Tether Not a Factor in Bitcoin’s Price Surge, Research Says


Despite some contentious notions, recent research has proven that Tether Treasury is not pumping Bitcoin’s price at the cryptocurrency market.

April 26, 2020 | AtoZ Markets – Stablecoins issuance is not artificially inflating the prices in the cryptocurrency market, despite some controversial beliefs, according to new research on the matter. The research, however, highlights their vital role in the digital asset field.

Tether is not pumping Bitcoin price

Last year, two researchers reported that their findings revealed that the most widely used stablecoin – Tether (USDT) was responsible for the unprecedented price increase in 2017/2018. Almost immediately, Tether responded by refuting all allegations, saying that USDT has never been involved in any price manipulation.

Read: Is USDT bigger than Bitcoin?

While this argument is left without a conclusive answer, recent research supported Tether’s position. The authors of the report were Richard K Lyons from UC Berkeley and Ganesh Viswanath-Natraj from the Warwick Business School.

They referred to one significant change in the Tether issuance process. Before 2018, all the coins created via grants were immediately distributed to Bitfinex and on to the other exchanges for trading in the secondary market.

However, ever since 2018, Tether Treasury retains a fraction of all USDT in circulation. The Treasury can use these reserve holdings to sell them for dollars in case the Tether price in the secondary market is above parity.

Read: What is the difference between USD and USDT?

By evaluating this “more precise measure of Tether inflow to the secondary market,” the total supply, and the shock effects on Bitcoin’s price, the authors found “no systematic evidence that stablecoins issuance affects cryptocurrency prices.”

Stablecoins perform a safe-haven role

By referring to the events in mid-March when the cryptocurrency market plunged by up to 50% in 24 hours, the research said that “stablecoins consistently perform a safe-haven role in the digital economy.” As they are especially attractive to traders in times of intense volatility, the market capitalization of most stablecoins surged at that point, while Bitcoin and altcoins took a sharp dive.

Back in Q4 of 2017, before the massive price pumps, the total market cap of all stablecoins equaled at approximately $1.25B, per data from CoinMetrics. At the time of this writing, it’s exceeding $9 billion – meaning a 620% surge in just over two years.

Read: G7 won’t allow steblecoins even if they meet regulators’ needs

As such, it’s no surprise that their role in the market continues growing. For example, ERC-20 stablecoins generate 80% of the daily adjusted transfer value on the Ethereum blockchain. Thus, the whole network recently came into full parity with Bitcoin.

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