A new research paper has confirmed long-held suspicions that the Tether cryptocurrency was used by people linked to the Bitfinex exchange to drive up the price of bitcoin and other cryptocurrencies last year.

The paper, written by University of Texas Professor John Griffin, who is known for catching fraud in financial markets, and graduate student Amin Shams, details the direct relationship between the issuing of Tether during bitcoin price drops and how it was used to buy bitcoin on the drop, artificially creating demand and driving the price up.

Tether is a cryptocurrency known as a “stablecoin” in that it’s linked to the U.S. dollar and backed by physical dollar holdings, making it a digital substitute for dollars directly. Tether is the creation of Bitfinex, formally known as iFinex Inc. Unlike typical cryptocurrencies that are mined, Tether is simply issued by Bitfinex if and when it pleases.

The issue of new Tether is meant to be relative to U.S. dollars held in reserve to back its value. But to the suspicion of some, those reserves may not actually exist. That claim is currently subject to an investigation by the U.S. Commodity Futures Trading Commission.

The issue of the real value of Tether aside, what the paper found is clear proof of price manipulation.

“By mapping the blockchains of bitcoin and Tether, we are able to establish that entities associated with the Bitfinex exchange used Tether to purchase bitcoin when prices were falling,” the paper notes. “Such price supporting activities were successful, as bitcoin prices rose following the periods of intervention. These effects are present only after negative returns and periods following the printing [sic] of Tether.”

By creating more Tether and using it to buy cryptocurrencies, the higher cryptocurrency prices would rise, “similar to the inflationary effect of printing additional money,” the paper adds. The data found that not only was there a direct relationship between the issue of Tether and an increase in the price of cryptocurrencies on Bitfinex but also a relationship to other cryptocurrency exchanges that support Tether as a payment method as well, suggesting that the manipulation of the market was widespread.

“There were obviously tremendous price increases last year and this paper indicates that manipulation played a large part in those price increases,” Griffin told The New York Times Wednesday.

The publication of the paper comes days after bitcoin and other leading cryptocurrencies plunged following the news that an obscure, small South Korean exchange called Coinrail that primary dealt in minor cryptocurrencies had been hacked. With short selling making it possible for investors to profit off large declines, someone or a group of people have used the Coinrail news as a front to manipulate the price of bitcoin and other cryptocurrencies for profit, since there was no other logical explanation for the price drop.

The paper’s publication may have contributed to a continuation of bitcoin’s recent bear run. Its price dropped as low as $6,252.21 Wednesday before recovering slightly to $6,433.38 as of 10:35 p.m. EDT. Bitcoin is now trading at its lowest price since late October, a five-and-a-half month low.

Photo: jimmcd/Flickr