Published: Thu, June 14, 2018
Business | By Kate Woods

Price manipulation caused Bitcoin's huge 2017 surge, researchers say

Price manipulation caused Bitcoin's huge 2017 surge, researchers say

Tether [USDT], one of the most traded cryptocurrencies supported by platforms like Bitfinix, ShapeShift, Bittrex, and Omni, shows an indication of being spent on Bitcoin in its critical moments, according to research by a University of Texas professor.

Griffin and Shams' study shines a light on the possibility that Bitcoin's price manipulation was precipitated by a handful of cloak-and-dagger players and not genuine demand from investors. Evidence of price manipulation was found in all of those, too.

The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends. Bitfinex stopped issuing Tether earlier this year, though the currency, the value of which is pegged to the USA dollar, is still trading in large volumes.

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The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late previous year. Indeed, even less than 1% of extreme exchange of Tether for Bitcoin has substantial aggregate price effects. These purchases alone accounted for 50 percent of the cryptocurrency's compounded gains, when its value skyrocketed from $1,200 to around $10,000.

The results came following transaction analysis of Tether creator and issuer cryptocurrency exchange Bitfinex. Other digital currencies like Ethereum and Litecoin soared at around the same time by as much as 64 percent. The paper does not prove definitively that Bitfinex was tangled in price manipulation, but the evidence gives a strong indicator that it was involved.

In other words, it looks like cryptocurrency buyers aren't really interested in Tether, and the researchers are fairly confident that the manufacturing of Tether has a lot to do with bitcoin prices staying high.

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The findings add to the growing concerns that Tether was used to artificially inflate Bitcoin for the benefit of a small group of big cryptocurrency holders, putting the rest of the market at risk.

Bitcoin reached its peak price of nearly $20,000 in December but is now trading at around $6,300 according to the Coin Market Cap.

The CEO of Bitfinex, a cryptocurrency exchange, also runs Tether, and in December, a USA regulator sent a subpoena to both companies.

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In response to the research, Bitfinex's CEO JL van der Velde told PCMag: "Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation".

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