Stablecoins Aren't Inflating Crypto Market, Study Concludes

New research on issuances and flows of Tether and other stablecoins finds no systematic evidence that these assets drive cryptocurrency market movements.

AccessTimeIconApr 22, 2020 at 5:22 p.m. UTC
Updated Sep 14, 2021 at 8:31 a.m. UTC
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Stablecoin issuances do not push up the price of bitcoin or other cryptocurrencies, according to research funded by University of California Berkeley’s Haas Blockchain Initiative. 

In their report, issued Friday, Richard Lyons, U.C. Berkley’s chief innovation and entrepreneurship officer, and Ganesh Viswanath-Natraj, assistant professor of finance at the Warwick Business School, found stablecoins serve as tools for investors to react to market movements and not as drivers of price inflation or collapse. Their analysis of trading data shows flows are consistent with investors using stablecoins as a store of value during periods of risk or price depreciation.

Lyons and Viswanath-Natraj also found “strong evidence” of another catalyst for flows from issuer treasuries to secondary markets: arbitrage trading when stablecoins deviate from their pegs.

Whether stablecoin issuances materially affect the price of cryptocurrencies is no small controversy. 

In July 2018, research published by John Griffins of the University of Texas at Austin and Amin Shams of the Ohio State University concluded stablecoin issuances “are timed following market downturns and result in sizable increases in bitcoin prices.” The research further claimed that stablecoin flows and subsequent price inflation during 2017 were attributable to a single entity.

Four months after the Griffins and Shams study was released, the U.S. Department of Justice opened an investigation into whether Tether and Bitfinex have used stablecoin issuances to inflate the price of bitcoin. 

A related class-action lawsuit was filed against dominant stablecoin issuer Tether and its sister company, Bitfinex, in late 2019. The claimants alleged Bitfinex and Tether "monopolized and conspired to monopolize the bitcoin market," as well as manipulated the market via stablecoin issuance among other things. A pseudonymous online firebrand known as Bitfinex'd made similar claims about the companies in a series of detailed blog posts several years ago.

Directly contradicting Griffin and Shams, Lyons and Viswanath-Natraj summarize their conclusions by saying: 

“We find no systematic evidence that stablecoin issuance affects cryptocurrency prices. Rather, our evidence supports alternative views; namely, that stablecoin issuance endogenously responds to deviations of the secondary market rate from the pegged rate, and stablecoins consistently perform a safe-haven role in the digital economy.”

The industry’s aggregate stablecoin supply has passed $9 billion at the time of writing, according to data from CoinMetrics. At bitcoin’s all-time high in Q4 2017, aggregate stablecoin supply was just over $1.25 billion.


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