New Research Says Crypto Prices Are Being Manipulated

If there’s one constant about cryptocurrency, it’s volatility. Many people wonder if it’s possible to track the things that cause price fluctuations, asserting that if they could, making the all-important decision about when — or if — to invest would be more straightforward.

According to a research paper about Bitcoin prices by a finance professor and graduate student from the University of Texas at Austin, coordinated efforts from cryptocurrency exchanges may be the driving force behind the jumps upward.

Details of the Study

The scientists realized when the Bitfinex exchange used a cryptocurrency called Tether to buy Bitcoins, they could push the Bitcoin prices up by four basis points per 100 Bitcoins.

They also point out the research shows these purchases were not randomized, and they were most likely to happen after Bitcoin prices fell. During those times, Bitfinex bought 72 extra Bitcoins.

The team also looked at 87 hours representing the largest flows of Tether and Bitcoin, and found the following periods showed a price increase of about $7,000 — more specifically, a jump from $1,000 to $8,000.

However, an analyst with an opposing view on the published paper points out the four-basis-point change represents less than 1 percent of the total variance associated with Bitcoin.

Also, although the researchers used 20 data points to support their finding of the purchases of 72 Bitcoins, that’s about 10 short of the amount per parameter that typically translates to reliable results.

Contrasting Findings Related to Bitcoin Prices

When investigating Bitcoin rates and what influences them, people also keep a close eye on the so-called “whales” — individuals or entities that hold substantially higher-than-average amounts of cryptocurrencies. Since the ocean is a metaphor for the cryptocurrency market, the analogy makes sense.

It’s not difficult to find opinions from people who think the Bitcoin bubble is about to burst. One common line of thought was that a growing trend suggested whales were hastily selling off their assets to new and less-informed Bitcoin investors, hoping to get rid of the Bitcoins before the bottom dropped out and the whales lost their accumulated wealth.

There was speculation such quick sell-offs were another factor causing market manipulation, especially since 1,000 whales account for approximately 40 percent of the Bitcoin market.

However, a person or group using the BambouClub handle on Twitter cited evidence that the whales are holding onto their wealth and not selling it.

Then, in case anyone wanted more food for thought on this issue, representatives from the Stevens Institute of Technology released a study concluding that the “silent minority,” or the social media users who took time to infrequently post positive comments about Bitcoin, influenced prices up to 10 times more than the people who regularly and vocally weighed in on Bitcoin.

Part of the research involved collecting 3.4 million tweets about Bitcoin, plus analyzing posts from Bitcointalk, which is considered the most popular online Bitcoin forum.

The scientists cautioned one of the reasons some social media users are particularly excited about something related to cryptocurrency is because they’ve invested in it, and they therefore have an agenda.

Other academics have looked for signs of manipulation related to the best-known Bitcoin crashes and found suspicious — though some argue inconclusive — evidence. They point out that even the possibility of price manipulation could make would-be investors wary and reluctant to put their trust in cryptocurrencies.

Still a Lot to Learn

These conflicting findings about Bitcoin prices emphasize how there is a significant amount people don’t understand regarding the cryptocurrency market at large. That’s partially because it’s still a relatively new investment option and the long-term data about price changes — and anything else about the topic — doesn’t exist yet.

However, as more information becomes available, it should gradually get easier for people to draw well-informed conclusions about cryptocurrencies, their prices and whether now is a good time to invest.

Kayla Matthews is a cryptocurrency and technology writer. Her work has been published on Bitcoin Magazine, The Cointelegraph and Nasdaq.com, among others. To read more posts by Kayla, visit her blog Productivity Bytes or check out her About Me page to see her latest projects.