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Bitcoin’s High Price Last Year Might Have Been Artificially Inflated

June 14, 2018, 3:36 PM UTC

That super high price we saw for Bitcoin last year might have been artificially inflated, according to new research from the University of Texas at Austin.

According to Is Bitcoin Really Un-Tethered?, a paper by researchers John M. Griffin and Amin Shams released Wednesday, price manipulation may have accounted for at least half of the increase in price for Bitcoin and other cryptocurrencies last year.

Using algorithms to analyze blockchain data and purchases made with the cryptocurrency Tether, the findings suggest that Bitcoin’s increase in price was caused by the actions of a few key players rather than a real demand for the currency from investors.

“We find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices,” Griffin and Shams write. “Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies. These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.”

Last year, several industry experts expressed concern that Bitcoin’s high price was being driven, at least in part, by Bitfinex, a Bitcoin exchange that’s registered in the Caribbean. Experts alleged that the exchange was pushing the price of the cryptocurrency up when it was declining in other exchanges, specifically using another cryptocurrency, Tether, which they allegedly used to buy up other cryptocurrencies.

Bitfinex executives have denied their exchange was part of any price manipulations.

Is Bitcoin Really Un-Tethered? is just the latest academic paper to look into the manipulation of virtual currency markets.