U.S. researchers claim bitcoin's price was manipulated during 2017 spike
14 June, 2018, 12:55 | Author: Eric Barnett
Market manipulators used Tether's USDT token to artificially inflate the bitcoin price during 2017's prolonged bull run.
Once issued, almost all tether was moved to Bitfinex and then shifted to other exchanges, where it was used to buy bitcoin, propping up the price, the paper said.
The report says that Tether, one of the most-traded cryptocurrencies, has shown a pattern of being spent on bitcoin at pivotal moments, helping to drive bitcoin to a record price in December, according to a Bloomberg report on the study, which was authored by finance professor John Griffin.
Or, in layman's terms: to counteract price declines, it looks like somebody at Bitfinex is using Tether to buy bitcoin.
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.
As evidence for this claim, the Griffin and Shams note that there tends to be negative end-of-month pressure on the bitcoin price in months when a large number of tethers have been issued but not in others.
Bitcoin's massive price run-up late previous year may have been the result of a price manipulation campaign, according to a new study released on Wednesday. Essentially, the lack of transparency allowed bad actors in the market to create information (tether-funded bitcoin purchases) that they had access to, but the broader spectrum of investors did not.
Philip Gradwell, the chief economist at Chainalysis, a firm that analyses blockchain data, also said the study "seems credible". Most prominently, he drew media attention for a 2016 paper that suggested that a popular financial contract tied to the volatility in financial markets, known as the VIX, was being manipulated. A whistleblower later came forward to confirm those suspicions, and now several active lawsuits are focused on the 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. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical Dollars.
The new paper is not the first academic work to identify manipulation in the virtual currency markets.
"There were obviously tremendous price increases past year, and this paper indicates that manipulation played a large part in those price increases".
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