Over the past few days, the rate of Bitcoin has increased by more than 10 percent. The likely reasons for this behavior are related to the recent events that occurred in the crypto industry. The Coinbase exchange suggested the possible addition of Cardano (ADA), Basic Attention Token (BAT), Stellar Lumens (XLM), Zcash (ZEC), and 0x (ZRX) to their listings. Additionally, at the beginning of the past week, the exchange said that it had received permission from U.S. financial regulators to work with tokens that could be recognized as securities, and despite the fact that they refuted these statements closer to the weekend, the market had already reacted to the positive news. There was also a lot of speculation that Amazon could start accepting cryptocurrencies as payment for goods, and the Chicago Stock Exchange filed a request with the SEC for yet another crypto ETF. As evidenced by the foregoing examples, the rate of Bitcoin can be influenced by various factors, including the development of altcoins.

Effects of Tether

The relationship between the first digital currency and other electronic coins is one of the main topics of interest for economists. Analysts are trying to trace how one major element of the cryptocurrency ecosystem, Bitcoin, affects the altcoins and vice versa. John M. Griffin and Amin Shams published an article in June 2018 that analyzes the impact of the Tether (USDT) token on BTC. After a semiannual study of prices, the researchers concluded that Tether, one of the most famous stablecoins, backed with the U.S. dollar at a ratio of 1:1, was bought by traders after the large recessions of Bitcoin in February to March of 2018. Investments were mainly conducted through the Bitfinex Exchange, which issues USDT jointly with Tether Limited. After that, the rate of Bitcoin went up again, and even less than one percent of the token transactions led to a change in BTC price. The flow clusters were below the round prices inducing asymmetric autocorrelations in Bitcoin. The hypothesis that Tether is used to provide price support and manipulate cryptocurrency prices with Bitfinex has been confirmed.

This figure shows the aggregate flow of Tether between major exchanges and market participants through March 31, 2018. The thickness of the edges (arcs) is proportional to the size of the flow between two nodes. The size of the node itself is proportional to the total inflow and outflow for each node. Intra-node flows are excluded. The flow direction is shown by the curvature of the edges, while USDT moves clockwise from the sender to the receiver. Source.
Chart A shows the prices of Tether and Bitcoin. The red dotted line shows cumulative output in millions of Tether tokens. The black dashed line is a memory release of Tether, expressed in the simultaneous reaction of Bitcoin. The blue line shows the price of Bitcoin itself. Chart B shows the percentage of trading volume in dollars and Tether tokens for the 15 major cryptos in the interval from March 1, 2017, to March 31, 2018, united across all exchanges. The blue bars show the percentage of the volume in which the dollar was traded. The red bars show the percentage of Tether, and the gray bars show the percentage against the dollar, or Tether, on the Bitfinex exchange. Source.
The three-hour average curve for the flow of USDT, Bitcoin, and the volume of exchanges. Chart A shows the hourly flow of Tether from Bitfinex to the two major exchangers of Tether, Poloniex and Bittrex. The corresponding groups of addresses of Bitcoins are grouped by finding the associated component of the same input relation in the Bitcoin blockchain. Each group is labeled with identifiers of members derived from public information and individual investors. The red line shows the three-hour Tether flow curve, and the dotted blue line represents the average Bitcoin flow curve over the same period. Chart B shows the spread of a three-hour moving average of trading volume on the Poloniex and Bittrex Tether markets. Source.

Tether tokens, according to the researchers, were released and added by several crypto exchanges in response to Bitcoin failures and transient bear markets in early 2018 in order to buy Bitcoins at a low price and, despite the absent demand, create a false sense of a bullish rising market, which, in turn, would lead other investors to buy more Bitcoins at a high price. That is, the bubble of Bitcoin that took the asset to a rate of almost $20,000 was the result of synchronized actions of Tether's emission and temporary Bitcoin price movements.

A few hours before each release of the Tether token, on average, Bitcoin prices declined, and then, some time after the release, they increased. This hypothesis was tried once again to prove the theory of Medium author Gerard Martinez using his own analytics, this time using the Kolmogorov-Smirnov test.

"Statistically, the effect of Tether on Bitcoin can be determined through a distribution comparison, in which there will be:

 A difference in prices (price return) between, for example, the price for 10 hours before each printing of Tether and the price during the emission. Let it be sample A;

 All historical price differences (price reaction) observed after 10 hours. Let it be sample B;

 The Kolmogorov-Smirnov test will tell how statistically possible it is that the two distributions are different. The test gives the so-called p-value, which indicates the probability that we will try two sets of samples A and B from the same distribution,” says Martinez.

He carried out the Kolmogorov-Smirnov test using two samples to determine the distribution of the price difference x hours before the Tether emission (with the interval for x from one to 48 hours) and the price at the time of Tether emission (with the interval for x from one to 48 hours). The following data was obtained, which confirms the idea that the release of Tether was planned.

Test for the gap until the time of Tether’s release, where p-value < 0.05. Source.
Test for the gap until the time of Tether’s release, where p-value > 0.05. Source.

If It Were Not for Tether

According to the assumptions of the researchers Griffin and Shams and the author from Medium, if not for the price manipulation assisted by USDT, then the large jumps in the rate of Bitcoin to almost $20,000 might never have occurred.

"If all the hypotheses derived are true, then the market without Tether would have developed differently. To prove this, and to be consistent and comparable to the real price of Bitcoins, I removed the price change that occurred while the USDT candles increased the rate of Bitcoin. And then interpolated the price of the removed candles with the values ​​of the neighboring indicators. The price obtained by these simulations, using the significance level of alpha = 0.05 and alpha = 0.1, would look like this," suggests Martinez. He presents a graph with a lower Bitcoin price than the reality we saw at the end of 2017.

The blue shows the real price of Bitcoin in dollars, red shows the estimated price in dollars with the level of significance of alpha = 0.5, and green shows the estimated price in dollars with the level of significance of alpha = 0.1. Source.