The meteoric rise of bitcoin prices at the end of last year may have gotten an assist from a rival cryptocurrency and a shady brokerage. That’s according to a new paper from researchers at the University of Texas Austin which found evidence of systemic and artificial price manipulation using a token called Tether.

A study is not necessarily proof — Jan Ludovicus van der Velde, CEO of the Bitfinex Exchange which issues Tether — denied these allegations in a statement to Inverse. That said, it’s worth noting that the researchers behind the report have a bit of a track record for sniffing out financial fraud like when they provided evidence that the VIX financial index might be rigged in February.

What Is Tether and How Does It Work

Tether is one of the world’s most traded cryptocurrencies. What makes it particularly unique is that it is backed by U.S. dollars, which was supposed to provide a measure of accountability and peace of mind for its investors. The paper’s authors, John Griffin and Amin Shams, allege that at least some of that pile of cash was used to buy and sell bitcoin at opportune moments helping to inflate the price

“We find that Tether has a significant impact on the cryptocurrency market,” states the paper. “Tether seems to be used both to stabilize and manipulate Bitcoin prices.”

Tone Vays, a JP Morgan alum turned crypto trader, tells Inverse that while Tether may have indeed helped bolster price of bitcoin, the frenzied mindset of buyers immersed in a speculative asset bubble was still the chief cause, pointing out that the amount of available tether and bitcoin’s price are hardly perfectly correlated.

“Tether contributed to the rise of the price of bitcoin, but no one forced anyone to buy it at $15K or $16K,” he tells Inverse. “What goes up must come down, and bitcoin overshot on the upside.”

tether bitfinex bitcoin maniupulation
This figure shows the aggregate flow of Tether between major exchanges and market participants

The paper goes on to assert that nearly half of bitcoin’s price spikes last year were primarily driven by the cryptocurrency exchange, Bitfinex. Both the trading platform and Tether share common shareholders.

Bitfinex’s relationship with the cryptocurrency has been subject to criticism in the past, this paper provides the most concrete evidence to substantiate these claims yet.

“Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation,” Bitfinex’s van der Velde said in the emailed statement. “Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.”

tether price
Tether is advertised as a stable investment, as opposed to bitcoin's volatility, because it is supposed to be pegged to the U.S. Dollar. But Griffin's paper have led to some doubt about this claims.  

The paper claims that Bitfinex mints Tether “regardless of the demand from investors with fiat currency to purchase.” This raises some speculation about whether the cryptocurrency that is supposed to be tethered to the USD is in fact being held in reserve.

“The big question mark over Tether is whether there really is a dollar for every Tether backing it somewhere in some bank,” he said. “The idea of Tether is basically identical to the idea of e-gold in the 90s, where you have a bunch of backing to an asset that is used anonymously on the internet.”

Though the paper is unlikely to burnish Bitfinex’s reputation, the platform is showing no signs of halting operations. In fact, the exchange just hired a new Chief Compliance Officer in May, according to the company’s press page.