University of Texas finance professor, John Griffin, and graduate student, Amin Shams have come up with a report that alleges there was a concentrated price manipulation campaign late last year. They say that this manipulation may be the reason for the surge in prices of Bitcoin and other Cryptocurrencies.
The report, titled ‘Is Bitcoin really Un-tethered’, claims that the inflated price of Bitcoin and other Cryptocurrencies were as a result of manipulation by a person or group of people through using Tether and not pushed by an organic demand.
Widespread Concern From Industry Players
Many industry players had voiced their concern about the exponential hike in Bitcoin prices that it was caused by the activities at one of the largest crypto exchanges which is also the least regulated, Bitfinex. It also creates and sells Tether.
Bitfinex, which has offices in Asia and is registered in the Caribbean, is accused of using Tether to prop up the prices. The researches relied on the transaction records that are recorded on public ledgers.
They studied the flow of the tokens flowing in and out of Bitfinex and discovered patterns that suggest there was someone or group of people who successfully pushed the prices by using Tether in buying Bitcoin, as well as other Cryptocurrencies.
Findings Of The Research
On following the trail left behind by Tether, the researchers found that the increase in Bitcoin prices directly correlates to the time when Tether (whose value is always equal to that of the US dollar) flowed from Bitfinex to other exchanges.
Within the same time period, other Cryptocurrencies that could be purchased by Tether also rose in some cases by a higher margin compared to Bitcoin during that period. The research also shows that prices of these Cryptocurrencies continued to increase in the exchanges that accepted Tether than in those that did not and that this pattern stopped once Tether issuance halted.
The executives at Bitfinex have adamantly denied the claims of any manipulation taking place. In a public statement, the company said that it did not engage in any sort of manipulation and that the issuance of Tether could not increase the price of any of the tokens.
Scholars’ opinions on the research
After reviewing the report, one of the pioneers of the method used in this research i.e. pattern spotting, Sarah Meiklejohn, said that the analysis seems sound.
A specialist in Blockchain Technology and MIT (Massachusetts Institute of Technology) professor, Christian Catalini, has intimated that the connection between Tether and Bitcoin has been the subject of speculation for many months within the crypto industry. He said that the use of academic work in the research of causal market manipulation was a great progress.
This paper is however not the only academic work that has been used in identifying manipulation taking place in the virtual currency market. Last year, research by Israeli and American scholars found that the price increase Bitcoin experienced in 2013 was largely due to manipulation at mt. Gox, which was the largest exchange at the time.