If the price of Bitcoin proves to be manipulated, would you still dare to hold it? Do institutional investors still dare to invest? Are the regulators still assured of allowing ordinary investors to join the digital currency investment boom?
A recent study proving that the price of Bitcoin is manipulated is about to be published in the Journal of Finance, a top academic journal in the financial world. It has attracted a lot of attention and has been widely reported and discussed by the Wall Street Journal, CNBC and Bloomberg.
In this 119-page article entitled "Is Bitcoin really irrelevant to TEDA?" "(IS BITCOIN REALLY UN-TETHERED?) In the academic paper, University of Texas finance professor John Griffind and Ohio State University finance professor Amin Shams, using blockchain and market data from March 2017 to March 2018, passed A variety of rigorous methods and different perspectives lead to the following main points:
1. In order to manipulate the price of Bitcoin, TEDA fabricated false demand and spam the stable currency USDT,Used to significantly increase the price of Bitcoin. The specific performance is: once the price of Bitcoin falls, or whenever it falls to a key price position, TEDA will issue a large amount of coins,And not all of these coins increased because of actual demand. Moreover, all operations come from a huge account, and it can be confirmed that this account single-handedly pulled Bitcoin to an all-time high of $18,000.
2. USDT does not have sufficient 1:1 U.S. dollar reserves. In order to cope with audits and cover up loopholes at the end of each month, TEDA sells bitcoins for U.S. dollars, and all operations come from the same huge account.
In their conclusion, the two professors stated that,Bitcoin market price is seriously manipulated, not a fair and reliable market, digital currency transactions need to be strictly regulated, It is not appropriate to launch derivatives and ETFs under such shaky conditions.
Among the hundreds of academic papers on digital currency that Kai Shutong has read, this should be the most influential academic research on digital currency so far.
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Tracking chart of USDT transactions in two professors' papers
This paper has caused an uproar in the digital currency research community, and it has also caused an uproar in the traditional financial circle, and it has been closely watched by regulatory agencies. However, the digital currency industry is particularly calm, and there are not many reports about it. Among the few media reports in the currency circle, two practitioners questioned the research.
Ari Paul, Chief Information Officer of BlockTower Capital, tweeted that academic research is based on a misunderstanding of how financial assets work. Samson Mow, chief strategy officer of encryption technology company Blockstream, also said in an interview with the media that the premise of the paper is 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 rigorous reasoning and argumentation of scholars, their rebuttals are extremely pale.
After reading the full text, Uncle Kai believes that the assumptions and reasoning of the two scholars are not flawed, and the methods used are not in the wrong direction.
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Sensitive topic of "market manipulation"
The digital currency represented by Bitcoin is based on blockchain technology, and the consensus generated by the algorithm can get rid of the disadvantages of being controlled by the center in the centralized system. After 11 years of development, digital currency has gradually penetrated into the mainstream financial system. Regulators in various countries are studying how to adjust to deal with the challenges brought by digital currency. The reason why regulators have been reluctant to give the green light to digital currency all the way is because they are worried that the digital currency market will be manipulated and become a tool for some institutions and individuals to plunder everyone’s wealth, and that the digital currency industry will become a market for leeks.
Compared with other digital currencies, Bitcoin is more thoroughly decentralized, so it is gradually accepted by regulators and traditional financial institutions, allowing open transactions in the regulated futures market. This decision is mainly due to the fact that futures customers are institutions, which have strong risk identification and tolerance capabilities. However, U.S. regulators have rejected no less than 10 related applications for ETFs for individual investors. The People’s Bank of China, even in 2017, ordered all publicly traded digital currencies to be illegal.
Manipulating the market is an opportunity for a very small number of people to get rich, for most people it is a curse to become a leek, and for regulators, it is a deadly enemy in the eyes.
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The object of the accusation is important
Digital currency has no recognized value system yet, and its price fluctuates greatly, so it cannot be used as a measure of value. Therefore, starting in 2017, stablecoins became very popular. Today, the trading volume of stablecoins has surpassed that of Bitcoin, and the USDT issued by TEDA Tether occupies more than two-thirds of the stablecoin market and is generally used for digital currency transactions. It is not an exaggeration for Tether to be called the "central bank of the digital currency industry". In view of the huge stable currency market, it has also attracted Internet giants such as Facebook to participate in the issuance of Libra, and central banks such as the People's Bank of China are preparing to launch the DECP central bank digital currency.
However, Tether lacks credibility and cannot provide a credible proof of US dollar reserves. It cannot even provide an audit report now. It does not disclose which bank exists. The industry generally lacks confidence in it. According to the "Wall Street Journal" report, in April this year, court documents showed that Tether admitted that it had issued USDT totaling 3/4 USD reserves.
U.S. regulators have long focused on Tether and its parent company Bifinex, and investigations into them have already begun, mainly FinCen, which is responsible for anti-money laundering, and the SEC, which regulates exchanges. , proves that Tether is manipulating the Bitcoin market. At this time, the CFTC, which is responsible for supervising the Bitcoin futures market, will become dominant, because Bitcoin futures are approved for trading under the CFTC of the US Commodity Exchange Management Commission. The best accomplice, CFTC must have an explanation to the public anyway. The addition of the CFTC is expected to significantly speed up regulatory enforcement actions. For Tehter and Bifinex, what they are facing is not only the violation of the anti-money laundering law or the securities law, both of which can be reconciled with fines, but the crime of market manipulation, which is enough for criminals to go to jail.
The general counsel of Bitfinex came out to put out the fire, saying that the paper was not academically rigorous, but did not point out where it was not rigorous. A thousand words are not as good as a piece of conclusive evidence, but neither Bitfinex nor TEDA can provide evidence that can withstand audits, such as bank dollar reserve deposit records and real transaction records.
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Subsequent influence will continue to spread
The most immediate impact is in academia, where research results and directions will be affected. In recent years, academic circles have done more and more researches on the impact of digital currency on the economy. Most of the research regards the bitcoin market price as an external variable of the market, assuming that the bitcoin price is the result of market game equilibrium. Now these studies have to be reconsidered The basis of its assumptions, readjusting its conclusions. On the other hand, research on how to set up market trading mechanisms to eliminate market manipulation of digital currency market segments, market microstructure (Market Micro Structure) research will become a hot spot in the study of digital currency, which is also the current research direction of Uncle Kai.
Don't underestimate the influence of academia on regulators.In terms of supervision, the digital currency ETF is basically sentenced to death, and derivatives will not be released in the future. at the same time,Regulators should pay more attention to the management of stablecoins and exchanges, and crack down on stablecoins and illegal exchanges that manipulate the market, while supporting existing compliant stablecoins, issuing licenses to formal exchanges will also be on the agenda, and will also speed up the launch of the central bank's digital currency. As for some researchers who believe that China will lift the ban on digital currency transactions because of its emphasis on blockchain technology, Uncle Kai thinks this is too optimistic.
For the industry in the long run, this research 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.But the industry will suffer in the short and medium term. The future of the bitcoin futures market depends on whether the spot market has been manipulated by the regulator. Institutional clients will be scruples and will not dare to intervene in digital currency transactions on a large scale. A few institutional clients may even panic for a short time. For example, on Tuesday, the CME Bitcoin futures of the Chicago Mercantile Exchange crashed by 1,000 points without warning, but the spot price did not change much. This was definitely not caused by a mistake as explained by some analysts. The timing coincides, and it is very likely that institutional customers are panicking about the market being manipulated. Compliant stablecoins will be popular, and decentralized exchanges DEX and DeFi decentralized financial applications will take the opportunity to develop.
Personally, it is recommended to carefully consider holding a large amount of USDT for a long time, which is a ticking super nuclear bomb.
The research report of the two professors stated that "the world of encrypted digital currency advertised as decentralized is actually controlled by centralized exchanges and stablecoin issuers that control circulation. This is undoubtedly extremely ironic."
Either it must be truly decentralized, or it must be subject to strict supervision. This is an unavoidable problem facing the digital currency industry.
Pay attention to the official account: Kaiping Jinke (it_finance), view the original text of the paper.
Author: Cai Kailong. Financial commentator, senior researcher at the Financial Technology Research Institute of Renmin University of China, former Chief Strategy Officer of Huobi Group and CEO of Huobi America, and co-founder of Internet Finance Thousand Talents Association.
