Last Year’s Bitcoin Rally to $20,000 Could Be Due to Manipulation
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On Tuesday, Bitcoin continued sliding while losing over 35% of its value this month alone. Therefore, US regulators are now looking to see if Bitcoin’s rally last year was due to market manipulation.
According to Bloomberg, the US Justice Department is now looking to see if traders used the controversial cryptocurrency known as a Tether (USDT) – which is said to be backed by US dollar – to pump Bitcoin’s price. The federal prosecutors are suspecting that some traders using the well-known exchange Bitfinex might have used Tether to drive prices higher illegally.
Furthermore, during December 2017, the Commodity Futures Trading Commission (CFTC) requested to review and audit Tether and Bitfinex, who share many of the same executives, in order to prove that the US dollar actually backs the Tether tokens.
Many tricks could have led Bitcoin to higher prices, and these include “spoofing.” This means placing fake orders on certain prices to show that the demand is extremely high. After traders see the book order, which shows all the bid and sell orders, they will immediately assume that the demand is high, and more and more traders will buy Bitcoin. Eventually, prices will rise, and those fake orders are then removed.
John Friggin, a finance professor at the University of Texas, mentioned in a published study that half of the jump in Bitcoin’s prices was due to price manipulation. The main objective of the research paper was to investigate whether Tether had any influence on Bitcoin and other cryptocurrency prices during the 2017 rally.
Although Tether is supposed to reflect the price of one US dollar, it usually trades below. According to CoinMarketCap, Tether (USDT) is currently trading at $0.982. However Bitcoin (BTC), after the recent drop in prices, is trading at $4,452 at time of writing, which means that the digital coin has lost over 70% of its total value from the all-time highs.