As they say, shots were fired.

An investigative article raising concerns about possible market manipulation of tether has sparked a social media firestorm, with the dollar-pegged cryptocurrency’s detractors, supporters and seemingly everyone in between weighing in.

In an incendiary take on an already controversial topic, Bloomberg analyzed tether trading data from the Kraken crypto exchange and found several “red flags,” as the headline described them.

Complete with colorful annotated charts and interactive data visualizations, the article published Friday sought to characterize the market for tethers, also known as USDT, as defying the laws of supply and demand, going so far as to say it is suggestive of wash trading – a maneuver “in which cheaters trade with themselves to create a false impression of market demand.”

Some hailed the data analysis, which pulled from more than 56,000 trades on Kraken over a period of eight weeks, as a “deep dive into suspicious trading patterns,” and a prime illustration of “why institutional money is staying out of the market.”



Release the Kraken

But then Bloomberg, for better or for worse, became part of the story.

On Sunday, Kraken published a characteristically combative blog post rebutting the analysis by the four Bloomberg reporters who contributed to the article.

The post, whose very title (“On Tether: Journalists Defy Logic, Raising Red Flags”) was a dig at Bloomberg’s headline, went so far as to suggest that the authors of the piece lacked subject matter expertise, saying:

“It’s scary to think that our lawmakers are reading this stuff. The title sure was sensational, and it undoubtedly grabbed eyeballs but what of the readers who are not following the outrage on Reddit and Twitter? What of those who rely on the journalistic integrity and expertise of their news sources?”

Others appeared to agree, with varying degrees of tact.

But the pushback was not limited to ad hominems. Specifically addressing the article’s contention that heightened demand for USDT on Kraken should have temporarily driven the coin’s price up to $1.10, one Reddit user argued that arbitrage opportunities keep the price close to $1, writing:

“Of course we’re not seeing that as Kraken USDTUSD divergence from $1 is equal to Bitfinex cryptoUSD premium or discount. A 1.1 dollar USDT would mean a ~10% discount on Finex. It shouldn’t be that hard to comprehend.”

Still, longtime critics of tether remained unconvinced by such arguments.



Common ground

Despite the intense debate, there is actually one thing tether’s defenders and doubters seem to agree on: not all trades in this crypto asset are done out of a human-driven profit incentive.

If you accept the premise that certain amounts of tether are purposefully injected into the markets and alternatively bought from the markets by “bots” with the sole intention of maintaining parity with the dollar, the oddly specific order sizes and their frequency as depicted in the data by Bloomberg start to make sense.

As another commentator on Reddit explained,

“As long as there are an active party doing market intervention to maintain the peg i am sure you will see some strange action in the order book… Tether is actively managing this on all exchanges that have the USDTUSD cross. If they did not provide ‘unlimited’ liquidity on both buy and sellside the peg would break.”

In other words, the odd patterns reported by Bloomberg may suggest actions by Tether, the company behind USDT, to issue coins when the value is high and buy it up when the value is low, in order to maintain its value at $1.

But if so, this points to another, longstanding controversy around Tether: the potential for the company at some point in time to issue more currency than it actually has the reserves to back, which some are quite adamant is already the case.

Nevertheless, whether you agree with such interpretations or not, it’s worth noting the basic principles of economics that ring true through this entire discussion.

The same concepts of supply and demand that informed the Bloomberg article were used in turn by Kraken to argue they promote stability in tether prices. They can also be used to point out the inherent vulnerabilities in a fixed pegged currency, crypto or not.

It’s elementary, my dear Watson.

Strings image via Shutterstock