Is Bitcoin Really Un-Tethered? Yes, Says University Researcher
The debate surrounding Tether’s (USDT) effect on the price of Bitcoin has been around since the start of the year when Tether Limited was subpoenaed by the U.S Commodity Futures Trading Commision. A short while later this anonymous report was published which claimed USDT was being printed willy-nilly and that it was subsequently manipulating the price of BTC.
The BTC-Tether Connection
The debate was sparked again in June when this research paper was presented by two University of Texas researchers. The paper, titled Is Bitcoin Really Un-Tethered?, written by John Griffin and Amin Shams, arrived at the conclusion that Bitcoin was indeed being manipulated by Tether issuances:
“Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies. These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free.”
The paper noted how little Tether activity had to take place for Bitcoin to be affected, stating at one point that a mere 1% fluctuation in USDT could affect BTC prices hugely:
“Indeed, even less than 1% of extreme exchange of tether for Bitcoin has substantial aggregate price effects. The buying of Bitcoin with Tether also occurs more aggressively right below salient round-number price thresholds where the price support might be most effective. Negative EOM price pressure on Bitcoin only in months with large Tether issuance indicates a month-end need for dollar reserves related to Tether.”
A Case for the Defence
The above paper grabbed headlines and was viewed close to 90,000 times on SSRN, however, an alternative case laid out by Dr. Wang Chun, Ph.D. in Finance at Queensland University has been viewed only 1,500 times, and arrives at the opposite conclusion – namely that no correlation is found between Tether issuances and Bitcoin price.
Furthermore, the report even suggests that issuances of Tether are broken down into time-marked clusters to avoid having an effect on BTC:
“…we find Tether grants are strongly autocorrelated. This suggests Tether Limited is intentionally breaking down large grants into smaller blocks to be issued over several days, perhaps in a bid to reduce price impact on Bitcoin exchanges. It may also suggest demand for Tether coins are clumped and exhibit time clustering.”
Either way, Dr. Chun admits that Tether issuances frequently impact BTC trade volumes, albeit briefly. But ultimately, returns for Bitcoin holders are not affected by USDT:
“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 autocorrelated and cause subsequent increases in Bitcoin (and Tether) trading volume over the short term.”
Both sets of analysis use different methods in their approximations. The report by Griffin and Shams of Texas University approached the problem by monitoring wallet activity on exchanges where USDT trades were popular.
Dr. Chun used vector autoregression, or VAR analysis. Both reports make for interesting reading without appearing conclusive in their findings.
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