Tether Doesn’t Inflate Bitcoin Price, New Research Says

Stablecoins issuance is not artificially inflating the prices in the cryptocurrency market, despite some controversial beliefs, suggested new research on the matter.

At the same time, the paper acknowledged their vital role in the digital asset field and predicted that it’s only prone to grow in time.

Tether Do Not Inflate The Crypto Market

Last year, two academics updated a study and claimed that the most widely used stablecoin – Tether (USDT) – was behind the 2017/2018 parabolic price increase in which Bitcoin reached its ATH of $20,000. Almost immediately, Tether responded by refuting all allegations, saying that USDT has never been involved in any price manipulation.

While this argument is left without a conclusive answer, recent research supported Tether’s position.

The authors of the report were Ganesh Viswanath-Natraj – assistant professor of finance in Warwick Business School, and Richard Lyons – chief innovation and entrepreneurship officer at UC Berkeley.

They referred to one significant change in the Tether issuance process. Prior to 2018, all coins “created via grants were immediately distributed to Bitfinex and on to the other exchanges for trading in the secondary market.”

However, ever since 2018, Tether Treasury retains a fraction of all USDT in circulation. The Treasury can use these reserve holdings to sell them for dollars in case the Tether price in the secondary market is above parity.

Tether Balance Sheet. Source: voxeu.org

By evaluating this “more precise measure of Tether inflow to the secondary market,” the total supply, and the shock effects on Bitcoin’s price, the authors found “no systematic evidence that stablecoins issuance affects cryptocurrency prices.”

Safe-Haven Role

By referring to the events in mid-March when the cryptocurrency market plunged by up to 50% in 24 hours, the research said that “stablecoins consistently perform a safe-haven role in the digital economy.” As they are especially attractive to…

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