Share this article

It’s virtually an open secret that Bitcoin price manipulation was rampant last year, and now we’re a lot closer to proof. An academic paper published on Wednesday, concluded that “at least half” of Bitcoin’s meteoric rise last year was a result of Tether purchases on Bitfinex.

Researchers discovered that the dollar-backed stablecoin was routinely used to prop up Bitcoin prices whenever they seemed to dip, fueling inflation and speculation in the cryptocurrency market.

The study, titled “Is Bitcoin Really Un-Tethered?” compared blockchain data in the hours after large-volume purchases. It found that half of Bitcoin’s rise last year occurred in the hours shortly after large Tether purchases.

There is no direct and conclusive proof in the form of emails or memos that Bitfinex was responsible for the price swings, and correlation is not necessarily causation.

The paper was authored by professor John Griffith and graduate student Amin Shams at the University of Texas. Professor Griffin also works as a financial consultant, and has made a name in identifying financial fraud, the New York Times reports.

These purchases seem to have been intentionally timed to uphold prices. “Entities associated with the Bitfinex exchange use Tether to purchase Bitcoin when prices are falling,” the authors state in the conclusion. “The buying of Bitcoin with Tether also occurs more aggressively right below salient round-number price thresholds where the price support might be most effective.”

The research has already been picked up by the New York Times and Business Insider, and offers confirmation of what most of the crypto community already suspected. Several writers, most notably the blogger Bitfinex’d, have published stark and rarely-heeded warnings about the solvency of the Virgin Islands-based exchange.

Although alarms have been ringing for a while, weaning Bitcoin off its first stablecoin has proved easier said than done. Several companies have introduced their own stablecoins—like True USD and Circle USD—with transparent fiat backing, to provide a more reliable alternative to the USDT. Exchanges have also (slowly) done their part—Binance is moving towards direct trades in Euro and Dollars, and Bittrex has opened itself to fiat purchases as well.

Although Tether has insisted that it has adequate currency reserves, it has never been audited, and the company’s terms of services explicitly state that Tethers may not be redeemed for cash.

The Griffin-Shams study does not argue that Tether is unbacked by dollars, but it doesn’t need to: circumstantial evidence makes the case for them. Until late last year, Tethers were routinely created in hundred-million-dollar print runs. Unless institutional investors are jumping into Bitcoin en masse, and doing so via opaque stablecoins in lieu of over-the-counter trades, many observers will infer that Bitfinex’s accounting books are not balanced.

The patterns noted by the researchers stopped when Bitfinex ceased issuing Tethers.

If these suspicions are true, 2017 may be an exact repeat of 2013. In addition to manipulating prices via bots, Mt Gox was found to have sold more bitcoins than it actually had—a crypto version of fractional reserve banking.

A Bitcoin bubble is something that can be absorbed. A systemic repeat of the failings that led to the cryptocurrency Dark Ages between 2013 and 2017 is not.

Disclaimer: the author is invested in Bitcoin, which is mentioned in this article.