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New Study Links Price Manipulation to Bitcoin's Insane Surge

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Is it possible that suspicious activity from just one person could have caused a 566% surge in the price of bitcoin? Well, according to a new study published in the Journal of Monetary Economics, the answer to that question is a resounding “yes.”

In a report titled “Price Manipulation in the Bitcoin Ecosystem,” researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman argue that suspicious trades on a popular cryptocurrency exchange are linked to rises in the exchange rate.

The research team analyzed activity on the Mt. Gox currency exchange for the purposes of the report. Based on their finds, the researches ultimately concluded that a “single actor” likely drove the USD/BTC exchange rate from $150 to $1000 during a two-month stretch in 2013.

“To its proponents, the cryptocurrency Bitcoin offers the potential to disrupt payment systems and traditional currencies. It has also been subject to security breaches and wild price fluctuations,” the team wrote.

The researchers continued: “This paper identifies and analyzes the impact of suspicious trading activity on the Mt. Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188 million were fraudulently acquired. During both periods, the USD-BTC exchange rate rose by an average of four percent on days when suspicious trades took place, compared to a slight decline on days without suspicious activity.”

In the particular instances that the team studied, two bots were able to perform valid trades with bitcoins that they did not actually own, making off with millions and manipulating the price of BTC in the process.

It is worth noting, however, that the nature of the cryptocurrency market has changed significantly in the years since the Mt. Gox hack occurred. BTC has skyrocketed above $14,000, while transaction fees and wait times have increased significantly as well. But there is also a larger number of altcoins available, and many major traders have abandoned bitcoin altogether.

The rise of bitcoin and other major cryptocurrencies has also attracted the attention of institutional investors and large businesses. With that has come the demand for further regulation. In South Korean, for example, government officials are currently debating whether or not to issue an outright ban on cryptocurrency exchanges.

Banning bitcoin trading may be an overextension of the government’s duties, but the issue of price manipulation is yet another that will attract attention from regulators. In short, if bitcoin wants to be taken seriously as a disruptive technology, it will need to show that its valuation is not easily susceptible to hacks and suspicious activity.

Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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