“Is Bitcoin [BTC] really Un-Tethered?” – John Griffin and Amin Shams

Tether [USDT], one of the most traded cryptocurrencies supported by platforms like Bitfinix, ShapeShift, Bittrex, and Omni, shows an indication of being spent on Bitcoin in its critical moments, according to research by a University of Texas professor.

Bloomberg's Tweet about the research paper | Source: Bloomberg Twitter page

Bloomberg’s Tweet about the research paper | Source: Bloomberg Twitter page

Finance professor John Griffin and co-author Amin Shams wrote in a paper released Wednesday:

“Tether seems to be used both to stabilize and manipulate Bitcoin prices,”

John Griffin and Amin Shams, in their research article, ‘Is Bitcoin really Un-Tethered?’ aim to investigate the relation between Bitcoin, other cryptocurrencies, and Tether, a cryptocurrency purportedly clinched to the U.S. dollar that carries more transaction volume than dollars. They also set out to understand how the 2.5 billion Tether coins in actuality have gone along in the markets.

While there is little public information on about how Tether was created, it generally exchanges for around $1 as each coin is supposed to be backed by $1 of fiat money in a bank. The currency is plunged as a stable alternative to Bitcoin’s levity, acting as a harbor for crypto investors.

They state in their abstract:

“We investigate whether Tether is primarily demand-driven from investors, or supply-driven by Tether issuers pushing the currency on the market. Due to the semi-transparent nature of the blockchain, we are able to use extensive algorithms to lump nodes of investors and match transactions on the Tether Blockchain to those on the Bitcoin Blockchain.

What is interesting is that Griffin and Shams’s paper describes Tether as being primarily used by Bitfinex, a major crypto-exchange, to purchase Bitcoin tokens from two other exchanges and most importantly did this only after periods of Bitcoin price declines. They set out to know how less than 1% of hours with heavy Tether activity can explain almost half of the meteoric rise in Bitcoin.

They mention:

“consistent with some pressure to maintain dollar reserves only at the end of the month, Bitcoin prices are significantly negative on the last day of the month, but only in months with large Tether issuances.”

With intentions to investigate the price outsets of Tether to Bitcoin, they choose the sample of 87 of the largest purchases of Bitcoin with Tether from March 2017 to March 2018. In this regard Griffin said:

“strongly increase just below multiples of 500. This pattern is only present in periods following printing of Tether and not observed by other exchanges. If it was the random behavior you wouldn’t see it cluster around the thresholds, It indicates it’s a conscious strategy to provide price support.”

Griffin and Shams added:

“Overall, the findings indicate that Tether is closely linked to Bitcoin price appreciation, and question the purpose of Tether.”

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