A recent paper by John Griffin – an academic with a knack for sniffing out fraud in the financial markets was recently released, saying that price manipulation could have accounted for a large portion of the increase in the price of Bitcoin and other major cryptocurrencies last year.
The paper, which was written by the finance professor at the University of Texas, and a graduate student by the name of Amin Shams, claims that the significant price increase of Bitcoin, and other major cryptocurrencies was the result of moves made by a few big players in the market, and that the increase did not accurately portray the actual demand of investors in the cryptocurrency space.
Of the many concerns that were expressed by major industry investors, one of the outstanding concerns was that Bitfinex may have played a big part in pushing up prices. Bitfinex, which is incorporated in the Caribbean and operates from multiple offices in Asia, is one of the biggest cryptocurrency exchanges in the market. Shortly after articles were published about these concerns, American regulators issued a subpoena to Bitfinex.
According to Griffin, he noticed certain patterns in the flow of digital tokens that were taking place while studying the flow of transactions on Bitfinex which suggested a concerted effort to boost token prices when these prices fell at other exchanges. To facilitate this, a token known as Tether – created by Bitfinex, was used to buy into the falling tokens.
Griffin went on to state that the price increases were obvious and that his paper would indicate that price manipulation played an evident role in it.
On the other hand, several executives of Bitfinex have also released statements denying that Bitfinex was involved in any form of price manipulation. Bitfinex mentioned that the Tether token cannot be used to pump the price of Bitcoin or any other cryptocurrency on Bitfinex.
An argument that supporters of Bitfinex have put forth is that the authors of the academic paper do not have any concrete evidence or actual documents that can show that Bitfinex was involved in price manipulation. John Griffin and his team of researchers relied on transaction records of all cryptocurrency transactions to sniff out patterns, which can be deemed as inconclusive. However, the published paper was still able to help government authorities to take action based on suspicious activity.
In the paper, Griffin and Shams claimed that a large portion of the price increase of Bitcoin in 2017 occurred shortly after Tether moved to a number of other exchanges when price was falling. Another pattern that was spotted, was that the prices of other major currencies like Ether and Zcash, which can be purchased with Tether, rose even more rapidly in those same hours. It could be seen that prices seemed to rise more rapidly on exchanges where Tether could be traded, and that the observed patterns stopped only when Bitfinex stopped releasing new Tether.
In previous publications, John Griffin has also been known to have written academic papers that pointed to fraudulent patterns in other financial markets. John Griffin’s newly published paper is not the first to have mentioned about price manipulation in the cryptocurrency markets. A paper that was published in 2017 by a team of Israeli and American researchers also made claims that the 2013 price increase in Bitcoin was caused by a focused effort of price manipulation by Mt. Gox.