Critics of Tether claim that stablecoin is used to raise the price of Bitcoin. New research by UC Berkeley professors suggests that this is not the case.
New research is trying to refute one of the favorite conspiracy theories in the crypto universe, that Tether manipulates Bitcoin.
A new report written for the Economic Policy Research Center (CEPR), entitled “Stablecoins do not inflate crypt markets”, analyzes the degree to which “issuing stablecoins” raises the price of Bitcoin and other cryptocurrencies.
Richard K Lyons and UC Berkeley Finance Professor Ganesh Viswanath-Natraj analyzed all of Tether’s moves and other stablecoins from October 2017 to the present to look for an answer.
And that answer, according to their research, is that there is a zero correlation: “Our baseline: we have not found systematic evidence of issuing stablecoins, driving cryptocurrency prices,” the report said.
These findings are in stark contrast to a 2018 article by John Griffin of the University of Texas and Amin Shams of Ohio State who claimed that Tether stablecoin (USDT) was used to boost Bitcoin’s price in 2017.
The theory quickly caught the imagination of the mainstream press and was followed last year by an even more obscene claim: that a lone whale caused the 2017 price bubble. Bitcoin prices rise shortly after Tether prints a large batch of USDT , the researchers concluded, so this may be driving the price action.
But these findings were not criticized. Counter arguments have argued that if Bitcoin’s price goes up after Tether prints coins, it means that market participants are buying USDT to enter the market – or are simply fleeing to USDT for stability in times of market downturn. And it seems that this is what happened in March, when Bitcoin’s price went up.
It is possible, then, that stablecoins like Tether are just being used as they were designed. And that is the conclusion that Lyons and Viswanath-Natraj’s research shows.
“The use of stablecoins has increased dramatically in the past two years, with estimates of total transactions between Bitcoin and Tether, the largest stable currency, exceeding the volume of Bitcoin / USD in 2019,” said the report. “This use of stablecoins is expected to grow so quickly that it is consistent with the ‘reason for its existence’.”
“Using our most accurate measure of the Tether flow to the secondary market, we found no significant effect on the prices of major cryptocurrencies,” said CEPR researchers in their report.
“This result is robust for choosing the sample period – including the end of the 2017 period when Bitcoin prices rose – and it is also true for other major stablecoins.”
Arbitration and stability
The new research pointed to two main factors for stablecoin activity: arbitrage and flight from volatility.
He also explained that many traders buy Tether for $ 1 and sell it on exchanges and other secondary markets for more.
These referees are a big presence in this market. For example, “an increase of 100 basis points (1 cent) in the dollar price of Tether results in a flow of approximately US $ 0.3 billion to the secondary market”.
In addition to this arbitrage, traders are also simply using stablecoins as they were designed: to be a vehicle for stable value in times of market volatility.
“Stablecoins consistently play a haven role in the digital economy,” said the researchers. The report described stablecoins “as a safe currency” for activities in the digital economy. Typically, stablecoins are mostly used by traders to protect themselves against falls in the market.
This is what is happening now, the researchers found, noting “significant awards [em stablecoins] during the COVID-19 March 2020 panic ”.
So, what is the real reason behind Tether that is printing billions of tokens, now as before? According to this new survey, people just want “dollars” – and they accept them in real or digital form.