Bitcoin (virtual currency) coins placed on Dollar banknotes, next to computer keyboard, are seen in this illustration picture, November 6, 2017.
While that correlation could simply be due to the fact that an inflow of tethers signals a spike in demand from traders, the researchers claim that other data suggests that tether may not be fully-backed by Dollars - at least not all the time.
Tether, as its name suggests, is pegged to the value of the U.S. dollar and can be used to buy other crypto coins.More news: How to watch the 2018 World Cup in India
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Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by Dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical United States dollars.
The academics concluded that the price patterns were "most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices". Indeed, even less than 1% of extreme exchange of Tether for Bitcoin has substantial aggregate price effects.
Sarah Meiklejohn, a professor at the University College London who pioneered this sort of pattern spotting, said the analysis in the new paper "seems sound" after reviewing it this week.
Mr Griffin previously wrote research pointing to fraudulent behaviour in several other financial markets. He is most notably recognized for a 2016 paper that found manipulation in a financial contract known as VIX which was tied to flux in financial markets which were later confirmed by a whistleblower. "Such price supporting activities were successful, as bitcoin prices rose following the periods of intervention".
"There were obviously tremendous price increases previous year, and this paper indicates that manipulation played a large part in those price increases".