Bitcoin’s rise might be linked to price manipulation, study indicates

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The rise of cryptocurrency prices last year, including bitcoin, ethereum, and altcoins, could have been largely caused by price manipulation, according to a paper published today by researchers at the University of Texas at Austin. The paper, co-authored by a finance professor who is known for catching fraud in financial markets, reveals several distinct patterns in trading that suggest several people or a person at the major cryptocurrency exchange Bitfinex inflated virtual coin prices.

The 66-page report states that Bitfinex might have used the virtual coin Tether, which it owns, to generate fake demand for bitcoin by buying up the virtual currency and keeping its price up while it sank at other exchanges. The paper found that the more Tether entered the market, the higher cryptocurrency prices would rise, “similar to the inflationary effect of printing additional money.”

By using algorithms to analyze the millions of transactions listed on public ledgers, the researchers discovered that half of bitcoin’s price increase last year occurred hours after Tether was passed along to several other exchanges. Tether usually exchanged hands when bitcoin’s price was flagging.

Although the report can’t confirm price manipulation, it does point to suspicious patterns. Exchanges that had support for Tether saw the prices of coins like ethereum and Zcash rise higher than on exchanges that did not support Tether. And the report found that this year, after Bitfinex cut the supply of Tether short, the pattern ended.

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