The Bitcoin community is now facing a fresh theory about the astonishing boom of 2017, with renewed scrutiny on Tether (USDT). This theory suggests that a coordinated campaign of price manipulation may have contributed to at least half of Bitcoin’s price surge that year. Nathaniel POPPER from The New York Times recently published an insightful article exploring this idea.
In a new paper, John GRIFFIN, a finance professor at the University of Texas, argues that Bitcoin’s price may have been artificially driven up. The study suggests that a few key players potentially used the cryptocurrency exchange Bitfinex to inflate the price. The New York Times reports:
Mr. Griffin analyzed the movement of digital tokens on Bitfinex, identifying specific patterns that indicate someone, or a group, may have acted to prop up prices when they dipped on other exchanges. To do this, they allegedly utilized Tether—a digital currency created and distributed by Bitfinex’s owners—to buy up other cryptocurrencies.
Although the paper provides a well-founded theory backed by publicly available data, it doesn’t definitively prove the manipulation claim. John GRIFFIN is well-regarded for his success in uncovering fraud in financial markets, lending weight to his findings. Previously, a study by Israeli and American researchers argued that much of Bitcoin’s notable price rise in 2013 resulted from price manipulation on Mt. Gox, which was then the largest cryptocurrency exchange.
In 2017, John Griffin, a finance professor at the University of Texas McCombs School of Business, stumbled upon something peculiar. Griffin’s focus differs significantly from that of most business school finance professors, who typically study topics like the impact of business cycles on commodity prices or how Federal Reserve policies influence interest rates. Standing at 6-foot-2 and a former high school football star, Griffin considers himself a moral investigator. As he explained to Fortune, his mission is to “expose financial wrongdoing, illuminate the world, and uncover dark practices in the markets.” Following the Great Financial Crisis, Griffin embraced Christianity, dedicating his distinguished career to meticulous forensic research that has uncovered issues ranging from insider trading and mortgage fraud to the manipulation of bond ratings during the crisis.
In 2017, while Griffin and Amin Shams—a then-doctoral candidate at McCombs who has collaborated with Griffin on various financial investigations—were examining market anomalies, they noticed unusual activity. A relatively obscure token, supposedly backed one-to-one by the U.S. dollar, was being issued in large quantities. They uncovered another clue: Bitcoin’s price seemed to rise every time a new batch of the token was released. This suggested that someone, or a group, might have been using this freshly minted “free money” to artificially inflate Bitcoin’s value for personal gain. Analyzing 200 gigabytes of trading data—an amount equivalent to two years’ worth of Smithsonian Institution archives—they traced trades across 2.5 million digital wallets.
Their groundbreaking 2018 study revealed that a single, yet unidentified, Bitcoin “whale” was likely behind the massive price surge in late 2017 and early 2018, manipulating the market to drive the cryptocurrency’s unprecedented gains.
By late 2022, Griffin’s attention was drawn to another puzzling pattern. Despite the crypto crash and other negative pressures, Bitcoin consistently rebounded whenever it dipped below $16,000, remaining stubbornly between $16,000 and $17,000. Remarkably, as the broader crypto market deteriorated into 2023, Bitcoin defied the trend, climbing 35% from January 7 to reach $23,000.
“This is highly suspicious,” Griffin told Fortune. “The same mechanisms we observed in 2017 may still be influencing the unreal Bitcoin market.”
Griffin hypothesizes that the unusually stable Bitcoin price amid a turbulent crypto landscape might be the result of coordinated efforts to prop up the token. “If you’re a crypto manipulator, you’d aim to establish a price floor,” Griffin explained. “Even in periods of extremely negative sentiment, Bitcoin has shown strangely resilient price levels.”
Signs of manipulation remain inconclusive
To date, no definitive evidence of manipulation has emerged. “The market is larger now, making it harder to analyze the data,” Griffin noted. “Sophisticated players could be better at masking their activities.” Credible leaks, however, suggest that major crypto players occasionally convene to address industry risks. For instance, it’s well-documented that Binance CEO Changpeng Zhao and other crypto leaders urged Sam Bankman-Fried to halt activities they believed endangered Tether (USDT), a key stablecoin. Interestingly, Tether was also central to the manipulation Griffin and Shams uncovered in 2017-18.
Legal battles and bankruptcy proceedings within the crypto sector could expose covert practices. “Now that SBF is facing charges, he might implicate other players,” speculated Alex de Vries, an economist at the Netherlands’ central bank and founder of Digiconomist, which monitors Bitcoin’s environmental impact. Meanwhile, disputes between Digital Currency Group and Gemini’s Winklevoss twins over $900 million in owed funds could unveil further secrets as former allies square off in court.
Skepticism about Bitcoin’s recent stability is widespread. In a November 30 blog post, European Central Bank officials called Bitcoin’s recovery “an artificially induced last gasp.” Similarly, two prominent Wall Street figures privately described the price action as inconsistent with free-market behavior.
Bitcoin defies the odds
Bitcoin’s recent performance has been remarkably steady. Between November 10 and January 11, the cryptocurrency largely traded between $16,000 and $17,000, diverging from its historically volatile nature. This calm period, which coincided with the aftermath of the FTX debacle, marked Bitcoin’s narrowest 50-day trading range since 2017. After January 11, Bitcoin surged by 28% in just two weeks, climbing to $23,000.
Despite the FTX collapse and other negative developments, Bitcoin’s rebound has benefited key industry players. Companies like MicroStrategy and exchanges like Coinbase have seen their valuations recover significantly. MicroStrategy, for instance, avoided severe financial trouble as Bitcoin’s resurgence pushed its holdings back into the black, with its stock price climbing 55% since mid-November.
For the crypto world, which operates on razor-thin margins, Bitcoin’s price recovery has been a lifeline. While much of the industry has unraveled, the token’s newfound stability has prevented further collapses among its biggest players.