Bitcoin market price found to be manipulated during 2017 run

2017 was a particularly illustrious year for Bitcoin, for better and worse; it is the ghost perpetually haunting global cryptocurrency exchanges today. University of Texas at Austin finance professor John Griffin and graduate student Amin Shams argue in a groundbreaking paper, “Is Bitcoin Really Un-Tethered?”, that neither global interest nor backing received from elite investors shored up Bitcoin’s best year; rather, market manipulation did.

The companies strongly implicated in Griffin’s paper, Bitfinex and its crypto token, Tether, are not strangers to litigation. Consistently questioned by the media and law enforcement agents about their holdings, these two companies share a CEO, Jan Ludovicus van der Velde, who has refused to discuss the investigations under which Bitfinex and Tether seem to be constant subjects.

Both firms were subpoenaed by the U.S. Commodity Futures Trading Commission (CFTC) on Dec. 6, 2017, after a substantial number of influential financiers and investors dealing in virtual currency expressed concern to regulatory bodies that Bitfinex and Tether were unfairly being used to prop up the price of Bitcoin during periods of significant downturn, a fear all but confirmed in Griffin’s paper.

Tether is of particular valence among cryptocurrencies because, unlike almost all big-name virtual tokens, it’s supposedly backed by the U.S. dollar. In fact, the company claims to be backed by physical holdings worth almost $2.3 billion, an assertion that has been nearly impossible to interrogate, as Tether has resisted releasing any conclusive evidence to the public regarding the dollar valuation of their coins and any other holdings they may have.

Griffin and Shams successfully pointed to Tether’s involvement in Bitcoin’s price hike to nearly $20,000 late last year, and were able to do so by combing through public ledgers containing records of all major virtual currency transactions, collectively known as the blockchain. Griffin noticed that substantial sums of Tether overcame a handful of major cryptocurrency exchanges worldwide at a point when the generally accepted trend was a decline in the price of Tether coins.

In fact, two glaring trends emerged. First, about half of Bitcoin’s price increase could be accounted for by tracing cryptocurrency flows mere hours from when Tether overran a select number of high profile crypto exchanges. Second, the price hike was even more dramatic in exchanges that accepted trading in Tether coins compared to those that didn’t.

Tether has remained mum on the topic of their involvement in Bitcoin’s rapid price ascent, as has the CFTC. The mutual silence is significantly more awkward considering the string of high profile subpoenas served Bitfinex and Tether by the CFTC in 2017.

The companies have jointly refused to address any pending investigations of which they are considered a subject, referring to such investigations as “routine.” Ultimately, Tether may have to answer, not just for Bitcoin’s rapid surge, but also its equally swift fall to a per-coin valuation just above $6,000.

 

[New York Times] [Techspot] [Bloomberg]