Bitcoin's Major Boost Was Likely Manipulated, Research Finds

Bitcoin's Major Boost Was Likely Manipulated, Research Finds

Released on June 13, 2018, the study by professor John Griffin and Ph.D. candidate Amin Shams suggests that Tether (USDT), a digital currency supposedly backed by US dollar reserves, has been used to prop up prices on the Bitfinex cryptocurrency exchange.

What is interesting is that Griffin and Shams's paper describes Tether as being primarily used by Bitfinex, a major crypto-exchange, to purchase Bitcoin tokens from two other exchanges and most importantly did this only after periods of Bitcoin price declines. "Such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies", the researchers claim.

Bitcoin fell to its lowest price since February 6 on Wednesday, to $6,371, as it struggles to find a stable support level.

In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether.

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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". The researchers relied on the millions of transaction records that are captured on the public ledgers of all virtual currency transactions, known as the blockchain, to spot patterns. They found that half of the increase in Bitcoin's price in 2017 could be traced to the hours immediately after Tether flowed to a handful of other exchanges, generally when the price was declining.

The study focuses primarily on the supply-based explanation for the link, but the researchers also note that the demand for bitcoin can create a similar demand for tether, particularly by investors who cannot move large sums of money into cryptocurrency directly.

Philip Gradwell, the chief economist at Chainalysis, a firm that analyses blockchain data, also said the study "seems credible". Griffin has previously written research identifying fraudulent patterns in other financial markets. Later, a whistleblower came forward to confirm those allegations.

The bottom line is that if Professor Griffin is correct, then the underlying manipulation in bitcoin's price may have been removed and the asset is going to fall back to its "natural" value. A paper published past 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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