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

Daniel Fowler
June 14, 2018

There is evidence that tether, a digital currency pegged to the US dollar, may have been used to manipulate the price of bitcoin BTC=BTSP and other cryptocurrencies, according to a research paper released by the University of Texas on Wednesday.

A recently published paper by Professor John Griffin and graduate student Amin Shams examined the traffic of cryptocurrencies on the Bitfinex exchange and found a correlation between price slumps in Bitcoin and other coins and instances when Tether was issued and sold by the owners of the exchange.

John Griffin and Amin Shams, in their research article, 'Is Bitcoin really Un-Tethered?' aim to investigate the relation between Bitcoin, other cryptocurrencies, and Tether, a cryptocurrency purportedly clinched to the USA dollar that carries more transaction volume than dollars. "Tether issuances can not be used to prop up the price of Bitcoin or any other coin/token on Bitfinex".

BTC/USD is changing hands at $6,480, the price of the digital coin No. 1 recovered strongly from a new low reached late on Wednesday at $6,154.

Bitfinex has denied being involved in any price manipulation schemes.

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As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year.

Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by Dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns. He cautioned that a full understanding of the patterns would require more analysis. Griffin has previously written research identifying fraudulent patterns in other financial markets. Most prominently, he drew media attention for a 2016 paper that suggested that a popular financial contract tied to the volatility in financial markets, known as the VIX, was being manipulated.

If what the study hypothesis turns out to be true this would not be the first time Griffin has sniffed out fraud in the financial world. "The buying of Bitcoin with Tether also occurs more aggressively right below salient round-number price thresholds where the price support might be most effective".

"It is great to see academic work trying to causally assess if market manipulation is taking place". A paper published previous year by a team of Israeli and American researchers said much of bitcoin's big price increase in 2013 was caused by a campaign of price manipulation at what was then the biggest exchange, Mt Gox.

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