Bitcoin Price Boosted By Market Manipulations, Researchers Claim
Bitcoin’s 2017 Bull Run may have been no more than market manipulation, according to a study released on Wednesday by the University of Texas.
The study claims that Tether, a digital currency tied to the U.S. dollar, may have been used to artificially inflate Bitcoin prices. The paper stated that at least half of the 2017 rise of Bitcoin prices could be attributed to coordinated price manipulation.
“These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices,” the first page of the study read.
University researcher John Griffin and grad student Amin Shams analyzed blockchain purchases made on the cryptocurrency exchange Bitfinex during Bitcoin’s rise. They found that significant Tether purchases were made directly following downturns in the market to help stabilize and manipulate the price of the cryptocurrency.
“Fraud and manipulation often leave footprints in the data and it’s nice to have the blockchain to track things,” Griffin told CNBC.
Bitcoin’s value reached an all-time high of over US$20,000 at the end of 2017, but its value came crashing back down in the New Year and has continued the steady spiral since.
Fearing that market manipulation may play a factor in the value of cryptocurrencies, the United States Department of Justice launched a criminal probe at the end of May to determine whether traders were manipulating the price of bitcoin and other digital currencies.
The investigation is looking at potential illegal practices that could influence prices such as spoofing, or flooding the market with fraudulent orders to trick other traders.
The authors of the University of Texas study discovered that the suspicious Bitcoin price rally was tied to the issuance of Tether.
“It [Tether] was creating price support for bitcoin, and over the period that we examined, had huge price effects,” Griffin told CNBC. “Our research would indicate that there are sophisticated people harnessing investor interest for their benefit,” Griffin.
At the 2018 Stifel Cross Sector Insight Conference held Wednesday in Boston, Ripple CEO Brad Garlinghouse told the crowd that bitcoin is being controlled by China, adding that as few as four individuals have power over 50 percent of the market.
According to the CEO, this domination is among the factors deterring major economies from accepting bitcoin as a primary currency as no country would like to use a “Chinese-controlled currency”.
Bitfinex CEO JL van der Velde said in a statement that “Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation,” adding that Tether issuances cannot be used to prop up the price of bitcoin or any other cryptocurrencies on Bitfinex.
In December last year, the US Commodity Futures Trading Commission (CFTC) subpoenaed Tether and Bitfinex, after investors expressed concerns over price manipulation issues. In 2016, the CFTC fined Bitfinex $75,000 for failing to register with the agency and for offering “illegal” cryptocurrency transactions.
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