Haas Blockchain Initiative at the University of California Berkeley research revealed that stablecoin issuances do not drive up or inflate the price of bitcoin (BTC) or other crypto currencies in the market.
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 in their report that 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 during periods of risk or price depreciation as a store of value.
Lyons and Viswanath-Natraj also found another catalyst for flows from issuer treasuries to secondary markets as a “strong evidence”: arbitrage trading when stablecoins deviate from their pegs.
Whether stablecoin issuances substantially impact cryptocurrencies prices is no small controversy.
Research by John Griffins of the University of Texas at Austin and Amin Shams of the Ohio State University, concluded in July 2018 that “stablecoin issuances are timed after market downturns and result in substantial increases in bitcoin prices.” Research further claimed that a single entity was attributable to stablecoin flows and subsequent price inflation in 2017.
Four months after the release of the study Griffins and Shams, U.S. Justice Department opened an investigation into whether Tether and Bitfinex used stablecoin issuances to inflate bitcoin prices.
In late 2019, a related class action lawsuit against dominant stablecoin issuer Tether and his sister company, Bitfinex, was lodged. The plaintiffs alleged that Bitfinex and Tether “monopolized and conspired to monopolize the bitcoin market,” as well as inter alia manipulated the market through stablecoin issuance. In a series of detailed blog posts several years ago a pseudonymous online firebrand known as Bitfinex’d made similar claims about the companies.
In direct contradiction to Griffin and Shams, Lyons and Viswanath-Natraj sum up their findings 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.”