Bitcoin Prices Are Likely Manipulated, Research Affiliates Warns

Why would I go and grab some weird fiat subject to the will of some governments? In an even newer Twitter exchange, McAfee explained that he believes the BTC price could reach into the billions one day. McAfee was projecting $500,000 BTC in 2020 just a few weeks ago, but he modified his claim to be even more bold as bitcoin’s market surge has been moving faster than he anticipated. Love him or hate him, Adam Back is an OG cypherpunk who’s made incalculable contributions to the cryptocurrency space as a whole. There’s a reason Satoshi Nakamoto reached out to Back first in starting up Bitcoin.

Hayes elaborated on this prediction, stating that “US$20,000 is the ultimate recovery.” “However, it took 11 months from US$1,000 to US$10,000, but less than one month from US$10,000 to US$20,000 back to US$10,000.” “It won’t go there (US$20 trillion) right away,” he stated, adding that once major financial institutions start offering custodial solutions, it could provide a key impetus. Late in 2018, Citigroup and Morgan Stanley announced their plans to offer such services. In late September 2018, former hedge fund manager Mike Novogratz, who worked for Fortress Investment Group, told CNBC Fast Money that Bitcoin prices would bounce back that year, inevitably rising to between US$8,800 and US$10,000 in 2018. Bitcoin prices could reach US$96,000 by 2023, according to a report released by ICO advisory firm Satis Group. In the beginning of 2018, Tom Lee, managing partner for Fundstrat Global Advisors, said that Bitcoin prices would rise to US$125,000 by the end of 2022. FXCM is a leading provider of online foreign exchange trading, CFD trading and related services. Fixed-income investors face a difficult path in 2022, but these seven bond funds can help minimize the impact of rising rates and inflation. “One of the things we do believe is that there’s a secular trend into Bitcoin,” adds King, who’s also reticent to throw out a price target. “We’re in an S-curve type of growth with an emerging technology. If you look at the previous patterns of prices versus adoption, it tends to consolidate and then have a multiple move higher. This is starting to look pretty decisively higher.”

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The sample starts April 1, 2014 for the Kraken and Bitfinex data, as well as the euro and yen exchange rates against the US dollar. The shortest time series is available for BTCBOX which starts January 16, 2018. Bitcoin data are available on a daily basis, FX data from Monday to Friday. The literature on Bitcoin is relatively new and has grown very fast in recent years. Trading aspects are considered by Cheah and Fry and Blau who investigate speculative behavior in Bitcoin trading. Whether Bitcoin serves to diversify the risk of an investment portfolio is analyzed by Brière et al. , Guesmi et al. , and Hussain Shahzad et al. . Dwyer , for example, analyzes monthly standard deviations of Bitcoin prices from Mt. Gox, BTC, and Bitstamp and concludes that these are 5–7 times higher than what is generally observed in stock markets. Bouoiyour and Selmi , Bouri et al. , Katsiampa , and Ardia et al. rely on GARCH models to estimate daily volatility. All authors conclude that the volatility level is comparatively high, offering different explanations such as cyber attacks, information asymmetry, decentralization, or the absence of regulation.

The results show that returns are large and negative between times −3 and −1. The next hour’s returns are large at 80 basis points per hour, and returns are positive at 1.23% over the next three hours after the flow. Panel B shows sharp positive returns in the three-hour window after the flow events for all six of the other major cryptocurrencies as well. We further examine the spillover in the cross-section of cryptocurrencies by constructing an exchange-level value-weighted return index of all coins other than Bitcoin using all other coin-BTC pairs for all exchanges in the sample. Alternatively, under the “pushed” hypothesis, Bitfinex prints Tether regardless of the demand from cash investors, and additional supply of Tether can create inflation in the price of Bitcoin that is not due to a genuine capital flow.

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Investment firms need at least $5 million at the bank to qualify for the new stakes. While many observers say the recent falls show that the bubble has burst, those backing the nascent markets say that regulation is welcomed and wild price swings to be expected. Bitcoin fell as much as 20 percent on Wednesday, piercing below $10,000, while other cryptocurrencies took similar spills due to investor fears that regulators could clamp down on them in an effort to curb speculation. The level had held since the early days of 2018 — just after BTC/USD railled to all-time highs of $20,000 — and became the resistance level that capped Bitcoin’s 2019 rally. At press time, highs of $14,560 had appeared on major exchange Bitstamp, with BTC/USD subsequently returning to fluctuate around $14,500 amid volatile conditions. On 3 April 2013, Instawallet, a web-based wallet provider, was hacked, resulting in the theft of over 35,000 bitcoins which were valued at US$129.90 per bitcoin at the time, or nearly $4.6 million in total. Treasury extended its anti-money laundering regulations to processors of bitcoin transactions. Miners resolved the split by downgrading to version 0.7, putting them back on track with the canonical blockchain.

In contrast, we use the deflationary design of Bitcoin as a theoretical basis and demonstrate that Bitcoin displays store of value characteristics over long horizons. During the interview with Trenchev, it was pointed out that the cryptocurrency’s price had climbed 9,000,000% in 10 years. Further, he stated that we should think of Bitcoin as being digital gold, and that if the digital currency was worth even 10% of gold’s market value, Bitcoin’s price would rise to US$50,000. During both of the aforementioned periods, Bitcoin suffered sharp losses and fell more than 80%, according to industry data provided by cryptocurrency hedge fund manager Tim Enneking. However, when Bitcoin bottomed out in 2015, it enjoyed a very strong advance, Brandt said. If history were to repeat itself, the digital currency could enter a parabolic bull market after falling sharply in 2018. “If you feel left out of the gains, don’t,” the Wells Fargo Investment Institute wrote in December.

The static Granger causality test results show that Granger causality from Bitcoin returns to trading volume is significant at a 1% level, while the reverse causality is not significant at a 5% level. This means that information spillovers in Bitcoin markets are mainly from Bitcoin returns to trading volume but not vice versa, which is similar to the conclusions on Granger causality between Bitcoin returns and internet attention. The increasing attention on Bitcoin since 2013 prompts the issue of possible evidence for a causal relationship between the Bitcoin market and internet attention. Taking the Google search volume index as the measure of internet attention, time-varying Granger causality between the global Bitcoin market and internet attention is examined. Empirical results show a strong Granger causal relationship between internet attention and trading volume.

Learn more about Bitcoin’s volatility and some reasons why its price acts the way it does. As of writing, BTC’s EUR-denominated exchange rate (BTC/EUR) is trading at €9,939.40, representing 2.75 percent gains on the day. On a month-to-date basis, BTC/EUR is up about 28.7 percent, while BTC/USD is flashing a 31.2 percent price rise. “With the U.S. election gradually drawing to a close, the details of a fiscal stimulus could become clearer. Any such package could see weakening of the U.S. dollar and further increases in the bitcoin price going forward,” Peters said.

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Internet Appendix Table IA.IX shows that in months with large Tether issuances, the Bitfinex balances experience a large net outflow in the last five days of the month, and the relationship is statistically significant with a t-statistic of 3.14. As a placebo test, we perform the same analysis on the reserve wallets of any of the top-20 largest exchanges for which we could obtain reserve wallet addresses, and we find no EOM net outflow from these wallet balances. This result suggests that a plausible channel for the decrease in Bitcoin prices is EOM liquidation of Bitfinex reserves. In summary, the strong negative effect on Bitcoin prices in months of Tether issuance is consistent with Tether not maintaining full dollar reserves at all times. Without a dollar backup, the Tether peg could be held when cryptocurrency prices increase and the liquidation of Tether is limited. But if market participants lose confidence in Tether and a run occurs, there can be a substantial risk of default without full cash reserves. Like most runs, this could also lead to substantial collateral damage to cryptocurrency investors. We now specifically focus on the 1% of hours with the largest Tether/Bitcoin flow. Figure5, Panel A, plots an event study of Bitcoin and other cryptocurrency prices around these high-flow events.

Internet attention is believed to be a measure of noise traders instead of institution traders according to Da et al. . Ibikunle et al. also demonstrated that internet attention has a strong effect on noise trading rather than informed trading. When dramatic changes occur in Bitcoin markets, increased media coverage attracts soaring investor attention. These individual investors are net buyers of attention-grabbing assets (Barber and Odean 2008; Hervé et al. 2019). Increasing demand for Bitcoin drives the prices up and a vicious loop between investors’ attention and price returns may appear (Cretarola and Figà-Talamanca 2019b).

However, we show that the Granger causal effects in the Bitcoin market are time-varying and the process is more complex than initially thought. Furthermore, the stronger Granger causal effect of market attention on Bitcoin returns during the occurrence of price bubbles indicates that traders may transiently make a profit by boosting a bubble. That is, institutional investors purposely increase Bitcoin’s media coverage and increase its search frequency, thus attracting more individual traders, and making a profit by manipulating the Bitcoin price. In fact, this trading strategy may have been used by informed investors in Bitcoin markets. According to Feng et al. , informed traders can make large profits by building their positions 2 days before large positive events and 1 day before large negative events. For individual investors, it is important to be cautious of sudden Bitcoin media coverage and to be able to foresee any resulting price bubble. 1, affects price dynamics in two ways, including category learning and noise trading.

Facebook said it had found a huge number of people using the site to advertise misleading and dangerous offers. It said it would now ban ads that are related to cryptocurrency, initial coin offerings, or binary options. Facebook noted that all of those things can be used legitimately – but that a worryingly large amount of ads marketing them were actually just scams. The U.S. Securities and Exchange Commission rejected a request to list an exchange-traded fund run by the Winklevoss twins for the second time. The U.S. financial watchdog has yet to approve a cryptocurrency-based ETF and in the release highlights issues with security, market manipulation and investor protection issues. Goldman Sachs is abandoning plans to open a trading desk for cryptocurrencies. Goldman still sees the regulatory environment as ambiguous, according to Business Insider, which cited people familiar with the matter. The Wall Street giant has been considering the launch of a new trading operation focused on bitcoin and other digital currencies for the past year. China’s state planner wants to eliminate bitcoin mining in the country, according to a draft list of industrial activities the agency is seeking to stop in a sign of growing government pressure on the cryptocurrency sector. China is the world’s largest market for computer hardware designed to mine bitcoin and other cryptocurrencies, even though such activities previously fell under a regulatory grey area.

• But they are different than ETFs in a few noteworthy ways, whichwe outline here, that investors should know about before purchasing.
• PlanB explained this in a 2019 Medium post, noting that given BTC’s current stock and rate of new supply, it would take 25 years of new units being created to reach the existing stock, compared to 22 for silver and 62 for gold.
• The percentage deviation of hourly prices between Bitfinex and Poloniex and Bittrex are 19 and 42 basis points, while the deviation is 103, 56, and 111 basis points for Bitstamp, Gemini, and Kraken, respectively.
• When arriving at this figure, the two authors of the report, an analyst and a head of research for Satis Group, made use of fundamental analysis.
• Data before March 2014 are not included for violent swings in market conditions.
• In addition, we find that GSVI is a better candidate for internet attention compared with AGSVI.

Internet Appendix Table IA.I shows an example of a Bitcoin transaction on the blockchain with 313 senders and 218 recipients. Addresses on the left column are senders of the Bitcoins and addresses on the right are the recipients. The Internet Appendix SectionII includes the list of representative addresses that can be used to assign identities of major exchanges. The Internet Appendix is available in the online version of this article on The Journal of Finance website.

Mt. Gox and the other exchanges function essentially as the bitcoin version of commodity exchanges, simplifying the experience of trading bitcoin. They allow people to set the rate for bitcoin , move from fiat currency (state-issued, like dollars) into cryptocurrency, and buy and sell cryptocurrencies. Their existence made it easier for ordinary plebs to get into bitcoin, and they brought new kinds of security risks, too. Some of the troubles Mt. Gox had early on plagued later exchanges like Coinbase and suggested that digital money had new problems that paper-based money did not. While you could break into my house and steal the $40 sitting next to my laptop, this is time-intensive for little reward. Figuring out how to hack the exchanges, however, could lead to tens of millions of dollars from a single breach. Read more about Buy ETH here. The introduction of financial products such as bitcoin futures and options, as well as blockchain-related funds, has allowed investors who might otherwise have been fearful of volatility to get involved. Bitcoin futures mean that investors can speculate on falling prices by “going short” on the cryptocurrency.

Canaan Inc., the world’s second-largest maker of Bitcoin mining machines, filed for a U.S. initial public offering. The Hangzhou, China-based company listed its offering size as $400 million in its filing with the U.S. But some crypto-bloggers have complained that their videos have not been restored after several days. Each contract, quoted in U.S. dollars, represents five bitcoin and is cleared centrally to avoid counterparty risk. Federal Reserve announced that it would cut interest rates to 0%, launch a $700 billion quantitative easing program, and the regulator provided additional details about the type of securities it would purchase. The massive stimulus package is designed to combat the market turmoil brought about by the novel Coronavirus but shortly after the announcement, Dow futures dropped 1,000 points. This launch means that retail investors will be able to gain exposure to Bitcoin’s price using a traditional, regulated stock exchange.

In March 2020, Bitcoin fell from around $10,000 to below $4,000, in one of its biggest crashes of all time. The plunge coincided with a rapid worsening of the COVID-19 outbreak, which also saw the stock market tumble soon after. In a monster recovery and bull-run starting in 2020, Bitcoin continuously gained steam for an entire year of upward price action. This peaked in April 2021, as Bitcoin posted a new all-time high of over $64,600. In the face of this threat, investments like bitcoin are being consider a store of value. The maximum number of bitcoin that will ever exist is set at 21 million , and there are already about 18.5 million in circulation.