On June 24, 2018, as Bitcoin slid below $6,200 to its lowest level of the year, a deeper question was haunting the cryptocurrency markets: how much of the previous year’s historic rally was real, and how much was manufactured? A groundbreaking academic study released just days earlier had ignited a firestorm of debate about the integrity of decentralized finance’s foundational asset.
TL;DR
- University of Texas study by Prof. John Griffin and Amin Shams alleged Tether was used to manipulate Bitcoin prices during the 2017 bull run
- At least half of Bitcoin’s price increase in 2017 was attributed to coordinated manipulation via Tether purchases
- Tether (USDT) had a $2.62 billion market cap on June 24, 2018, with $3.95 billion in daily trading volume
- Bitcoin hit $5,787 — a 70% decline from its December 2017 peak near $20,000
- Study claimed manipulation was orchestrated through the Bitfinex exchange, which owns Tether
The Study That Shook Crypto
Published in early June 2018 by University of Texas at Austin finance professor John Griffin and graduate student Amin Shams, the study titled “Is Bitcoin Really Un-Tethered?” made explosive allegations about the relationship between Tether (USDT) and Bitcoin’s price during the unprecedented bull run of 2017. The researchers argued that Tether — the dollar-pegged stablecoin ostensibly backed 1:1 by US dollars — was being used as a tool for coordinated price manipulation.
According to the study, large purchases of Bitcoin were systematically made at moments of price weakness using newly issued Tether tokens. Rather than flowing from legitimate dollar deposits, the researchers suggested that Tether was being minted without corresponding fiat backing and then deployed to prop up Bitcoin’s price during market dips. The pattern was consistent enough to account for at least half of Bitcoin’s dramatic price increase during 2017.
Bitfinex at the Center of the Storm
The allegations pointed directly at Bitfinex, one of the largest cryptocurrency exchanges, which shares executives and ownership with Tether Limited. The study claimed that the manipulation was orchestrated through Bitfinex’s platform, with Tether tokens flowing to the exchange and being used to purchase Bitcoin at strategic moments.
This wasn’t the first time the Bitfinex-Tether relationship had drawn scrutiny. The two companies had been the subject of a subpoena from the US Commodity Futures Trading Commission (CFTC) in December 2017. Questions about whether Tether’s dollar reserves genuinely backed every USDT token in circulation had been swirling for months, but Griffin and Shams’ academic rigor gave these concerns unprecedented credibility.
Tether’s Dominance in the Ecosystem
As of June 24, 2018, Tether ranked as the 11th largest cryptocurrency by market capitalization at $2.62 billion. But its influence far exceeded its ranking. With $3.95 billion in daily trading volume — more than any other stablecoin and exceeding the volume of most major cryptocurrencies — Tether served as the primary on-ramp and liquidity source for the entire crypto ecosystem.
The stablecoin was trading at $1.0051, a slight premium to its intended dollar peg, which was typical during periods of market stress when traders sought safe harbor. On a day when Bitcoin had plunged to $5,787 and Ethereum had fallen to $457.67, Tether’s stability made it the de facto safe haven for crypto traders unwilling or unable to exit into traditional fiat currencies.
Implications for Decentralized Finance
The manipulation allegations struck at the heart of what cryptocurrency was supposed to represent. If the price of Bitcoin — the flagship digital asset and the foundation upon which the entire DeFi ecosystem was being built — could be artificially inflated through a single stablecoin issuer, what did that mean for the promise of decentralized, trustless markets?
The study’s release coincided with a broader reckoning in the crypto space. The SEC had begun aggressively pursuing fraudulent ICOs. Japan’s Financial Services Agency was tightening exchange regulations following the Coincheck hack. And factional conflicts within the Bitcoin community — including ongoing tensions between Bitcoin Core and Bitcoin Cash supporters — were eroding the narrative of a unified technological revolution.
Market Cap Collapse in Context
The numbers told a stark story. Total cryptocurrency market capitalization stood at approximately $241 billion on June 24, 2018 — a staggering 70% decline from the $830 billion peak reached in early January. Bitcoin itself had fallen more than 70% from its near-$20,000 high. Ethereum, which had traded above $1,300 in January, now sat at $457.67, a decline of roughly 65%.
The top five cryptocurrencies by market cap — Bitcoin at $105.6 billion, Ethereum at $45.9 billion, XRP at $18.7 billion, Bitcoin Cash at $12.9 billion, and EOS at $7.25 billion — had collectively shed hundreds of billions in value. EOS was suffering the worst weekly performance among the top ten, down 22.42%, despite having just completed its record $4 billion token sale.
Why This Matters
The Griffin-Shams study marked a turning point in how regulators, investors, and the broader financial community understood cryptocurrency markets. It provided academic credibility to suspicions that many had harbored but few could prove: that the 2017 bull run was not purely a product of organic demand and technological excitement, but was significantly amplified by artificial buying pressure through Tether.
For the nascent DeFi ecosystem, the implications were profound. If stablecoins — the plumbing of decentralized finance — could be weaponized for market manipulation, the entire premise of trustless, transparent financial markets was called into question. The study would eventually contribute to the New York Attorney General’s investigation into Bitfinex and Tether, resulting in a $18.5 million settlement in 2021 and mandatory transparency reports that continue to this day.
The events of June 2018 served as a harsh but necessary corrective. The market manipulation allegations, combined with regulatory crackdowns and the collapse of the ICO bubble, forced the crypto industry to confront its structural weaknesses and begin building the more robust, transparent infrastructure that would eventually support the next cycle of growth.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency markets are highly volatile, and past performance is not indicative of future results. Always conduct your own research before making any investment decisions.