Earlier in the year, CryptoGlobe reported that two Finance professors from the University of Texas published a 66-page report putting forward the theory that Tether (USDT) issues grants with the intention of manipulating crypto markets by providing support levels for bitcoin during bear periods. The researchers, Professor John Griffin and Professor Amin Shams postulated that USDT was used to artificially inflate the value of bitcoin all the way through its record breaking bull run of 2017.
A new report published by the University of Queensland Business School researcher Wang Chun Wei contests this assessment, using VAR analysis to show that Tether in actual fact has a statistically insignificant effect on bitcoin price movements.
The report which titled ‘The Impact of Tether Grants on Bitcoin’ concludes that despite the existence of a positive correlation between new Tether grants and bitcoin trading volume in subsequent days, the increased trading volume does not lead to any significant price movement.
“No Empirical Evidence”
According to the report, there is no empirical evidence to support the theory that Tether was used to engineer bitcoin’s 2017 bull run. Explaining why this is the case the report says:
We find no empirical evidence supporting the notion that Tether grants cause subsequent Bitcoin returns to rise on a daily basis. In fact, when we examine the Bitcoin return equation of our VAR model, none of the lagged variables, impacts Bitcoin returns. This suggest Bitcoin returns are showing greater signs of market efficiency than previously studied on older datasets.
Tether Grants Increased Bitcoin Trading Volumes
While the report did not find evidence of a direct link between Tether grants and bitcoin price movements, it did establish the presence of a direct correlation between issuance of new Tether tokens and subsequent increased bitcoin trading volumes. According to the report, the day after fresh Tether grants usually witnesses heightened trading volume across crypto markets in bitcoin and other cryptos.
This notwithstanding, the study is at pains to point out that this on its own does not indicate any relationship with bitcoin prices because trading volume and price level do not have any sort of significant positive correlation. The research also points out that the effect on trading volumes only lasts for about five days, after which it goes back down to normal trading levels.
According to the study, there is evidence to show that new Tether grants are issued around the times when bitcoin makes bearish movements. While the researcher concedes that this may indeed be a result of investors or Tether itself purchasing bitcoin to attempt to maintain its support level, it also notes that in times of bearish movements, investors often want to hold their money in ‘safe’ assets like stablecoins, and so there may be a heightened demand for USDT during bitcoin bear periods.
As a result of this, Tether could simply be issuing fresh grants to take care of demand, and not to manipulate the market as otherwise thought. Moreover, the amount of bitcoin purchased with Tether tokens at these times is found to be too small to make any statistical difference to bitcoin price movements regardless of Tether’s motives for issuing grants at those periods.
Even more significantly, the study established that Tether grants have a high rate of autocorrelation, which means that they are broken down into smaller blocks which are released over the course of several days so as to minimise their potential effect on crypto exchanges. This would also seem to indicate that the amount of BTC bought with freshly minted USDT tokens is simply too small to be able to make a dent in the market, much less shift the price of bitcoin.
The full report can be viewed here.