Published: Fri, June 15, 2018
Finance | By Loren Pratt

Bitcoin’s price was artificially inflated last year, researchers say

Bitcoin’s price was artificially inflated last year, researchers say

The prominent sceptic Bitfinex'd, an anonymous Twitter user, has long argued that Tether has been used to manipulate the price of bitcoin by propping up demand.

The researchers found that tether issuances rose previous year during periods when the price of bitcoin was dropping.

The US Commodities and Futures Trading Commission issued subpoenas to Bitfinex and Tether last December, according to Bloomberg. "Due to the semi-transparent nature of the blockchain, we are able to use extensive algorithms to lump nodes of investors and match transactions on the Tether Blockchain to those on the Bitcoin Blockchain". 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.

The product of two researchers at the University of Texas, the paper - titled Is Bitcoin Really Un-Tethered? - claims to have identified potential evidence of direct price manipulation since November 2017. The prices of so-called "alt-coins" tend to be strongly correlated to the price of Bitcoin, meaning that if the manipulation described in the paper is found to be accurate, it has bitter ramifications for the market as a whole. "Tether seems to be used both to stabilize and manipulate Bitcoin prices", the researchers wrote.

"It was creating price support for bitcoin and, over the period that we examined, had huge price effects", Griffin said. This feat is due to the decline of the cryptocurrency market in general, which now stands at $273 billion.

While that correlation could simply be due to the fact that an inflow of tethers signals a spike in demand from traders, the researchers claim that other data suggests that tether may not be fully-backed by United States dollars - at least not all the time.

Bolstering the findings of today's report into tether is the revelation that cryptos such as ether and zcash also pumped following the release of tether, with the green candles often breaking out on USDT exchanges first. Bitfinex and Tether are also sister companies sharing the same CEO and with "a minority percentage of overlap in shareholders", according to CoinTelegraph. At 66 pages, and complemented by meticulous charts, citations, and algorithmical analysis, the authors of today's report have produced the most comprehensive tether investigation to date. These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free.

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