US & UK Economists Clear Tether: No Systematic Evidence Issuance Affects Cryptocurrency Prices


TL;DR: Researchers from the University of California at Berkeley and the Warwick Business School in the United Kingdom concluded recently stablecoins, like the controversial cryptocurrency tether (USDT), do not inflate speculative market prices.

No Systematic Evidence Tether Issuance Affects Cryptocurrency Prices

Dueling academic papers are commonplace, and as cryptocurrency influence has grown it too has become the subject of claims and counterclaims. The standard, go-to study on stablecoins was picked up and cited by mainstream news authorities such as The New York Times. Written in 2018 by John M. Griffin, University of Texas at Austin – Department of Finance, and Amin Shams, Ohio State University, Fisher College of Business, they presented a scathing 119-page takedown of USDT, Is Bitcoin Really Un-Tethered?


Griffin and Shams found “purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month-ends. Rather than demand from cash investors, these patterns are most consistent with the supply-based hypothesis of unbacked digital money inflating cryptocurrency prices.”

The paper created a firestorm and was included in a wave of bad publicity for the world’s most popular stablecoin, including an eventual lawsuit against its parent company, Tether, and favored exchange, Bitfinex, via the New York Attorney General. In response, Richard K. Lyons, Chief Innovation & Entrepreneurship Officer, UC Berkeley, and Ganesh Viswanath-Natraj, Assistant Professor of Finance, Warwick Business School in the UK, published a recent column, “Stable Coins Don’t Inflate Crypto Markets.”

Stablecoins Perform a Significant Role in the Digital-Asset Economy as a Safe Haven

Published in conjunction with the Centre for Economic Policy Research, a network of over 700 researchers based mainly in universities throughout Europe, the Lyons and Viswanath-Natraj column hopes to strike directly at the heart of Griffin and Shams considered-definitive work on the matter.


“We find no systematic evidence of stable coin issuance driving cryptocurrency prices,” Lyons and Viswanath-Natraj argue. “We do find, in contrast, evidence of alternative hypotheses for the drivers of issuance. Specifically, (i) stable coin issuance endogenously responds to deviations of the secondary market rate from the pegged rate and (ii) stable coins perform a significant role in the digital-asset economy as a safe haven,” pointing to crypto markets’ reactions to coronavirus fallout last month in particular.

Lyons and Viswanath-Natraj first measured “the effect of shocks to Tether supply on the price of Bitcoin,” finding while their “results do not preclude the possibility that price manipulation has occurred […] there is no systematic effect.” And beyond arbitrage “by secondary-market participants [offering] a decentralised solution to exchange rate stability,” the likes of tether earned premiums “during the COVID-19 panic of March 2020, in which the price of Bitcoin fell by 40% in a single day on 12 March,” underlying the purpose of stablecoins as safe havens.

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