Bitcoin Price Manipulation on the U.S Department of Justice’s Investigation Table

The sharp decline of the bitcoin price might not be a mere faith, the thing which triggered the jurisdictions and financial regulators in the U.S.A to dig deeper in the case.

Academics have taken part and the results may come surprising!

November 21, 2018 AtoZ Markets The U.S Department of Justice (DOJ) has recently started a probe into whether Tether was involved in illegal market manipulation for shoring up the price of bitcoin.

According to Bloomberg, the federal prosecutors have now narrowed down their investigation into the cryptocurrency market to Tether and BitFinex.

Tether, the issuer of the USD-pegged cryptocurrency stablecoin tether, shares a management team with BitFinex, as it was announced at an earlier time.

Tether has a circulating supply of 1.8 billion for its token, claiming that every unit of USDT is supported by $1.00 deposited in the company’s bank account.  

In its turn, the banking partner of the company has recently stated that it held a sufficient amount of USD that covers USDT, while legal entities doubted the letter the bank issued, saying it might have been written that way to evade accuracy and absolve the institution, Deltec Bank, from any liability with regard to its veracity.

As per media reports, deliberation of tether is mostly done through Bitfinex, which has a fixed value of USDT at $1.00, regardless of the prices on the global market.

In their turns, critics said that Tether operates a fractional reserve bank from time to time, the thing researchers from the University of Texas echoed in their opinions.

The latter explained that the process comes in support of the unbacked tethers, for getting them into circulation to stabilize the bitcoin price, which in return allows for selling enough BTC to rectify the reserves, the allegations the company denied in its turn.

As a stakeholder, Mike Novogratz commented in his turn, saying that Tether showed a strong indication that its token is fully backed up by USD, citing an example when the company was able to make up for more than $1 billion worth of USDT when the cryptocurrency declined sharply below its supposed $1.00 peg in October.

In a similar context, the research the University of Queensland Business school showed that the tether deposits had no links with the price of bitcoin.

It is worth mentioning that the Commodity Futures Trading Commission (CFTC) had sent subpoenas to Tether and Bitfinex last December, as per the media, which signals links with today’s news, that reflects there is cooperation between both DOJ and CFTC.

The U.S Department of Justice referred in its report to that even in the case Bitfinex proves to be involved in illegal activity, that does not necessarily mean the executives or the aforementioned exchange are implicated.

“It couldn’t be determined whether government officials are solely investigating activity that occurred on Bitfinex or if exchange executives are suspected of illegal behavior. Neither the Justice Department nor the CFTC has accused anyone of wrongdoing, and authorities may ultimately conclude that nothing illicit occurred.”, said the report.

Some of the market analysis attributed the drop down of the price of bitcoin, which has been trading below $150 billion after taking $60 billion in losses in just seven days, to the manipulation probe in the market, the U.S Department of Justice is conducting at the moment.

The probe from an academic eye and how the SEC reacted

David Gerard, an author at Wall Street, once stated that tether is a sort of a central bank for crypto trading.

According to Bloomberg report, Federal prosecutors, suspect that traders might have been using Tether on the crypto exchange Bitfinex.

CNBC, in its turn, tried to reach out to officials from both Tether and Bitfinex for comments on the ongoing investigation. However, the media platform was not successful in that.

According to the CFTC, Bitfinex and Tether share many of the same executives, in addition to some market tricks, such as "spoofing," or placing fake orders until the price hits a certain level, then they pull those orders.

The U.S Securities and Exchange Commission (SEC) announced its penalties against the Tether founders. According to SEC, they took such measures following a wide range of regulations and legal crackdown on abuses in the cryptocurrency industry.

John Griffin, professor of finance at the University of Texas, with a 10-year track record of spotting financial fraud, suspected in his study, that the fall of prices of bitcoin can be linked to market manipulation.

In a joint-effort with the university graduate Amin Shams, Griffin said in his paper published last June, that tether was used to buy bitcoin at crucial moments as it was declining, which helped to "stabilize and manipulate" the prices of cryptocurrency, as per the paper.

According to data from, tether was worth about 98 cents last Tuesday, Bitcoin was trading near $4,745 after falling to $4,200 earlier. Bitcoin price is down more than 75 percent since the all-time high, while it is worth was near $20,000. Tether's price decreased as well to lows of $0.90 on 15 October 2018.

This news is a joint effort with Maya Mandzikasvili

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