US: Much of bitcoin’s 2017 boom was market manipulation?

Bitcoin’s epic rise last year may have been more than investor fervor. A study published Wednesday says at least half of the jump in bitcoin was due to coordinated price manipulation, reported the Washington Post.

University of Texas finance professor John Griffin, who has a 10-year track record of spotting financial fraud, and graduate student Amin Shams examined millions of transactions on cryptocurrency exchange Bitfinex. In a 66-page paper, the authors found that tether was used to buy bitcoin at key moments when it was declining, which helped “stabilize and manipulate” the cryptocurrency’s price.

The researchers examined transactions where people bought bitcoin using tether. On many exchanges, purchases can be made using only cryptocurrencies, not dollars, which makes tether a useful trading tool. They found that purchases were timed following downturns in the cryptocurrency market, leading to “sizable increases in bitcoin prices” according to the paper, which was reported on first by the New York Times. The findings suggest that the issuers of tether were pumping out the token to purchase bitcoin, creating an artificial demand for the cryptocurrency, and driving up its price. The timing and magnitude of the purchases can’t be explained by organic investor demand, the researchers said, which suggests that tether may have been issued without being fully backed by dollars.

“This study provides substantial but circumstantial evidence that tether was used for the latter purpose, in addition to the former,” he said. “Note that it’s circumstantial: The authors discovered various indicators that indicate that tether use isn’t organic, but they can’t conclusively rule out that the behavior they observed was due to, say, a well-funded entrant into the space, slowly buying coins in response to price dips.”

In a statement Wednesday to The Washington Post, Bitfinex and Tether chief executive JL van der Velde said: “Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of bitcoin or any other coin/token on Bitfinex.”

Full Content: Washington Post

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