No, a lone whale didn’t cause Bitcoin’s 2017 rise

By Will Heasman

Earlier today, Bloomberg reported on what it dubbed a "striking new claim" pertaining to Bitcoin’s rapid price rise in late 2017. According to an updated report, a single whale (a rich investor) caused the pump. Yet many people in the crypto community were shocked to hear it, precisely because it didn’t seem to match up with what they witnessed at the time.

This singular piece of news has drawn eyes from all over the crypto industry today. Experts and enthusiasts alike have come together to give their two cents on what appears to be the most exciting thing to happen in crypto lately. The problem is, there's nothing new to see here.

The Bloomberg article entitled: "Lone Bitcoin Whale Likely Fueled 2017 Price Surge, Study Says," refers to a year-old research report by academics, Amin Shams, and John Griffin.

The newly peer-reviewed report, from 2018, mainly focuses on the age-old allegation that Tether is used to manipulate Bitcoin’s price. The theory goes that Tether (USDT), which is supposedly printed without any dollar backing, is sent to Bitfinex exchange—Tether's sister company—and used to buy exorbitant amounts of Bitcoin whenever a specific price 'threshold' is reached.

This was the supposed pattern found by Griffen and Shams, who examined transactions between bitcoin and USDT from March 1, 2017, to March 31, 2018.

“This pattern is only present in periods following the printing of Tether, driven by a single large account holder, and not observed by other exchanges,” reads the report.

And herein supposedly lies the “striking new claim”—that instead of Tether pushing up the market, it was one account holder, this mysterious whale. But this isn’t some wholly new investor who we hadn’t heard about, it’s simply pointing the figure at Tether with new wording.

And this incensed the crypto community. While some hold the view that Tether prints may have exaggerated the bull run, few believe that it was the sole cause. Because there’s plenty of evidence to the contrary.

"There is no methodology on the planet that will convince me that this narrative is accurate," Mati Greenspan, eToro's senior market analyst, explained in a daily market update.

"Millions of verified retail accounts were opened here at eToro in order to trade crypto and it was the same throughout all exchanges," he wrote, adding, "It wasn't anything that could possibly have been caused by any single whale."

VanEck's Gabor Gurbucs agreed, suggesting that the conjunction of any pattern between Tether and Bitcoin was simply an effect of increased demand within periods of growth.

The Bitcoin bull run

If you flashback to late 2017, it was a time when everyone was battling to get into crypto exchanges, to pass know-your-customer verifications and to get their grubby hands on some exciting Bitcoin. Exchanges could barely handle the influx of new people throwing their money at Bitcoin; as the demand rose, so did the price.

However, that’s not to say that Tether wasn’t necessarily involved. The majority of exchanges at the time used Tether as their resident stablecoin, enabling users to trade against it instead of US dollars. And if excess tethers were printed and weren’t fully backed—an accusation that Tether vehemently denies—then it would have had some impact on the market, pushing prices up. But it would be careless to disregard the millions of retail investors splashing their money on Bitcoin when explaining why the price rose so high.

Even more, some industry observers noted that the new language—referring to a single whale, rather than Tether—is misleading. Ari Paul, CIO of BlockTower Capital, noted that attributing a mass tether printing to a “lone whale” was "an elementary misunderstanding of how financial assets work."

"It’s like saying that GLD (gold ETF) is traded mostly by 1 person because it has a single custodian and a single entity handling creations and redemptions," said Paul.

He goes on to explain that Tether, much like GLD, is controlled by an individual entity, dealing with both investor deposits as well as the purchasing and distribution of assets. By Paul's logic, the researchers are confusing Tether's custodian with a whale.

So, unfortunately it looks like there wasn’t a magical rich investor, ploughing millions of fake money into the crypto markets, creating a bubble that never was. But it’s a fun thought experiment, and made for a good headline too.

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