Tether (USDT) Controversial Cryptocurrency Grants Seem to Have No Impact on Bitcoin’s Prices
Controversial Cryptocurrency Seems to Have No Effect on Bitcoin’s Prices
Tether (USDT) has been controversial in the crypto industry, to say the least. It is directly tied to the value of the dollar, but a recent study found that it has had no effect on Bitcoin or its price. The study was performed by Dr. Wang Chun Wei of the University of Queensland in Australia. The results of the study are completely contradictory to the former claims that USDT has been issued to stimulate Bitcoin’s prices.
All of the finding from Wei have been accepted by a publication called Economics Letters, and will be published in October 2018, even though it was already published in May. The paper is titled
“The Impact of Tether Grants on Bitcoin.” Specifically, regarding the value of the token, the article says, “Our findings show that tether grants were potentially timed to follow bitcoin downturns and subsequent bitcoin/tether trading volumes increased … However, the impact of tether grants on bitcoin returns were not statistically significant, and therefore tether issuances cannot be an effective tool for moving bitcoin prices.”
Right now, there is not any stablecoin that beats out Tether, as it keeps its $1 price tag, which is meant to be backed with an equal amount on reserve. However, that idea has been a constant idea of that investors and contributors have decided to debate. It has not gotten any better, considering that Tether has yet to produce a full audit that can dispute it.
Tether has continued to be a valuable asset, but there is at least one of the top exchanges that has shifted that.
In the research, one of the major points of assessment has to do with the market volume of USDT, though it does not bring up the main controversies that the token has experienced. Instead, Wei notes, “This is for regulators and auditors to determine.”
Still, the paper brings up whether the introduction of new USDT would change the price of cryptocurrency around the world.
“The Tether Report” brings up a good point of how these numbers compare, saying, “The highly correlated growth between tether issuance and bitcoin price raises several interesting questions: Is bitcoin growth driving Tether? Is tether issuance driving bitcoin? If one were to assume the worst-case scenario, that bitcoin's price has been artificially pumped up by tether issuance, one would expect the market price of bitcoin to be closer to $2,000 based on the trendline before April 2017 and the marked growth in tether issuance.”
The policies with Tether Limited say that additional USDT are periodically issued, and the large allotments are known as grants. Wei says,
“The grants seem to occur in groups. I think Tether Limited breaks the grants into smaller blocks and issues them out over a couple of days.” Wei further discussed how the detractors work with Tether Limited, writing, “If tether tokens were not fully backed, then for the company to issue new tokens would be equivalent of printing money. If this was true, tether grants/issuances would be equivalent to ‘monetary easing' in the cryptocurrency markets.”
By enhancing the money supply, economic activity is stimulated. However, Wei noted that the point of the enhancement was to test out if Tether’s increase promotes bigger Bitcoin prices. While trading with Bitcoin after new USDT grants are issued, the connection is a little misleading. Wei commented,
“However, you cannot use trading volume to predict price, as the effect is simultaneous. In my paper, I state that past trading volumes do not impact future returns.”
The paper examines these questions with two time-series models, making it possible to test out different variables for a connection. Each model explored the changes, looking for a further correlation. The models used are called “autoregressive distributed lag” and “unrestricted vector autoregression” models.
These examine the correlation between the relationship from the past to make a prediction about the future. Wei explained it like this:
“We have a null model that tries to explain Bitcoin returns using past Bitcoin returns. We have a full model that tries to explain Bitcoin returns, using past Bitcoin returns and past tether grants.” He added, “We then show the full model isn’t actually any better than the null model. Hence, past tether grants must have no impact on Bitcoin returns.” Basically, when variables are added in, there is no significant reaction.
Realistically, Wei says that this makes sense, considering the size of the Bitcoin market. He summarized,
“The grants come roughly at $100-250 million blocks. The daily trading volume of Bitcoin is roughly $5-10 billion USD. At its peak, it was roughly $20 billion. So, the impact of tether is small. Claims saying that it is tether that props up Bitcoin are definitely not true.”