Alex Pickard of Research Affiliates warns that alleged market manipulation that could be linked to recent climbs in bitcoin’s value could be disastrous if proven true.
Is it possible that bitcoin’s meteoric rise is not due simply to exponential demand for digital gold? Perhaps bitcoin’s price is being artificially manipulated through at least one stablecoin, tether.
Tether (USDT) is supposed to have one-to-one backing by the US dollar. Investors are now suing Tether Ltd., alleging no one is actually buying USDT, rather they are being minted out of thin air. The lawsuit claims that agents for Tether Ltd. use USDT to buy bitcoin (BTC) on exchanges that trade in the BTC/USDT pair, pushing up the pair’s price.
Because USD/USDT trades at dollar parity, the price is then arbitraged on exchanges that trade the BTC/USD pair.
If market manipulation is the true story—rather than a bubble driven by expanding market demand—the losses from a BTC crash caused by a Tether scandal may not be recoverable.
If one USD does in fact back every USDT, then the meteoric price rise of BTC we are currently witnessing is almost certainly a bubble, not unlike previous bitcoin bubbles. Short-term momentum could take the price higher, but at some point BTC will likely suffer a tremendous decline, as when the last two bubbles ended and BTC fell 80% from its peak price.
Regardless of the reason for bitcoin’s astronomical price movement, investors should remember the sage advice “buy fear, sell cheer” and proceed with extreme caution.
*Alex Pickard is vice president, research, at Research Affiliates.
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