| Welcome to Chain Letter! Great to have you. Here’s what’s new in the world of blockchains and cryptocurrencies. | A whale-of-a-controversy: A single account on the cryptocurrency exchange Bitfinex manipulated the price of Bitcoin and helped fuel the market’s astronomical rise in 2017, according to new academic research published in an influential finance journal.
Last year, University of Texas professor John Griffin and Amin Shams, an instructor at Ohio State University, published controversial research concluding that in 2017 just a few big players used the stablecoin Tether to prop up the price of Bitcoin following market downturns. Griffin and Shams have now updated their conclusion: it was just one big player, they say.
The researchers studied Bitcoin and Tether transactions from March 1, 2017, to March 31, 2018, a period during which the cryptocurrency’s price spiked from just over $1,000 to nearly $20,000 in December before falling back to around $10,000. (It’s currently trading around $9,200.)
They say they observed a pattern of Bitcoin purchases, using Tether, when Bitcoin’s price fell by certain increments, and traced the activity to a single account on Bitfinex. “This pattern is only present in periods following printing of Tether, driven by a single large account holder, and not observed by other exchanges,” the authors write. The paper does not name the supposed manipulator, but Griffin told the Wall Street Journal: “If it’s not Bitfinex, it’s somebody they do business with.”
The same executives who own Bitfinex also control Tether, which is no stranger to controversy. In 2017, the two firms received subpoenas from the US Commodity Futures Trading Commission. In May of 2018, the US Justice Department opened a criminal investigation into whether Tether was indeed being used to manipulate Bitcoin. And the New York attorney general has sued Tether and Bitfinex, accusing them of participating in a cover-up after losing $850 million worth of customer and corporate funds.
Tether claims it creates new tokens, which are supposed to be backed by dollars in reserve, in response to customer demand. But it has not provided reliable proof of those reserves. The researchers in this case conclude that Tether tokens were “printed” in response to certain downturns, regardless of demand. As the WSJ points out, however, the researchers did not have access to Tether and Bitfinex’s bank accounts, which would confirm whether the company had created unbacked tokens.
According to Tether’s general counsel Stuart Hoegner, the new paper is based on insufficient data and thus “foundationally flawed.” He told Quartz: “Tether is profoundly successful simply because it is liquid, stable, and redeemable." | | China flip-flops on Bitcoin mining: In April, it appeared that China was poised to outlaw cryptocurrency mining, a move that would have ended its dominance over the sector. Now the government appears to have changed tack. The National Development and Reform Commission has published a final list of of industries the country should encourage, restrict, or eliminate. Unlike in the draft proposal from April, cryptocurrency mining is no longer listed under “eliminate.”
It’s not clear why China is reversing course here. But the move follows recent comments by President Xi Jinping in which he called on China to lead in the area of blockchain development. Perhaps China’s leaders have had a shift in perspective on cryptocurrency as well. The government has outlawed crypto exchanges and initial coin offerings, but is still home to around half of Bitcoin’s total mining capacity. Ziwen Xu, head of research at Dotscommunity, a consulting firm, told the New York Times that many officials now see crypto mining as a legitimate source of jobs and revenue at a time when economic growth in the country is slowing. The announcement also comes a week after reports that Bitmain and Canaan, the world’s first and second largest makers of crypto-mining chips—and both based in China—will seek public offerings in the US. | | Want to see the future of computing? Don’t miss this event. Join us next month at the MIT Media Lab for Future Compute, a brand new event from MIT Technology Review. On December 2 and 3, leaders in the field from IBM, Google, Microsoft, Airbus, Akamai, Intel, and MIT will take the stage to grapple with the most important trends in computing, from new chip architectures to artificial intelligence to quantum computing. Get your ticket before it’s too late! | | Loose change Fill your pockets with these newsy tidbits. - An EU draft document says the European Central Bank should consider issuing a “public digital currency.” (Reuters)
- The Turkish government is testing a digital lira. (The Block)
- The Financial Action Task Force, the influential intergovernmental organization that polices money laundering, has published guidance for financial institutions on digital identity systems. (CoinDesk) +The radical idea hiding inside Facebook’s digital currency proposal (TR)
- The US Federal Reserve wants to hire a manager for its retail payments section. Part of the job will be overseeing research on “digital currencies, stable coins, distributed ledger technologies, and broadly financial/digital innovation in retail payments." (The Block)
- Brian Brooks, chief legal officer of Coinbase, has argued in a new essay that the US government should view regulated, dollar-backed stablecoins—like Coinbase’s own USDC—as vehicles for issuing blockchain-based dollars. (Fortune)
- Speaking of Coinbase, this week it began offering a service, called staking, for holders of Tezos tokens. Now Tezos holders can earn a portion of the rewards that Coinbase gets for participating in the proof-of-stake process that the Tezos network uses to secure its blockchain. Just don’t call it interest. (Wired)
- North Korea used a Hong Kong-based blockchain company to launder stolen cryptocurrency, according to a report from the United Nations Security Council’s Sanctions Committee.(CoinDesk)
- Mu Changchun, head of the People’s Bank of China’s digital currency research institute, said he expects the launch of China’s digital currency to start a “horse race” between commercial banks and other firms competing to provide the best services. (Reuters)
| | “We didn’t start by wanting to burn. We started by asking, ‘What do we need?’” —Denelle Dixon, CEO of the Stellar Development Foundation, the non-profit that supports the development of the Stellar cryptocurrency network (The currency, called lumens, is the 10th most valuable one as of this writing). On Monday, Dixon announced on stage at a Stellar-hosted conference in Mexico that the organization has decided to destroy 55 billion of its lumens (the current price is around $0.075), removing more than half of the total supply. She said the organization decided to project how much of its stash it could actually use in the next 10 years, and that it should calibrate its holdings to that number. (CoinDesk) | | | | | |
