Get All Access for $5/mo

New Research Shows Bitcoin's Meteoric Rise Was a Scam Crypotocurrencies are the latest in a centuries-long line of speculative bubbles driven by shrewd insiders taking advantage of gullible investors.

By Peter Page

Mark Garlick/Science Photo Library | Getty Images

Academic researchers at the University of Texas have concluded at least half of Bitcoin's rise to a peak price of nearly $20,000 last year was due to manipulation by traders on Bitfinex, the primary Bitcoin exchange, using another cryptocurrency called Tether to boost prices when they dipped on other exchanges.

The paper by John Griffin, a finance professor at the University of Texas, and graduate student Amin Shams, examined trading between March 2017 and March 2018 with particular focus on 87 periods each lasting one hour when Tether, which is issued exclusively by Bitfinex, flowed onto other exchanges when the price of Bitcoin was dropping. "These 87 events account for less than 1 percent of our time series (over the period from the beginning of March 2017 to the end of March 2018), yet are associated with 50 percent of Bitcoin's compounded return, and 64 percent of the returns on six other large cryptocurrencies (Dash, Ethereum Classic, Ethereum, Litecoin, Monero and Zcash),'' the researchers wrote.

Related: 4 Pros and Cons of Investing in a New Cryptocurrencies

The researchers ran 10,000 trading simulations and concluded "this behavior never occurs randomly."

"There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases," Griffin told the New York Times, where the paper was first reported.

Trading on Bitfinex, which is registered in the Caribbean with offices in Asia, is largely unregulated by any government. Bitfinex CEO JL van der Velde denied any wrongdoing in a statement to Business Insider. "Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex," van der Velde said.

The researchers noted cryptocurrencies bear a striking similarity to well-researched investment bubbles stretching from the 18th century to the and housing crashes of recent years. "Cryptocurrencies, which have grown from nearly nothing to over $300 billion in market capitalization in a few years, fit the historical narrative of previous bubbles quite well -- there is an innovative technology with extreme speculation surrounding it.''

Related: Government Shuts Down Cryptocurrency Pyramid Scammers

The historical pattern the researchers allude to stretches back centuries. While the assets change -- the scam remains remarkably similiar. "Periods of excessive price speculation often share the themes of optimism around a new technology, focusing on selling to others rather than economic fundamentals, and questionable activities," the researchers wrote. They cited the South Sea Bubble 1719-1720 and Railroad Bubble of the 1840s as early examples of investors being stampeded into buying stock in an unregulated investment based on false claims and pure exuberance.

While the lack of regulation by any government appeals to some cryptocurrency enthusiasts, the authors of the research suggest only regulation can stabilize crypto markets. "Our findings suggest that market surveillance within a proper regulatory framework may be needed for cryptocurrency markets to be legitimate stores of value and a reliable medium for fair financial transactions,'' they wrote.

Bitcoin was trading below $6,500 after the publishing of the New York Times article.

Peter Page

Entrepreneur Staff

Senior Editor for Green Entrepreneur

Peter Page's journalism career began in the 1980s in the Emerald Triangle writing about the federally-funded Campaign Against Marijuana Planting. He now writes and edits for Green Entrepreneur.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business Solutions

Increase Productivity with This Microsoft 365 Subscription, Now $25 Off

It can make the entrepreneur life a lot easier.

Business News

Apple Pay Later Is Ending. Here's What's Taking Its Place.

The program was available for less than a year.


This Artist Answered a Businessman's 'Powerful' Question — Then His Work Became 'the Poster Child for Juneteenth': 'Your Network Really Becomes Your Net Worth'

Reginald Adams was the executive director of a Houston-based art museum for more than a decade before he decided to launch his own public art and design firm.


Harvard Business School Professor Says 65% of Startups Fail for One Reason. Here's How to Avoid It.

Team alignment isn't nice to have -- it's critical for running a successful business.

Business News

Here's What Companies Are Open and Closed on Juneteenth 2024

Since it became a holiday in 2021, Juneteenth has been recognized by some major corporations as a paid day off.

Growing a Business

I Hit $100 Million in Annual Revenue by Being More Transparent — Here Are the 3 Strategies That Helped Me Succeed

Three road-tested ways to be more transparent and build relationships that can transform your business — without leaving you feeling nightmarishly over-exposed.