Kraken Risks Deepening the Rift Between Crypto and the Media

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07 Jul 2018, 09:06

Kraken Risks Deepening the Rift Between Crypto and the Media

Tether, a stablecoin, flouts the "normal rules of economics" on crypto exchange Kraken, or so claimed an article Bloomberg published on June 29. According to the piece, high Tether (USDT) trade volumes on the US-based exchange don't produce the price movements normally expected when a currency or commodity is traded heavily, thereby 'raising red flags' that its price is being manipulated.

Kraken itself has hit back at the article's (implied) conclusion. In a blog post, it noted that its Tether market is so small it's unlikely to have any significant influence on the price of USDT, and that Tether enjoys price stability due to its backing in US dollars (which places a limit on the kinds of rises traders are willing to pay for).

However, while Kraken's reply has undermined Bloomberg's insinuation that wash trading or manipulation involving Tether was taking place on the exchange, its war of words with the news outlet has deepened the antagonistic rift opening up between crypto and the mainstream media. It is increasing the likelihood that more rather than less FUD will be produced by the latter in the future.
'I don't think this is real'

In summarizing Bloomberg's argument against Kraken and Tether, it's important to note that it's actually split into two unrelated points, although the article never directly addresses their connection (or lack thereof).

The first involves the observation that a number of big trades on Kraken influenced USDT's price 'unexpectedly' and 'inconsistently.' For example, on May 7 there were 31 successive trades for a total of USDT 159,487, yet these failed to change Tether's price at all.

The second point relates to the fact that, during the period Bloomberg examined (May 1 to June 22) the third most common order was for USDT 13,076.389.

This seemed unusually precise to the experts Bloomberg consulted, including Rosa Abrantes-Metz, an adjunct associate professor at the New York University’s Stern School of Business. "It could be a signal [for wash trading],” she said, “because it is really, really strange."

In other words, the use of three decimal places could indicate that it's a signal for a bot to take the buy order, thereby completing a wash trade that would help to create an illusion of market demand and supply.

But in its blog post, Kraken had less-than kind words for Bloomberg's article, which it claimed "inexplicably fails to comprehend basic market concepts such as arbitrage, order books and currency pegs.”

While its main counter-arguments are summarised above, Kraken also noted that the unusually precise sums of USDT were the result of arbitrage bots: "we asked the botter responsible for the mysterious 13,076.389 orders. The answer: “literally randomly selected”. So there you have it."

An all-time low

Such replies would damper Bloomberg's speculations for anyone willing to take the time to read them, yet they raise another potentially serious problem for Kraken, as well as for exchanges and crypto in general. That is, their belligerence would risk inflaming the hostility between crypto and the mainstream media that’s been seen in recent months.

This antipathy was witnessed in February, when The Next Web ran an article on a flaw in IOTA which didn't really exist. IOTA responded forcefully, 'blacklisting' the website from all future press engagements.
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