On the Role of Stablecoins in Cryptoasset Pricing Dynamics

Abstract

We examine the interactions between stablecoins, Bitcoin, and a basket of altcoins to uncover whether stablecoins represent the investors' demand for trading and investing into cryptoassets or rather play a role as boosting mechanisms during cryptomarkets price rallies. Using a set of instruments covering the standard cointegration framework as well as quantile-specific and non-linear causality tests, we argue that stablecoins mostly reflect an increasing demand for investing in cryptoassets rather than serve as a boosting mechanism for periods of extreme appreciation. We further discuss some specificities of 2017, even though the dynamic patterns remain very similar to the general behavior. Overall, we do not find support for various scandalous claims about stablecoins.

Keywords: cryptocurrencies, cryptoassets, Bitcoin, stablecoins, Tether

JEL Classification: C58, G14, G15