Markets

Bitcoin’s 2017 price surge was caused by Tether manipulation

Bitcoin’s 2017 price surge was caused by Tether manipulation

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 past year.

The research, which was published by the Professor-Graduate pair of John Griffin and Amin Shams, looked at the stream of cryptocurrencies going in and out of Bitfinex, a cryptocurrency exchange that is closely associated with Tether. If it transpires that last year's record prices were the result of manipulation then without tether's support, the prospect of bitcoin hitting another all-time high is remote.

"Overall, the findings indicate that Tether is closely linked to Bitcoin price appreciation, and question the goal of Tether".

On Monday, researchers from the University of Texas at Austin published a study indicating that Tether was used to unduly influence bitcoin's 2017 ascent.

Industry players had questioned if Tether, a virtual "stablecoin" that aims to create a digital currency equivalent of the USA dollar, and the cryptocurrency exchange Bitfinex played a part in Bitcoin's explosion in value in late 2017 and early 2018. The currency is plunged as a stable alternative to Bitcoin's levity, acting as a harbor for crypto investors.

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Many industry players expressed concern at the time that the prices were being pushed up at least partly by activity at Bitfinex, one of the largest and least regulated exchanges in the industry.

At the end of May the US Department of Justice launched an investigation into Bitcoin price manipulations, now academicians have joint the blame game. "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".

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.

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. Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention.

"There were obviously tremendous price increases a year ago, and this paper indicates that manipulation played a large part in those price increases".


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