Despite Being Decentralized, Bitcoin is Subjected to Manipulation

Crypto investors and enthusiasts all the world have not forgotten the bull run of 2017 when the largest cryptocurrency of the world by market cap, bitcoin, reached its all-time high (ATH). While investors and enthusiasts are still waiting for another bull run, a new shocking fact about the last bull run comes into the light.

According to John Griffin, University of Texas professor, and Amin Shams, a professor at Ohio State University, a single investors ‘whale’ was responsible for the price surge of bitcoin back in 2017. While both professors previously told that bitcoin price was manipulated before, they both are now of the view that a single investor possesses the power to manipulate the price of bitcoin. In this regard, Griffin stated:

Our results suggest instead of thousands of investors moving the price of Bitcoin, it’s just one large one. Years from now, people will be surprised to learn investors handed over billions to people they didn’t know and who faced little oversight.

The professors further elaborated that whenever the price of bitcoin fell below a certain threshold, one entity on Bitfnex, a crypto exchange, pushed the price upwards. Furthermore, the professors also explained that Tether, a cryptocurrency, is used to pump the price of bitcoin.

READ ALSO: Bitcoin and Libra – Let’s settle the debate

Griffin and Shams have studied the transaction period of bitcoin and Tether from 1 March 2017 to 31 March 2018 and concluded that tether, a stable coin, isn’t backed by the U.S dollar. In addition to that, the professors said that tether created without dollar was ultimately used to buy bitcoin whenever the price of bitcoin dropped down to a certain level.

Apart from that, it was noted that whenever the price of bitcoin dropped down, bitcoin buying at Bitfinex increased rapidly. Not enlightening the name of bitcoin whale buying bitcoin on Bitfinex, the professors elaborating on the pattern of bitcoin purchases stated:

This pattern is only present in periods following printing of Tether, driven by a single large account holder, and not observed by other exchanges.

They further added:

Simulations show that these patterns are highly unlikely to be due to chance. This one large player or entity either exhibited clairvoyant market timing or exerted an extremely large price impact on Bitcoin that is not observed in aggregate flows from other smaller traders.

As bitcoin is considered a truly decentralized cryptocurrency, the price of bitcoin should only be impacted by the fundamentals of supply and demand. However, even if the price of bitcoin obeys the fundamentals, its control resting in the hands of one entity makes bitcoin like any other fiat currency, capable of being manipulated easily.

READ ALSO: Is Bitcoin a Secure Payment Method?


Hassaan Malik

Co-founder of BlockPublisher, Hassaan is a technologist at heart with a keen interest in blockchain, cryptos and traditional financial markets. Email: hassaan@blockpublisher.com, hassaanmalek@gmail.com

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.