Bitcoin Prices Are Likely Manipulated, Research Affiliates Warns

Alex Pickard of Research Affiliates first bought bitcoin in 2013. The “magic internet money”is harder to explain today, he said, warning of a bubble.

Chris Ratcliffe/Bloomberg

Chris Ratcliffe/Bloomberg

Bitcoin has morphed into a vehicle for speculation from the digital cash system it was meant to establish, “magic internet money” that’s now in a bubble and likely manipulated, according to Alex Pickard of Research Affiliates.

Pickard, a vice president in research at the firm, bought his first bitcoin in 2013 at age 25, according to his new blog that Research Affiliates posted on its website. “It is hard to resist the siren song of bitcoin when, over the last two years, the price seemingly never goes down,” he wrote, adding that the digital currency is more difficult to explain in 2021 than at the time of his first purchase.

Bitcoin was set up for a digital cash system, and “unfortunately, the first real use case was Silk Road, an online marketplace for buying and selling illegal drugs,” wrote Pickard. Still, “the potential for its use in legal commerce was obvious.”

Pickard found bitcoin attractive because its supply was limited to 21 million and its lack of government backing meant the currency’s value “could not be inflated away.” Also, bitcoin had “a magical feel” as it could move between digital wallets within seconds, when in the early 2010s “instantaneous payment tools” such Venmo and Apple Cash did not yet exist, he wrote.

But “the average investor has never actually used bitcoin for transacting,” instead purchasing units of BTC on Coinbase and watching “in awe” as their investment rose in value. By 2017 Pickard’s own windfall led him to quit his job in quant finance and invest in bitcoin mining equipment in Washington’s Chelan County.


“Although I diligently abided by all regulation related to bitcoin mining in Chelan County, in January 2018 I had to shut down my mining farms because I was putting a strain on the electrical grid,” said Pickard. “To make matters worse, soon after that, the BTC price started falling, and my equipment, gathering dust, was depreciating even faster.”

Pickard was forced to shut down his operations, a risk he had not contemplated.

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Bitcoin proponents today view the currency as an “unseizable, censorship-resistant, ‘digital gold’ that provides inflation protection,” according to Pickard. Like gold, the digital currency is vehicle for speculation, but it is not an inflation hedge or an investment vehicle, he believes.

The extremely volatile currency is not a “store of value,” Pickard wrote. “BTC is not a capital asset: it does not generate cash flows derived from economic returns on capital.”

The price of bitcoin plummeted 83 percent in 2018, while inflation expectations remained at 2 percent, according to his blog. “Then, from year-end 2018 to year-end 2020, the price of bitcoin rose sevenfold” with inflation expectations remaining at that same rate.

Pickard also argued that the notion bitcoin is unseizable is wrong, as governments have many times “confiscated bitcoin from illicit businesses,” including Silk Road. “Bitcoin is easily trackable on the public bitcoin blockchain, making it a bad choice of currency to use when committing crime.”

The currency’s meteoric rise may be driven by more than frenzied demand: Pickard suggested the price of bitcoin may be “artificially manipulated” through Tether and possibly other stablecoins.

“If the market manipulation story is true, then BTC is not in a bubble in the traditional sense,” he said. “If Tether were to be shut down, and if, in fact, artificial demand from Tether was supporting the price, the losses from a BTC crash may not be recoverable.”

Investors, he said, should consider Bitcoin with “extreme caution.”