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Published: Jun 13, 2018 5 min read

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Physical version of Bitcoin coin
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Bitcoin fell 2% early on Wednesday, dropping as low as $6,385. Other than one brief period in early February, when the cryptocurrency dipped below $6,000, today marks the lowest point for Bitcoin in 2018.

The latest Bitcoin crash appears to be a reaction to the release of a new study by University of Texas-Austin researchers indicating that Bitcoin prices were manipulated last year—when Bitcoin soared from $800 to nearly $20,000.

The New York Times report on the study explained that a "concentrated campaign of price manipulation may have accounted for at least half of the increase in the price of Bitcoin and other big cryptocurrencies last year."

The research, conducted by University of Texas finance professor John M. Griffin and graduate student Amin Shams, presents evidence that another cryptocurrency called Tether was used to purchase Bitcoin after market downturns, thereby propping up Bitcoin prices.

"Tether seems to be used both to stabilize and manipulate Bitcoin prices," the researchers say in the study.

Tether was created by a crypto exchange called Bitfinex, whose executives strongly denies the claims. "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," Bitfinex CEO J.L. van der Velde said in a message sent to Business Insider.

The University of Texas researchers tracked millions of cryptocurrency transactions last year, and say that the "patterns cannot be explained by investor demand proxies" and instead seemed to arise through the strategic use of Tether.

What's more, this scenario brings with it the possibility of huge profits for Tether creators, the study states: "If Bitcoin prices increase, then the founders can cash out the acquired Bitcoins into dollars, likely at a slower pace and on an opaque channel that has less price impact than their initial buying behavior. If the Tether issuers wish to legitimize Tether and avoid scrutiny, they can convert some of their cryptocurrencies to U.S. dollars and retrospectively provide dollar reserves for Tether."

After skyrocketing in value in 2017, Bitcoin and other cryptocurrencies have collapsed through much of this year. Bitcoin fell 40% during the course of one week at the end of January, and cryptos like Ethereum, Ripple, and Litecoin dropped more than 25% in a single day. The cryptocurrency crash is still happening today. Litecoin, for one, decreased to a new low for 2018 on Wednesday, hitting $97—a dip of nearly 75% off the all-time high of $379 in December.

Much like the sharp increases of 2017, the steep declines for cryptocurrencies over the past few months are hard to fully explain. Most observers chalk them up to a combination of countries cracking down on crypto exchanges and investors either seeking to cash out their profits or eat their losses. Or more people could be accepting the premise of critics like billionaire investor Warren Buffett and Nobel-winning economist Robert Shiller, who basically say that Bitcoin is a scam, or at least a bubble that's bound to pop.

Hackers and the possibility of price manipulation seem to also be concerns for crypto investors. After a South Korean crypto exchange said it was hacked last week, Bitcoin tumbled 10%. In addition to the new University of Texas report on Bitcoin price manipulation, U.S. investigators are looking into whether several cryptocurrency exchanges have been manipulating prices, the Wall Street Journal reported last week.

In the University of Texas study's conclusion, researchers say, "Our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies." And they say that more regulation is needed: "These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free."