Is Bitcoin Really Untethered? |
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| Authors: | JOHN M GRIFFIN AMIN SHAMS |
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| Institution: | 1. John M. Griffin is at the McCombs School of Business, University of Texas at Austin. Amin Shams is at the Fisher College of Business, Ohio State University. Helpful comments were received from Stefan Nagel (the editor);2. an associate editor;3. two anonymous referees;4. Cesare Fracassi;5. Sam Kruger;6. Shaun MaGruder;7. Gregor Matvos;8. Nikolai Roussanov;9. Clemens Sialm;10. and seminar and conference participants at the Chinese University of Hong Kong, Cryptocurrencies and Blockchain Conference at the University of Chicago, FBI CPA Conference, Financial Intelligence and Investigations Conference, Fintech Conference at the Hong Kong University, Hong Kong University of Science and Technology, Hong Kong Securities and Futures Commission, Korea Advanced Institute of Science and Technology, Korean Financial Supervisory Service, Japan Financial Services Agency, Santa Clara University, Texas Bitcoin Conference, Tsinghua University, U.S. Commodity Futures Trading Commission, University of Texas-Austin, University of Zurich, and Wharton Liquidity Conference at the University of Pennsylvania. Integra FEC purchased data and provided research assistant support for the project. Griffin is an owner of Integra FEC, which engages in financial consulting on a variety of issues related to financial fraud, including cryptocurrencies. See disclosure statement. We especially thank Tin Dinh for excellent conceptual assistance and Prateek Mahajan for research assistance. |
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| Abstract: | This paper investigates whether Tether, a digital currency pegged to the U.S. dollar, influenced Bitcoin and other cryptocurrency prices during the 2017 boom. Using algorithms to analyze blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month-ends. Rather than demand from cash investors, these patterns are most consistent with the supply-based hypothesis of unbacked digital money inflating cryptocurrency prices. |
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