Most of the world wasn’t familiar with Bitcoin until last year when it reached heights yet unforeseen, even by cryptocurrencies. The price just kept rising right up until it hit north of $20,000. And then, predictably, it plummeted. John Griffin, Professor of Finance at the University of Texas, says the rise was due to artificial inflation.
In a paper called, “Manipulation in the VIX”, co-authored with graduate student Amin Shams, Griffin lays out the evidence for his claim. Key covert players at the cryptocurrency exchange Bitfinex, bumped up the price of Bitcoin consistently when the price fell at other exchanges. This led to an unprecedented boom.
An analysis of the digital tokens flowing in and out of the exchange revealed that Tether, another cryptocurrency created by the owners of Bitfinex, was used to buy up other cryptocurrencies. According to Griffin, half of Bitcoin’s price rise could be traced to the hours immediately after Tether flowed to other exchanges from Bitfinex.
Bitfinex was subpoenaed by American regulators shortly after articles voicing these concerns were published. Bitfinex is one of the largest and least regulated crypto-exchanges in the world. It has denied these allegations. The firm is registered in the Caribbean and has offices in Asia.
John Griffin has previously written about the manipulation of financial markets. A 2016 paper by him suggested that VIX, the future market Volatility Index at Wall Street was being manipulated. A whistleblower later came forward to confirm these claims.