SHOCK! HORROR! SURPRISE! Bitcoin priceplosion may have been market manipulation

Last year’s meteoric rise in the value of Bitcoin and other cryptocurrencies might well have been artificially inflated, according to a paper released on Wednesday by University of Texas finance professor John Griffin and graduate student Amin Shams.

The suspected culprit: people using Tether, one of the most-traded cryptocurrencies, to buy bitcoin when the price dips:

Tether seems to be used both to stabilize and manipulate Bitcoin prices.

Bitcoin hit a 16 December 2017 peak of $19,343 before it bumped and thumped on down to USD $6,591.94 (the current price as of writing).

That’s a massive deflation, but it’s looking like the inflation itself might have been based on little besides hot air and market manipulation. According to Griffin, the drive up to nearly $20,000 was likely manipulated by coordinated purchases of bitcoin when they were selling low at exchanges. And according to the New York Times, Griffin knows what he’s talking about: he has a history of spotting financial fraud.

The paper, which attempts to causally determine if price manipulation is taking place, suggests that a concentrated campaign may account for half of last year’s spiked cryptocurrencies prices.

Griffin came to this conclusion after studying the flow of digital tokens in and out of Bitfinex, once the world’s largest bitcoin-dollar exchange. He identified several distinct patterns that suggest that someone, or someones, at Bitfinex managed to push up prices when they sagged at other exchanges. They did it by buying up other cryptocurrencies with Tether: a virtual currency created and sold by Bitfinex’s owners.

…entities associated with the Bitfinex exchange use Tether to purchase Bitcoin when prices are falling. Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention. These effects are present only after negative returns and periods following the printing of Tether. … 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.

For months, virtual currency investors have been worried that prices have been artificially jacked up by Bitfinex, which has a history of problems.

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