The Labyrinth of Tether: A new Mt. Gox or just a case of Hysteria?

Currently, the rumor is going around is that Bitfinex and Tether manipulate the price of bitcoin upward with a fake Dollar token. Is there some truth to this or is it just scaremongering? We take a look at the subject.

For some months, an individual with the pseudonym “Bitfinex’ed” has warned on Twitter and Medium against an alleged fraud by Bitfinex and Tether. The story goes like this; Tether creates a digital Dollar token out of fresh air, and a group of traders uses them to manipulate the price of bitcoin by “spoofing” – placing fake orders which suggest a not existing demand. All under the eyes of Bitfinex, turning a blind eye or even being involved.

After the last two weeks saw a flood of nearly 200 million freshly minted Tether Dollars coming to the market, the Tether thesis popped up on popular Bitcoin forums and some Bitcoin media. While being of general interest for anybody involved in the ecosystem, it is noticeable that fans of Bitcoin Cash mostly push the fraud theory; eventually, because they are in search of an explanation of why bitcoin is still rising, instead of fizzling out in the long-expected death spiral of a full mempool and drowning prices.

There is no simple answer to the question, what’s up with the Tether theses. True? Not true? It’s hard to say. The only thing we can do is to shed some light on the building blocks of this complex story so that you can form your own opinion. Also, we can look for alternate explanations, which lead into a labyrinth of feedback loops between regulation, bank, Tether and the Bitcoin rally.

But let’s start with the base of it, with Tether…

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