Bitcoin’s meteoric price spikes in 2017 were fueled by market manipulation and not merely investor enthusiasm. That’s the conclusion of University of Texas finance professor John Griffin.
In his 66-page research paper entitled Is Bitcoin Really Un-Tethered?, Griffin said at least 50 percent of the increase in bitcoin prices in 2017 was manipulated using tether, another cryptocurrency pegged to the U.S. dollar.
Professor Griffin, who specializes in spotting financial fraud, said circumstantial evidence suggests there was coordinated price manipulation designed to keep bitcoin prices artificially high.
Griffin said tether was used numerous times to buy bitcoin on the cryptocurrency platform Bitfinex after its price slipped.
“It was creating price support for bitcoin, and over the period that we examined, had huge price effects,” Griffin told CNBC. “Our research would indicate that there are sophisticated people harnessing investor interest for their benefit.”
Was Bitcoin’s Price Artificially Inflated?
Griffin said the alleged market manipulation also artificially inflated the prices of other cryptocurrencies. Analysts have expressed concern about tether’s opaqueness.
“The lack of transparency surrounding tether raises red flags for me,” said software engineer Dan Ciotoli, a blockchain analyst at Bespoke Investment Group. “It’s probable that tether issuance made significant contributions to artificially high bitcoin prices seen last year.”
Bitfinex, which is registered in the Caribbean, is one of the world’s largest crypto exchanges. J.L. van der Velde, the CEO of Bitfinex, denied any market manipulation occurred.
“Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation,” van der Velde told CNBC. “Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.”
Bitcoin prices, which started in January 2017 at roughly $1,000 a coin, skyrocketed to almost $20,000 in December 2017. It has since plunged to about $6,300 despite speculation from market experts that it would rebound this month.
In May 2018, the Department of Justice launched an investigation into bitcoin price manipulation, as the Inquisitr has reported.
The move has been praised by some crypto evangelists, including the Winklevoss twins, Cameron and Tyler, and Mike Novogratz, the founder of startup crypto merchant bank Galaxy Digital.
Bitcoin Price-Manipulation Probe Praised By Mike Novogratz, Winklevoss Twins, And Tom Lee. The Department of Justice is investigating bitcoin price manipulation amid its erratic movements. #Economy #Business https://t.co/2VD9L5RXyh— INQUISITR (@theinquisitr) May 24, 2018
Proponents of greater regulatory scrutiny say some regulation of the currently-unregulated market will help — not hurt — the industry by ridding it of scam artists and legitimizing the market.
Avowed bitcoin bull Tom Lee, co-founder of Fundstrat Global Advisors, agrees with the Winklevoss twins and Mike Novogratz. “This is really welcome news ultimately because this means there is adult supervision coming,” Lee said.
While bitcoin’s erratic daily price fluctuations have garnered countless headlines, they also triggered regulatory scrutiny and the disdain of many top business leaders, such as billionaires Warren Buffett and Bill Gates.
Both Buffett and Gates have trashed bitcoin and the entire crypto market as speculative gambling that only attracts criminals.
“In terms of cryptocurrencies, I can say with almost certainty that they will come to a bad ending,” Buffett warned. “When it happens or how or anything else, I don’t know.”
So is Buffett right to be so skeptical? Only time will tell.