Report: The bitcoin boom may have been caused by price manipulation

It was a mere seven months ago when bitcoin was raging and crypto-enthusiasts were riding a high. And then the price of the cryptocurrency dropped. In December of last year, the price of one bitcoin hit nearly $20,000. Today it’s worth a little under $6,500–and that price keeps fluctuating. So what happened?

According to a new paper by University of Texas finance professor John Griffin and graduate student Amin Shams, the price may have been artificially inflated. In essence, the paper posits a theory that a select few used the cryptocurrency exchange Bitfinex to manipulate the price. The New York Times writes:

Mr. Griffin looked at the flow of digital tokens going in and out of Bitfinex and identified several distinct patterns that suggest that someone or some people at the exchange successfully worked to push up prices when they sagged at other exchanges. To do that, the person or people used a secondary virtual currency, known as Tether, which was created and sold by the owners of Bitfinex, to buy up those other cryptocurrencies.

These patterns, the paper says, correlate with Tether–a coin that is exclusively issued by Bitfinex–being pushed to other cryptocurrency exchanges while the price of bitcoin was dipping. After this happened, bitcoin would often see a large surge. What’s more, these crazy price increases stopped completely when Bitfinex stopped offering new Tether coins.

Bitfinex has been questioned before about its role in manipulating the price of bitcoin. In the past, it’s denied any involvement.

This paper presents a credible theory based on solid publicly available evidence, but it doesn’t prove anything for sure. For example, the Times points out that the authors do not have any internal documents proving intent from Bitfinex. Still, this will surely set off a big debate in cryptocurrency circles–especially among people who are hoping for another bitcoin surge.

You can read the paper here.