US researchers claim bitcoin’s price was manipulated during 2017 spike

13 Jun 2018

Bitcoin on a table. Image: VCoscaron/Shutterstock

Researchers at the University of Texas say bitcoin’s price peaks last year were down to artificial inflation.

Bitcoin dropped 2pc in value on Wednesday (13 June) following the publication of an academic paper that claimed its record price runs were the product of manipulation.

According to the researchers at the University of Texas, the cryptocurrency Tether was allegedly used by the Bitfinex exchange to support the price.

Bitcoin skyrocketed in 2017

Bitcoin had an unprecedented bull run last year, hitting a $20,000 record peak in December; at the time of writing, its value has plummeted to a little under $6,500.

Finance professor John Griffin and graduate student Amin Shams authored the paper and examined the flow of digital currency moving in and out of Bitfinex. They were able to find several patterns that suggested someone or some people successfully pushed up bitcoin prices while they dipped at other exchanges.

Griffin said: “There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases.” He added that Tether seems to be used both to “stabilise and manipulate bitcoin prices”.

According to Griffin, Tether coins are created in large quantities, such as 100m. Almost all of these coins then move to Bitfinex. When bitcoin prices dip after the Tether is issued, Tether at Bitfinex and other exchanges is used “in a coordinated way”, causing the price of bitcoin to shoot up.

Bitfinex under scrutiny

Bitfinex executives have previously issued denials in the past that the exchange was involved in any manipulation and the new allegations presented in the paper have been refuted by the CEO of Bitfinex, JL van der Velde, who 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.”

The authors of the paper do not have an email or document trail to prove Bitfinex is responsible for the the price manipulation, but instead relied on the transaction records on the blockchain to sift out patterns, a method that has helped authorities spot suspicious activity in the past.

Other experts have vouched for the credibility of the paper, with Sarah Meiklejohn of University College London saying the research “seems sound” after a review. Griffin has previously written research identifying fraudulent patterns in other financial markets.

This paper is sure to add fuel to the fire as regulatory scrutiny around cryptocurrency continues to grow.

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects