On 13 June, John M. Griffin and Amin Shams then dealt in their study “Is Bitcoin Really Un-Tethered?” with the relationship between the Bitcoin price and the issue of the stable coin. The two researchers from the University of Texas came to a similar conclusion as the report at the beginning of the year – namely that there was a striking correlation between the stable coin and Bitcoin:
“From March 1, 2017 to March 31, 2018, the actual Bitcoin price rises from around 1,190 US dollars to 7,000 US dollars – a return of 488 percent. In contrast, if the 87 tether-related hours are excluded, the price series ends at around 4,100 US dollars, which corresponds to an increase of 245 percent. Therefore, the hours with the strongest tether flow, which account for less than one percent of the period, seem to be associated with 50 percent of Bitcoin’s buy-and-hold revenue.”
The Bitcoin news report also featured a possible tether management floor motif:
“[…] if the Tether founders, like most early crypto currency buyers and exchanges, hold Bitcoin news over the long term, they have a strong incentive to create artificial demand for Bitcoin news and other crypto currencies by “printing” Tether. Similar to the inflationary effect of printing extra money, this can drive up crypto currency prices. Second, the coordinated provision of tether creates the possibility to manipulate crypto currencies. When prices fall, the tether creators can convert their tether into Bitcoin so that Bitcoin is pushed up.
Then they swap Bitcoin back into US dollars to replenish the tether reserves as the Bitcoin price rises.”
A lot of wind for nothing?
Recently the VWL trade magazine “Economic Letters” published a report that takes a stand for the stable coin. The author, Wang Chun Wei, had already published his paper on SSRN in May. After it initially received little attention there, public interest grew with its inclusion in the October issue of Economic Letters.
In the report “The Impact of Tether Grants on Bitcoin”, Wei Bitcoin and Tether also perform a statistical analysis. Using a vector autoregressive model (VAR), Wei arrives at the result:
“Our paper does not examine whether the newly issued tether tokens are actually backed by US dollars or not, but we examine the effects of these crypto currency issues on the later crypto currency exchange rate. In summary, we find no evidence that USDT issuance will lead to a later rise in Bitcoin yields.”
At the same time, the report notes that stable coin issuances could increase Bitcoin’s (and Tether’s) trading volume in the short term. Here the report explicitly agrees with the results of the January anonymous report.
Furthermore, it can be assumed that Tether Limited will make the issue of new tokens dependent on the situation on the Bitcoin market.
Conclusion: No complete rehabilitation for the stable coin
The study does not succeed in completely eliminating the accusations of manipulation against Tether (and Bitfinex). The applied VAR model has a thinner data basis than the analysis of Griffin and Shams. In addition, Griffin and Shams not only knew about Weis’s results, they also cited his report as sources. Although not all of these 45 references used by the Texas researchers are meaningful technical literature, they are not. Nevertheless, the sources and data of Griffin and Shams provide a more convincing picture than Weis Report. This is not only shorter, but is based on only six sources – one of which he is himself.
Also the argumentation of the anonymous report with the different statistical procedures, which are partly also used in the financial forensics, is not taken up by Weis Report. Finally, the fact that the results of Griffin and Shams are in some places almost identical to those of the January Report speaks for the manipulation thesis.