Tether is Not Responsible for Bitcoin Price Manipulation?


According to a report released by Richard K. Lyons and Professor of Finance Ganesh Viswanath-Natraj, both from the University of California Berkley, contrary to Griffin and Shames claims, the issuance of a stablecoin such as Tethers USDT has no systematic effect on cryptocurrency prices.

The report claims that issuance operation can be described as controlling a decentralized method of exchange rate pegs and serving as a shelter in the digital asset economy. The significant stable coin rewards can demonstrate the latter during the COVID-19 panic of March 2020.

The generation of Tether

First, the study looked at how Tether USDT is generated. The stablecoin is created when an investor transfers dollars to the Tether’s account. At the moment, as many tethers are created as dollars have been transferred. This assures that every Tether can be obtained at any time for one dollar. The USDT is then quickly transferred to the secondary market via the Bitfinex crypto exchange. A portion of Tether’s total USDT has been held as a reserve since 2018. If the USDT price in the secondary market is above parity, this reserve is sold for dollars.

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Main areas of application of stablecoin

According to the study, stablecoins are mainly used for two purposes—one as an arbitrage opportunity and the other for traders hedge against falling prices of cryptocurrencies.

In arbitrage, traders take advantage of subtle price differences to make profits. The study found that if Tether’s price rose by as little as 1 cent, USD 300 million would flow into the secondary market. Traders buy for $ 1 in the primary market and sell for $ 1.01 in the secondary market. The price of USDT usually levels off quickly to $1.

Another factor in the influx of new USDT is its use as a vehicle currency. In dangerous times, many investors swap assets with stable value. Data indicate that in volatile phases such as the crash in early 2018, portfolios shifted from Bitcoin to USDT at the expense of Bitcoin. Many other studies have revealed that the value of the stable coins correlates negatively with the risk factor in the crypto area. In the Coronacrash on March 12, a USDT cover was observed. If the markets are in the hype, it is usually the other way round, and USDT is trading below a dollar.

Conclusion of the study

The study found no evidence of a relationship between the issue of stable coins like Tether and the impact on the price of cryptocurrencies. The problem answers more to deviations in the secondary market. Stable coins are created because there is a real, justified demand for them. The bubble 2017 generated so many stable coins because so many were in demand and not to manipulate the market. Stablecoins also serve excellently as a safe haven in the crypto world.

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