Last year’s bitcoin run was nothing short of phenomenal; in just under one year the currency came from just under $1000 to a record-setting $20,000. Now what the world believed was legit trading and an incredible run from the currency might just have been manipulated by cryptocurrency exchange Bitfinex and digital currency Tether. A 66-page academic paper examining the flow of digital currency moving in and out of Bitfinex showed several patterns suggesting that the exchange was involved in bitcoin manipulation that led to its 2017 boom. Soon after the paper was published on Wednesday, bitcoin fell by 2% hitting a 4 month low of just under $6500.
Bitfinex And Tether Involved
Before writing the paper, University of Texas finance professor John Griffin and graduate student Amin Shams went through millions of Bitfinex’s publicly recorded transactions of cryptocurrency to find this result. According to the authors, they discovered several anomalies that were designed to ensure the stability of the then-booming cryptocurrency, bitcoin. The manipulations were particularly tied to Tether, the digital currency which is supposedly backed by the US dollar one-for-one, meant to offer stability and flexibility for bitcoin. Furthermore, this cryptocurrency is also linked with bitcoin and was created by many of the same people behind the leading cryptocurrency exchange Bitfinex. According to Griffin, about 87 hours, or about 1 percent, of heavy Tether trading could explain 50 percent of the rise of bitcoin, and around 64 percent of the rise of other major cryptocurrencies.
In a statement, this is what John Griffin had to say about the involvement of Tether;
It was creating price support for bitcoin and over the period that we examined, had huge price effects
He went on to add;
Our research would indicate that there are sophisticated people harnessing investor interest for their benefit.
The findings of the paper from the University of Texas at Austin has cast a shadow over the unprecedented boom that bitcoin experienced in 2017. In a statement to CNBC, Griffin said;
Fraud and manipulation often leave footprints in the data and it’s nice to have the blockchain to track things.
Bitfinex has denied any involvement over the alleged manipulation. Bitfinex CEO JL van der Velde said in an email;
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.
In the past, Bitfinex has been in trouble for failing to register with the Us Department of Justice and offering “illegal” cryptocurrency transactions. Last month, the agency reportedly began investigating crypto market manipulation. This manipulation allegation might just be one of the cases they will have to investigate.
This University of Texas finance professor has had a 10-year track record investigating financial fraud and his findings in this paper suggest that further investigation is necessary. Although it would be a shame if bitcoin’s boom was manipulated, it is a fact that investors and the crypto community need to know.