New research from Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman indicates it is likely bitcoin’s price was manipulated by just one or two major players.
The lack of regulation of the cryptocurrency means it has always been susceptible to manipulation.
However, the economists indicate it could be possible a single player was responsible for the fraudulent trading that saw bitcoin pass a major milestone.
Outlining their discoveries the researchers wrote: “Our paper identifies and analyses the impact of suspicious trading activity on the Mt Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188million (£136million) were fraudulently acquired.”
Since bitcoin was first mined in 2009, the virtual money has seen its value surge and it reached an all time high of more than $17,000 (£12,000) in December 2017.
They added: “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.
“Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months.”
While more than 800 cryptocurrencies now exist, at the time of the massive surge, there were approximately just 80.
The academics highlight the lack of diversity in the cryptocurrency market was likely to have played a big part in causing the price manipulation.
As well as being able to declare only one or two people were responsible for the manipulation of the market, the researchers have also managed to pinpoint the exact bots involved in the activity.
Called Markus and Willy, the bots appeared to perform valid trades in bitcoin, despite not owning any of the cryptocurrency.
They were therefore able to successfully complete fake trades and make millions of pounds.
The report added: “The publicly reported trading volume at Mt Gox included the fraudulent transactions, thereby signalling to the market that heavy trading activity was taking place.”
The apparent increase in trading will have encouraged others to get involved in buying and selling bitcoin, despite many transactions not really existing.
However, despite the fraudulent activity, the Mt Got currency is still likely to have benefited from the work of the two bots.
The economists stated: “Even if the fraudulent activity is set aside, average trading volume on all major exchanges trading bitcoins and USD was much higher on days the bots were active.
“The associated increase in ‘non-bot’ trading was, of course, profitable for Mt. Gox, since it collected transaction fees.”