The US Justice Department (DOJ) is investigating whether Bitcoin’s record-breaking performance last year was caused by market manipulation.
Late last year, the value of a single Bitcoin hit US$9,143, climbing nearly six points in just 24 hours for a market cap north of US$152 billion.
According to a recent report from Bloomberg, the DOJ is looking into whether traders used Tether, a controversial cryptocurrency that is allegedly backed 1:1 by the US dollar, to help Bitcoin reach its record highs.
Federal prosecutors started a criminal probe into the cryptocurrencies earlier this year and now suspect that crypto exchange Bitfinex might have used Tether to illegally coordinate Bitcoin’s prices. In fact, Bitfinex has the same management team as Tether—and when new coins are released, they’re mostly launched on the exchange.
Sources told Bloomberg that the DOJ is investigating how Tether creates new coins and why they enter the market predominantly through Bitfinex.
The probe was sparked by a study published in June by University of Texas finance professor John Griffin and graduate student Amin Shams. They said at least half of the boost in Bitcoin was due to price manipulation, explaining that Tether was used to buy Bitcoin when it was declining, which helped “stabilize and manipulate” the cryptocurrency’s price.
Even when it was flying high, Bitcoin had its share of detractors. Goldman Sachs CEO Lloyd Blankfein said that “maybe bitcoin is a kind of a bubble,” adding, “I don’t like it. I’m not comfortable with it. I’m kind of an old dog to be absorbing that kind of a new trick.”
And JPMorgan’s chief executive, Jamie Dimon, called the cryptocurrency “a fraud.” “The currency isn’t going to work,” the executive said. “You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”
In addition, governments around the globe—including Russia, China, the UK, and the US—have issued warnings about the risks associated with cryptocurrencies.
