Stablecoins are not inflating the cryptocurrency market

Stablecoin emissions do not increase the price of bitcoin or other cryptocurrencies, according to research funded by the Haas Blockchain Initiative of the University of California Berkeley.

Stablecoins as instruments, not market parameters

In their report, published on April 17, Richard Lyons, the main manager of innovation and entrepreneurship of U.C. Berkley and Ganesh Viswanath-Natraj, assistant professor of finance at Warwick Business School, have found that stablecoins serve as tools for investors to react to market movements and not as inflationary or collapsing prices.

Their analysis of the trading data shows that the flows are consistent with investors who use stablecoin as a store of value during periods of risk or price depreciation. Lyons and Viswanath-Natraj also found "clear evidence" of another catalyst for flows from issuers' treasury to secondary markets: arbitrage trading when stablecoins deviate from their regime.

Previous studies

Whether stablecoin issues materially affect the price of cryptocurrencies is not a small controversy. In July 2018, research published by John Griffins of the University of Texas at Austin and Amin Shams of Ohio State University concluded that stablecoin issues "are planned following market declines and lead to significant increases in bitcoin prices ".

The research also claimed that stablecoin flows and subsequent price inflation during 2017 were attributable to a single entity. Four months after the release of the Griffins and Shams study, the U.S. Department of Justice opened an investigation into determine whether Tether and Bitfinex used stablecoin issues to inflate the bitcoin price.A collective lawsuit was filed in late 2019 against the dominant stablecoin issuer Tether and its subsidiary Bitfinex.

The applicants argued that Bitfinex and Tether "monopolized and conspired to monopolize the bitcoin market", in addition to manipulating the market through the issue of stablecoins among other things. An alias online brand known as Bitfinex had made similar claims about companies in a series of detailed blog posts several years ago.

Conclusions

In direct contradiction to Griffin and Shams, Lyons and Viswanath-Natraj summarize their conclusions by saying: "We do not find systematic evidence that the issuance of stablecoin affects cryptocurrency prices.

Rather, our evidence supports alternative views; that is, the issue of stablecoin responds endogenously to the deviations of the secondary market rate compared to the anchored rate and that stablecoins constantly play a role of refuge in the digital economy ".

The industry's aggregate stablecoin supply exceeded $ 9 billion at the time of writing, according to CoinMetrics data. At the all-time high of bitcoins in the fourth quarter of 2017, the aggregate supply of stablecoins was slightly above $ 1.25 billion.