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The impact of Tether grants on Bitcoin

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  • Wei, Wang Chun

Abstract

In recent years, Tether issuances (or ‘grants’) have increased significantly, which correlated broadly with a significant rise in Bitcoin valuation. This paper examines the impact of cryptocurrency issuances on subsequent cryptocurrency returns. It is argued that as Tether is the undisputed ‘stable coin’, the minting of new Tether acts similarly to monetary expansion in cryptocurrency markets, inflating the prices of Bitcoin. We construct a VAR model and show contrary to investor expectations, Tether issuances do not impact subsequent Bitcoin returns, however, they do impact traded volumes. We also document an increase in Tether trading following a subsequent decrease in Bitcoin returns.

Suggested Citation

  • Wei, Wang Chun, 2018. "The impact of Tether grants on Bitcoin," Economics Letters, Elsevier, vol. 171(C), pages 19-22.
    • Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:19-22
    DOI: 10.1016/j.econlet.2018.07.001
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    References listed on IDEAS

    as
    1. Feng, Wenjun & Wang, Yiming & Zhang, Zhengjun, 2018. "Informed trading in the Bitcoin market," Finance Research Letters, Elsevier, vol. 26(C), pages 63-70.
    2. Urquhart, Andrew, 2016. "The inefficiency of Bitcoin," Economics Letters, Elsevier, vol. 148(C), pages 80-82.
    3. Balcilar, Mehmet & Bouri, Elie & Gupta, Rangan & Roubaud, David, 2017. "Can volume predict Bitcoin returns and volatility? A quantiles-based approach," Economic Modelling, Elsevier, vol. 64(C), pages 74-81.
    4. Gandal, Neil & Hamrick, JT & Moore, Tyler & Oberman, Tali, 2018. "Price manipulation in the Bitcoin ecosystem," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 86-96.
    5. Wei, Wang Chun, 2018. "Liquidity and market efficiency in cryptocurrencies," Economics Letters, Elsevier, vol. 168(C), pages 21-24.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bitcoin; Tether; Cryptocurrency;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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