Bitcoin's Major Boost Was Likely Manipulated, Research Finds

Record bitcoin price propped up by another digital currency

A concentrated campaign of price manipulation may have accounted for at least half of the increase in the price of bitcoin and other big cryptocurrencies a year ago, according to a paper released on Wednesday by an academic with a history of spotting fraud in financial markets.

Scientists at the University of Texas analysed transactions on Bitfinex, where Bitcoin can be bought and sold and identified patterns which suggest that the prices were successfully pushed up when they slumped at other exchanges, by using another virtual currency called Tether.

The paper by John Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student, is likely to stoke a debate about how much of bitcoin's skyrocketing gain a year ago was caused by the covert actions of a few big players, rather than real demand from investors.

"By mapping the blockchains of bitcoin and tether, we are able to establish that entities associated with the Bitfinex exchange use tether to purchase bitcoin when prices are falling".

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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.

In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether. This allowed the researchers to map how tether was distributed, and how it impacted bitcoin prices.

According to Griffin, Tether coins are created in large quantities, such as 100m. That's according to explosive new research from University of Texas finance processors John Griffin and Amin Shams, best known for identifying suspicious activity in the VIX past year. In a nutshell, trades of Tether were "timed following market downturns" triggering "sizable increases in Bitcoin prices". New analysis indicates that this is one of the most important factors that drove bitcoin's rally a year ago.

Again, in plain language: in periods right after the bitcoin price falls and Tether mints a bunch more USDT, that's when it's clear that somebody (who could it be?!) is artificially pushing the bitcoin price back up. He is most notably recognized for a 2016 paper that found manipulation in a financial contract known as VIX which was tied to flux in financial markets which were later confirmed by a whistleblower. When bitcoin prices dip after the Tether is issued, Tether at Bitfinex and other exchanges is used "in a coordinated way", causing the price of bitcoin to shoot up.

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