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November 4, 2019

A single mysterious player on the cryptocurrency exchange Bitfinex appears to have massively manipulated the price of Bitcoin in 2017, a new academic paper claims.

The peer-reviewed study is an updated version of a 2018 paper investigating if a stablecoin called Tether influenced the values of the cryptocurrency Bitcoin during its unprecedented boom back in 2017, when the price of a single coin spiked in price to almost $20,000.

The fresh updates were first reported by Bloomberg and The Wall Street Journal and are likely to add fuel to the ongoing federal investigations into allegations of cryptocurrency market manipulation.

Authored by University of Texas Professor John Griffin and Ohio State University Professor Amin Shams, the paper, Is Bitcoin Really Un-Tethered, examines transactions of Tether and Bitcoin stored on their blockchains from March 2017 to March 2018.

It found purchases of Bitcoin on Bitfinex jumped when Bitcoin value fell by “certain increments” and noted the existence of “one large player” who was toying with circulation, Bloomberg noted.

“Biggest implication? Crypto can be pushed around easily by big whales,” Griffin told Newsweek today. “It’s not an efficient vehicle for ETFs [exchange-traded funds].”

Tether is a cryptocurrency that claims to be stable, meaning that its values are not as susceptible to the instability seen in rival coins. It claims to be pegged 1-to-1 with the U.S. dollar (as in 1 Tether is equivalent to one U.S. dollar) while being backed 100 percent by its own reserves.

Bitfinex is a major crypto trading platform which, according to the New York Attorney General’s office, is “owned and operated by the same small group of individuals” as Tether. The academics did not name the whale responsible for manipulation, but the findings were damning.

The new 43-page research paper says: “By mapping the blockchains of Bitcoin and Tether, we are able to establish that one large player on Bitfinex uses Tether to purchase large amounts of Bitcoin when prices are falling and following the printing of Tether. Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention.”

“We find that one large player is associated with more than half of the exchange of Tether for Bitcoin at Bitfinex, suggesting that the distribution of Tether into the market is from a large player and not many different investors bringing cash to Bitfinex to purchase Tether.”

Tether and Bitcoin are closely linked, with CryptoCompare analysis cited by The Wall Street Journal indicating more than 70 percent of Bitcoin trading is in exchange for Tether.

The culprit remains unknown, as are the amounts of profit—if any—received from the suspected scheme. “If it’s not Bitfinex it’s somebody they do business with very frequently,” Griffin told Journal, which noted how Bitcoin’s overall market value in 2017 reached an unprecedented $326 billion.

As reported by Bloomberg, the paper suggested that Bitcoin prices can be manipulated by Tether coins being created without adequate reserves of U.S. dollars. In theory, the new Tether coins are then used to buy Bitcoin—which results in the overall Bitcoin value increasing.

One of the authors’ main hypotheses posited that Bitfinex creates Tether regardless of demand from cash investors. As such, any “additional supply of Tether can create an inflation in price of Bitcoin that is not from a genuine capital flow,” the researchers noted.

This article originally appeared on To read the full article and see the images, click here.

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