Concern in the world of cryptocurrencies is mounting on the one hand because of fears that governments are going to step in to begin regulating the new financial instrument. But on the other side of the fence, suspicion is growing that the prices of virtual currencies are being propped up by anonymous investors through carefully-timed trades. The New York Times writes that hundreds of millions of dollars worth of the cryptocurrency Tether keeps being created when values start falling. The new coins are sent through the Bitfinex exchange to purchase Bitcoins, which has the result of driving the price back up.
“This became more and more concerning, because every time the markets went down, you have seen the same thing happen,” Joey Krug told the NYT. The co-chief investment officer at Pantera Capital, which runs several virtual currency hedge funds, says the implications are serious. “It could mean that a lot of the rally over December and January might not have been real.” In December, a US regulatory agency called the Commodity Futures Trading Commission subpoenaed Bitfinex, causing a temporary run on virtual currencies. Suspicions were raised further last week when Bitfinex fired its auditor, Friedman.
