, whether you accept as true with such interpretations or not, it’s worth noting the essential principles of economics that ring true through this complete discussion.
The same concepts of supply and demand that informed the Bloomberg article were utilized in turn by Kraken to argue they promote stability in tether prices. they will even be wont to means the inherent vulnerabilities during a fixed pegged currency, crypto or not.
It’s elementary, my dear Watson.