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Could One "Whale" Really Have Caused Bitcoin's Rally in 2017?

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Next month will mark two years since bitcoin hit its all-time high just shy of $20,000. Plenty of people have taken a stab at explaining what happened. Every so often an article or research paper pops up that grabs people's attention.

Last year, University of Texas finance professor John Griffin and a graduate student, Amin Shams, gained attention when they published a research paper saying bitcoin's surge to its highs was a result of manipulation. They claimed at least half of bitcoin's 2017 gains were a result of coordinated price manipulation using another cryptocurrency called tether. The paper suggested tether was used to purchase bitcoin when it was declining, which helped "stabilize and manipulate" bitcoin's price.

"It was creating price support for bitcoin, and over the period that we examined, had huge price effects," Griffin said. "Our research would indicate that there are sophisticated people harnessing investor interest for their benefit."

The two are back with a follow-up to their paper, which is grabbing just as much attention, if not more. Griffin and Shams, who is now a professor at the Ohio State University, believe the manipulation they previously wrote about was a result of "one large player."

"We find that the identified patterns are not present on other flows, and almost the entire price impact can be attributed to this one large player," Griffin and Shams wrote.

They were unable to identify the player, but believe it is "one large account at Bitfinex." They also suggest Bitfinex was aware of the single player causing the supposed manipulation and possibly even part of their scheme.

Both Bitfinex and Tether, which are owned and operated by the same people, are currently being investigated by the Department of Justice for fraud. A $1.4 trillion, yes trillion, class action lawsuit was filed against them last month. Bitfinex, responded to the research report saying the research "lacks academic rigor."

So while this study is certainly interesting it would be even more interesting to see them conduct a similar study on other popular markets and products. Perhaps they could look into whether a large "whale" is behind the daily S&P 500 ramps each morning at the open and into the close or who slams VIX on a daily basis.

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