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Bitcoin prices were manipulated

14 June 2018

Bitcoin isn't all it has been cracked up to be, according to a new report by a University of Texas professor. Their paper seems to confirm what many have believed for months, if not years, that cryptocurrency markets are susceptible to manipulation.

The findings add to the growing concerns that Tether was used to artificially inflate Bitcoin for the benefit of a small group of big cryptocurrency holders, putting the rest of the market at risk.

Bitcoin up almost 3% since the beginning of the day, capped by $6,500.

A study by the Department of Finance at the University of Texas at Austin finds that the Bitcoin price through much of 2017 was directly manipulated through the use of Tether, the largest stablecoin by market cap and adoption. This has been widely rumored within the cryptocurrency community for ages, but the study lends an air of academic credibility to the claims.

The paper by John Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student, is likely to stoke a debate about how much of bitcoin's skyrocketing gain previous year was caused by the covert actions of a few big players, rather than real demand from investors.

"Tether issuances can not be used to prop up the price of Bitcoin or any other coin/token on Bitfinex", Jan Ludovicus van der Velde, Bitfinex's chief executive, said in a statement.

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The Commodity Futures Trading Commission subpoenaed both Bitfinex and Tether in December, over concerns about if Tether is actually by the reserve of USA dollars it claims it has. "These effects are present only after negative returns and periods following the printing of tether".

Both Tether and Bitfinex have regularly come under suspicion over price manipulation in recent months.

The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends.

Other large virtual currencies that can be purchased with Tether, such as Ether and Zcash, rose even more quickly than bitcoin in those periods. That's probably because these price levels might be psychologically important.

"We investigate whether Tether is primarily demand-driven from investors, or supply-driven by Tether issuers pushing the currency on the market". The paper alleges that these instances may account for about 50% of the price increases of Bitcoin and 64% of others trading in the top ten. Evidence of price manipulation was found in all of those, too.

Bitcoin prices were manipulated