Why did Bitcoin and several other cryptocurrencies suddenly balloon in value last year? Price manipulation and collusion may be to blame.

New research claims that a trio of cryptocurrency exchanges likely inflated Bitcoin's value by buying it up whenever the price began to fall. The manipulation was so successful that it accounted for at least 50 percent of the gains Bitcoin and other cryptocurrencies such as Ethereum made over the last year.

The findings come from University of Texas at Austin professor John Griffin and graduate student Amin Shams, who examined the role of another cryptocurrency called Tether, which is pegged to the US dollar. Several exchanges have been using Tether as a way to quickly facilitate fund transfers, replacing the need to depend on banks. However, the currency may have had another shady purpose; large amounts of Tether were also used buy Bitcoin, which propped up its value, the researchers claim.

"Overall, we find that Tether has a significant impact on the cryptocurrency market. Tether seems to be used both to stabilize and manipulate Bitcoin prices," they wrote in their paper, released on Wednesday.

The researchers analyzed 87 of the largest Bitcoin purchases made with Tether from March 2017 to March 2018. These purchases alone accounted for 50 percent of the cryptocurrency's compounded gains, when its value skyrocketed from $1,200 to around $10,000.

"Across the six other crypto currencies, returns are 64 percent smaller on average when removing the 87 Tether-related [purchases]," the researchers added.

Bitfinex, a cryptocurrency exchange, distributed Tether and supplied it to other exchanges, mainly Poloniex and Bittrex, the researchers said. Although their findings don't definitively prove collusion or price manipulation, the Tether-Bitcoin buys had obvious benefits.

"When prices are falling, the Tether creators can convert their Tether into Bitcoin in a way that pushes Bitcoin up and then sell some Bitcoin back into dollars to replenish Tether reserves as Bitcoin price rises," the researchers wrote.

The findings add to the growing concerns that Tether was used to artificially inflate Bitcoin for the benefit of a small group of big cryptocurrency holders, putting the rest of the market at risk. Bitcoin's price reached a record high of $20,000 in December, but its value has since dramatically fallen to $6,300. The CEO of Bitfinex, a cryptocurrency exchange, also runs Tether, and in December, a US regulator sent a subpoena to both companies.

To prevent future price manipulation, the researchers say that "external capital market surveillance and monitoring" may be necessary to keep the market free from tampering.

In response to the research, Bitfinex's CEO JL van der Velde told PCMag: "Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex."

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