Tether isn’t used in pumping the price of Bitcoin (BTC) and other cryptocurrencies, a new research claims.
A much-publicized paper released in 2018 had sparked controversy and heated debate over the use of Tether (USDT) and its correlation to Bitcoin price pumps. According to John Griffin of the University of Texas and Amin Shams of Ohio State, even Bitcoin’s 2017 price pump was down to a huge Tether dump.
The claims led to criticism of crypto exchange Bitfinex parent company iFinex. Many within the crypto space and most mainstream media adopted these arguments. Allegedly, Tether Treasury printed and dumped millions of USDT to manipulate Bitcoin’s price.
How a new study that covers the bitcoin market over the past three years appears to contradict these earlier claims.
The report “Stable coins don’t inflate crypto markets” refutes these price manipulation theories. Per the report, there is no correlation between stablecoin issuance (Tether (USDT)) and BTC price pumps.
A paper published for the Centre for Economic Policy Research (CEPR) by researchers Richard K Lyons of UC Berkeley and Warwick Business School’s Ganesh Viswanath-Natraj noted:
“Our bottom line: We find no systematic evidence of stablecoin issuance driving cryptocurrency prices.”
Tether is used as intended?
The new study reportedly featured various data and trading patterns involving the stablecoin and other major cryptocurrencies. The academics say that stablecoin issuance and use is as intended. To them, stable coins attract traders and investors in times of market volatility.
According to the researchers, issuance of Tether and other stablecoins aligns with market demand. Investors are buying stablecoins for two reasons: exchange arbitrage and as “safe haven” assets.
Tether Treasury sells USDT for $1, but traders choose to sell the coins in secondary markets when Tether price moves above its dollar peg. The same volatility also plays a role in flight to Tether which traders look at as a safe-haven alternative that helps hedge against market dips.
The researchers thus note that the rapid growth in demand and use of Tether is consistent with its ‘raison d’etre.’ That is to “solve the store-of-value problem by pegging their value to the US dollar.”
As per the CEPR report, Tether’s printing of USDT worth billions of dollars is not a manipulating gesture. There is just one main reason: demand for “dollars,” means traders will have them whether in fiat or digital currency.
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