A Queensland Univerity professor has attempted to debunk the theory which accused stablecoin Tether issuance model of manipulating the Bitcoin value.
Tether Not Responsible
In his report, Dr. Wang Chun, Ph.D., Finance, discussed how he constructed a Vector Autoregression, or VAR, model to prove that Tether never played a catalyst to Bitcoin’s super-normal rally towards $20,000 last year. VAR models monitor relationships between variables over a period. Dr. Chun pitted data taken from Tether grants, daily Tether trading volume, daily Bitcoin trading volume, and Bitcoin returns against each other and discovered four key findings. They are:
- No empirical evidence could related Bitcoin uptrend with the Tether grants.
- Increased Tether grants led to rising in Tether and Bitcoin trading. However, the increase in trading volume didn’t increase Bitcoin returns.
- Tether grants are issued in small chunks than at one go. It may also suggest demand for Tether coins are clumped and exhibit time clustering.
- Evidence shows Tether trading increases every time before Bitcoin fall. It means investors shift from volatile cryptocurrencies to ‘stable coins’ in times of excessive market volatility.
The paper also noted a subpoena issued to Tether Limited by the US Commodity Futures Trading Commission, coupled with an anonymous report from January 2018 saying that company issued USDT coins to raise the price of Bitcoin. However, Dr. Chun cleared that they didn’t consider such claims before constructing their VR model.
“Our paper does not examine whether the newly issued Tether coins are indeed backed by US dollars or not, but by utilizing an unrestricted VAR, we examine the impact of these cryptocurrency issuances on subsequent cryptocurrency price,” he wrote.
“In conclusion, we do not find any evidence suggesting that Tether issuances cause subsequent increases in Bitcoin returns. However, we do find that Tether issuances are highly auto-correlated and cause subsequent increases in Bitcoin (and Tether) trading volume over the short term.”
Tether issuance in the past has been correlated with not just Bitcoin but altcoins too. In June, the company had printed $250 million worth of USDT amidst a bearish crypto market. In an alleged response to the minting, almost all the top coins, which included IOTA, EOS, Stellar and Litecoin, had established a stable trading range.
The only explanation there is points to traders exiting their Bitcoin and altcoin positions in the times of bearish momentum for stable tokens like USDT. That works like a shield against the then-ongoing volatility while saving traders the hassle of switching their crypto-assets to fiat currencies every time they want a safe peg.
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