Bitcoin Price Was Artificially Inflated

The price of Bitcoin was spiked from $6,624 to $19,010 within a month or so in Nov – Dec 2017. So was other major cryptocurrencies. It wasn’t because of the demand of Bitcoin and cryptocurrencies but a seems like a pre-planned concentrated manipulation campaign by Bitfinex, one of the largest cryptocurrency exchanges in the world.

A report published by two researchers John Griffin and Amin Shams at University of Texas, Austin explains in a 66 pages how bitcoin and major cryptocurrency prices were inflated by use of Tether, and supported by two major crypt exchanges Bitfinex and Poloniex.

From the report via WSJ:

Mr. Griffin looked at the flow of digital tokens going in and out of Bitfinex and identified several distinct patterns that suggest that someone or some people at the exchange successfully worked to push up prices when they sagged at other exchanges. To do that, the person or people used a secondary virtual currency, known as Tether, which was created and sold by the owners of Bitfinex, to buy up those other cryptocurrencies.

“There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases,” Mr. Griffin said.

On a personal note, Crypto exchange Coinbase did not help as well. During the peak, Coinbase stopped selling cryptocurrencies to give a support to the price. I personally tried to sell some of my crypto assets during the peak and it won’t let me sell them.

From the paper:

This paper investigates whether Tether, a digital currency pegged to U.S. dollars, influences Bitcoin and other cryptocurrency prices during the recent boom. Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies. The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends. These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.

Download 66-page Report here >