Is Bitcoin Really Untethered?

Abstract

This paper investigates whether Tether, a digital currency pegged to the U.S. dollar, influenced Bitcoin and other cryptocurrency prices during the 2017 boom. Using algorithms to analyze blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month‐ends. Rather than demand from cash investors, these patterns are most consistent with the supply‐based hypothesis of unbacked digital money inflating cryptocurrency prices.

Asymmetric nexus between COVID-19 outbreak in the world and cryptocurrency market

“…A recent study points towards a possible management of the Bitcoin-Tether market from a few very highly influential nodes in the trading system/network. Consistent and predictable patterns of trading in the Bitcoin and Tether issuance are identified by this research published in the most prestigious journal of finance ( Griffin & Shams, 2020 ). Yet another concern is its ability to cope with an unseen and uncertain situation, like a rapid decline in trust or market failures that may lead to a complete collapse of the prices in the absence of a centralized regulatory system ( Fry, 2018 ).…”

Are Stablecoins Safe Havens for Traditional Cryptocurrencies? An Empirical Study during the COVID-19 Pandemic

“…Take Tether, a stablecoin pegged to USD with an anchor at $1, for example. Investors typically hold Tether to convert into other cryptocurrencies in the future -it currently accounts for more Bitcoin transactions than U.S. dollars (Griffin and Shams, 2020). As a result, it is not surprising to observe increasing interest from investors in stablecoins following the downturns of traditional cryptocurrencies.…”

Tail Risk Network Effects in the Cryptocurrency Market during the COVID-19 Crisis

“…There are also periods, when cryptocurrency market prices fluctuate strongly based on factors idiosyncratic to the cryptocurrency market, which is still a relatively young market at risk of being manipulated by large scale flows. For example, large individual investor flows led to the significant rise in cryptocurrency prices in 2017 (Griffin & Shams, 2020) . Similarly, the sudden drop in September 2020 can be attributed to miners in Bitcoin were selling a significant amount of stock into the market, which led to an around 15 percent drop in Bitcoin prices, as apparent in data from data provider glassnode (Garner, 2020).…”