A study from the University of Queensland suggests the longstanding suspicion that Tether manipulates Bitcoin prices may not hold water. Dr. Wang Chun Wei, an academic at the university's business sc
A study from the University of Queensland suggests the longstanding suspicion that Tether manipulates Bitcoin prices may not hold water.
Dr. Wang Chun Wei, an academic at the university's business school, conducted the analysis. He examined whether large issuances of Tether tokens moved Bitcoin's price. He found no statistical connection between the two. The research initially circulated in May and will appear in the October 2018 issue of Economic Letters.
"Our findings show that tether grants were potentially timed to follow bitcoin downturns and subsequent Bitcoin/tether trading volume increased," Wei wrote in "The Impact of Tether Grants on Bitcoin." "However, the impact of tether grants on Bitcoin returns was not statistically significant, and therefore tether issuances cannot be an effective tool for moving bitcoin prices."
The findings will trigger debate across the industry. For years, skeptics have questioned whether the company's stablecoin—tokens issued with dollar backing—inflates Bitcoin demand. Many observers have blamed Tether for driving Bitcoin's price movements. Tether Limited denies such claims. The CEO has released statements attempting to debunk manipulation accusations. Questions about the company's actual dollar reserves persist nonetheless.
Wei's research operates with clear limits. The paper focuses on trading volume and price movement after token releases. It does not address the broader question of whether Tether holds sufficient dollars in reserve to back its tokens. Wei said this inquiry belongs to regulators and auditors, not academic researchers.
An anonymous report published in January under the title "The Tether Report" reached opposite conclusions. That author argued Bitcoin's historical prices pointed to manipulation. "If one were to assume the worst case scenario, that bitcoin 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 report stated.
Wei's paper examined how Tether's token issuances, called grants, work as a form of quantitative easing in crypto markets. The company periodically issues large quantities of new tokens. "If tether tokens were not fully backed, then for the company to issue new tokens would be equivalent of printing money," Wei explained. "If this was true, tether grants/issuances would be equivalent to 'monetary easing' in the cryptocurrency markets."
Wei constructed his hypothesis on a basic premise: if Tether deployed new tokens to buy Bitcoin, prices should rise after issuances. Market conditions support part of his reasoning. More than $2 billion trades on Bitcoin-Tether pairs alone. Wei's data showed that Bitcoin trading volume did increase following token releases.
To test whether price changes followed token releases, Wei employed two statistical methods designed to detect causal relationships. An autoregressive distributed lag model examined relationships looking backward through time, tracing whether past events predicted future price movements. An unrestricted vector autoregression model examined relationships looking forward. Both models were designed to isolate whether Tether issuances moved Bitcoin prices.
"We have a null model that tries to explain bitcoins returns using past bitcoin returns. We have a full model that tries to explain bitcoin returns using past bitcoin returns and past tether grants," Wei wrote. When he added Tether variables to the model, the results did not improve. "In my paper, I state that past trading volumes do not impact future returns," Wei said.
The finding amounts to this: adding information about Tether issuances does not improve price predictions beyond what Bitcoin's own historical movements provide.
