The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late past year. "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".
Bitcoin fell to its lowest price since February 6 on Wednesday, to $6,371, as it struggles to find a stable support level.
According to the researchers at the University of Texas, the cryptocurrency Tether was allegedly used by the Bitfinex exchange to support the price.
In addition, the paper provides evidence that Tether's reserves are lacking in comparison to the amount of USDT in circulation, based off patterns found in the issuance of new USDT tokens and price movements. The researchers relied on the millions of transaction records that are captured on the public ledgers of all virtual currency transactions, known as the blockchain, to spot patterns.
In particular, Mr Griffin and Mr Shams examined the flow of Tether, a token that is supposed to be tied to the value of the U.S. dollar and that is issued exclusively by Bitfinex in large batches. However, the currency may have had another shady goal; large amounts of Tether were also used buy Bitcoin, which propped up its value, the researchers claim.
Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices.
On Monday, researchers from the University of Texas at Austin published a study indicating that Tether was used to unduly influence bitcoin's 2017 ascent. New analysis indicates that this is one of the most important factors that drove bitcoin's rally a year ago.
Mr Griffin previously wrote research pointing to fraudulent behaviour in several other financial markets. Later, a whistleblower came forward to confirm those allegations.
"Overall, the findings indicate that Tether is closely linked to Bitcoin price appreciation, and question the goal of Tether".
"It is great to see academic work trying to causally assess if market manipulation is taking place".
"There were obviously tremendous price increases previous year, and this paper indicates that manipulation played a large part in those price increases".