All Financial Wisdom

The first well-founded suspicions of massive manipulation of the crypto-bubble appear

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Before the possible existence of a bubble in Bitcoin and other cryptocurrencies, rivers of ink have already been written, with several tributaries flowing from these lines. 

But the now the first news is emerging that raises the suspicion of the existence of a massive and planned crypto-bubble that, as so many times throughout history, points to the alleged manipulated enrichment of a few. The news that houses the well-founded suspicions even includes the opening of a judicial investigation.

A growing number of investors had been, for weeks (and months), suspecting the possible massive manipulation of the crypto-markets, and more specifically also of Bitcoin, the banner par excellence of both the new crypto-economy, and its bubbling bubble.

The reputed New York Times recently reported how the famous financial exchange Bitfinex, which already has a strong past of hacking cases and also opaque practices, is under the very well-founded suspicion of having artificially inflated the price of Bitcoin and other cryptocurrencies.

These activities have had special intensity in the moments immediately following the strong falls that Bitcoin has been experiencing throughout its volatile history. These glittering recoveries have served as a recurrent argument for those crypto-defenders who did not want to see the bubble in any way, and who argued that Bitcoin was volatile but more than reliable in the long term.

Now these aggressive recoveries seem to begin to have a more logical and (sadly) traditional explanation. And by the way, I must clarify that, when I refer to the crypto-defendants, I clearly differentiate the degree of this affectionate meaning with that of crypto-enthusiasts, which I still am (despite the topic of today’s analysis).

The reason why Bitfinex is a potential case of manipulation

Last December, Bloomberg reported irregularities that were occurring around the cryptointermediary Bitfinex and Tether. Tether is the twin token of Bitfinex, who just so happen to share a CEO: Jan Ludovicus van der Velde.

In the cripto world, Tether is not a bad concept, rather on the contrary: it was an interesting initiative (until the recent news). Theoretically, each Tether token was backed by a dollar, and its exchange value is the most stable of the cryptoeconomics. This value has logically been kept at par with the dollar, giving an important added value for merchants and crypto users that could be harmed by the extreme volatility of Bitcoin and other cryptocurrencies.

Tether began to be negotiated in 2015, and pretended to be the safe port of the cryptosphere: in practice it was used to put a good and stable collection of virtual funds, without having to return to the world of traditional currencies or fiat. But of course, a key issue, which now seems to be in serious doubt, is whether that one-to-one repayment with the dollar is guaranteed.

Doubts loom over the fate of the dollar funds that Tethers buyers deposit with the company, and that they should be the lifeline that would serve as backup and guarantee. Being this natural channeling towards a cryptoeconomy without volatility is what makes Bitfinex the ideal vehicle for the massive manipulation of the crypto-markets.

A (short) convulsive life with numerous cases of anomalies

But Tether’s brief history has been peppered with anomalous and suspicious behavior, which Bloomberg also echoed last December. Among this series of facts of dubious nature are, for example, the fact that the American bank Wells Fargo decided abruptly to end its relationship with Bitfinex, for which it was the financial entity that channeled the money remittances from the fiat world to Bitfinex and Tether. Bitfinex went to court after this unilateral decision of the bank, but suspiciously ended up withdrawing a lawsuit that, if everything was as it appeared, it should have almost certainly won.

Also in December, Bitfinex surprisingly announced, that it will stop servicing American customers, saying that they were very expensive. It should be noted at this point that the US authorities, as is known, are subjecting scrupulous vigilance to the crypto-economy. Obviously, the zeal of the North American regulators drives away illicit or potentially illicit activities.

We must also mention that Bitfinex has changed its name, and that it has not responded to repeated requests for the refund of funds for very large amounts from some of its customers.

The fact is that only a few weeks ago, Bitfinex even received a subpoena to appear before the courts. Undoubtedly, this judicial step takes the suspicions of the crypto market to another stage that is much more worrying and well founded.

The gasoline that Bitfinex and Tether are throwing on the CryptoCurrency Market Bonfire

When talking about crypto currencies, we have generally stuck to factors such as market psychology, clear excesses of the crypto market, indicators, compared to the the real estate bubble, the .com bubble etc... But there is a line of argument that we have also explored with you, and concerns the great risk of manipulation to which the current Bitcoin ecosystem exposed us.

I must admit that it is true that in the analysis “These indicators point to a bubble in Bitcoin…” ,we address this risk of potential manipulation by the Bitcoin concentration in a few strong hands.

So far we have not talked about this more extensively because, being rigorous and serious, we can not talk about a matter of potential massive manipulation of this caliber without a minimum of reliable facts on the table. Well, we have those first facts, as you have read in the previous paragraphs, which already leads us a more than substantiated suspicion of the existence of devious actions by a few.

And the connection of this “anomalous” nature with the effervescence of the crypto-bubble goes beyond the mere safe harbor that is supposed to be Bitfinex and Tether. The proven fact is that, as the NYT mentioned in the previous article, in the last few months, new Tethers worth hundreds of millions of dollars have been created.

This has almost always happened when the price of other cryptocurrencies went down, and those Tethers were used in Bitfinex to make massive purchases of Bitcoin and other virtual currencies. As a result, and after the analysis of the Bitfinex data made by the New York Times, the prices of these tokens bounced violently upwards. Therefore, we see how the behavior that the crypto-defendants raised as an innovative Bitcoin strength, appears to be solely massive manipulation. As you can see, and as we have told you countless times, in the markets not everything is what it seems. What does not change is human nature (of some).

Launching the (virtual) money printer

But beyond speculation on which we have been warning for a long time, beyond the manifest manipulation of the market that can now emerge, beyond demonstrating that not everything “crypto” has to be part of the future, there is a very remarkable fact to conclude.

The fact is cryptocurrencies were conceived as the liberation of citizens regarding the power of central and non-central banks, in the heat of the terrible crisis that began with the fall of Lehman Brothers in 2008. Many crypto-enthusiasts strongly believed that the creation of arbitrary money by entities and institutions was an almost exclusive cause of all economic ills, and they bought the argument that Bitcoin was going to end it, since the value of the currency happened to reside in the community.

And although we should embrace innovations, it must be done with the utmost care, caution, and prevention mechanisms. As we said before, the future is always unpredictable, but what is more unpredictable is a runaway and unregulated market. That is why our advice has always been one of caution in the face of crypto-financial news, and of alerting you to its potential dangers, although we have also always analyzed its innumerable advantages.

Both the succession of events, and the recent plummeting of Bitcoin, which has corrected more than 50% since its recent highs of around $20,000 / BTC, seems to begin to give us reason to continue to doubt the validity of the valuation of this market.

Bitcoin may no longer recover

In any case, we will be here to analyze it: everything is for the good and for the socio-economic culture of our precious readers, our main objective. We will tell you promptly if it is confirmed that Bitcoin (in its current conception) has turned out to be a disappointment.

In view of the aggressiveness of the crypto-defenders who refuted the existence of a bubble, this disappointment reminds us of the disappointment that our politicians subject us to every 4 years.

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