Sebastian Sinclair

Macauley Peterson

Increased use of digital assets could help to improve the quality of life for society, but they also present challenges to the banking sector, the US Treasury said Wednesday.



Private digital assets, such as stablecoins issued by banks, as well as public central bank currencies, could harm financial stability, increasing the likelihood of sector-wide crises, according to a <a href="https://www.financialresearch.gov/working-papers/files/OFRwp-23-01_digital-currency-and-banking-sector-stability.pdf" target="_blank" rel="noreferrer noopener">report</a> published by the US Treasury Department&#8217;s Office of Financial Research (OFR).



Their proliferation could make it harder for banks to recapitalize following losses due to digital assets’ ability to depress spreads, meaning the difference between interest rates that banks charge for loans and the interest rates they pay to depositors.



The irony of the well-worn narrative is not lost on market observers, who witnessed a historic run on Silicon Valley Bank earlier this month, despite most of its issues stemming from poor risk management <a href="https://blockworks.co/news/dont-blame-crypto-for-banking-problems">and not its exposure</a> to the nascent asset class.



The OFR report sidesteps the contribution digital assets or CBDCs may make to bank runs and the disintermediation of bank deposits. The focus, instead, is on cases of systemic deleveraging and requisite financial fragility resulting from low levels of bank equity.



The adoption of digital assets can increase household welfare “significantly despite the decrease in financial stability,” the authors wrote — but only up to a point, after which financial instability can become harmful.



“The welfare-maximizing level of digital currency may be less than what would be provided by profit-maximizing issuers in a competitive market,” the report reads. It suggests regulation or other policy interventions may be necessary to square the interests of issuers with what’s best for society.



For instance, the authors caution, if digital assets move closer to a “perfect substitute” for deposits, their issuance is more likely to lead to welfare declines.



On average, digital currency issuance leads to an increase in asset prices and a decrease in their volatility, the report concludes.



In other words, the authors write, financial markets improve even as the financial sector suffers.



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Digital Assets May Be Good for Households But Bad For Banks

Digital assets have been found to move in cyclical patterns based on volatility, leading to larger outsized returns.



An exhaustive study conducted by researchers at risk management and trading platform The Risk Protocol (TRP) found bellwether bitcoin <a href="https://www.blockworksresearch.com/glossary#volatility">volatility</a> differed significantly depending on the time of day.



Measuring in Coordinated Universal Time (UTC), TRP said hours two and 15 through 18 were found to be the most volatile, <a href="https://riskprotocol.io/" target="_blank" rel="noreferrer noopener">the</a><a href="https://riskprotocol.io/#research" target="_blank" rel="noreferrer noopener"> </a><a href="https://riskprotocol.io/" target="_blank" rel="noreferrer noopener">study</a>, titled “The Nature of the Beast,” indicated.



Put differently, by analyzing the average absolute return and absolute return standard deviation, it was revealed that crypto tends to move most during the 9 am start of the day across Asia and the US.



&#8220;If you look at the volatility pattern in the US financial markets, it is typically U shaped, in the sense that it is higher at market opening and closing and lower in the middle,&#8221; TRP CEO Karamvir Gosal told Blockworks.



Gosal added: &#8220;If traders are building a large position in crypto or trying to unwind one, they want to do so in periods of low volatility.&#8221;



Volatility can be described as the degree of variation of a financial instrument&#8217;s price over time, and can manifest in either positive or negative moves.



It is often measured by the standard deviation of an asset’s returns over a certain period. In other words, the higher the volatility, the more the price of the asset fluctuates, which implies a greater risk for investors.



Volatility across Asia typically lasts for between five and six hours before dropping to its lowest point as parts of Europe approached late evening, the study found. Volatility then begins to pick up once again during US working hours, peaking by about 2 pm.



With people in the US starting a new trading day, “we would typically expect more trading activity during these hours,” TRP said.



Large levels of exchange trading volumes have been witnessed occurring during those times, which is consistent with the analysis, researchers said.



Ethereum, too, was also shown to have the same volatility patterns as bitcoin, which makes sense given their close correlation during major market moves.



“Findings are not too surprising given the regular working hours around the world,” TRP said. The study also found that, of the 50 digital assets it analyzed, Friday, offered up significantly higher volatility than other days.



To test the statistical significance of the results, the researchers conducted a mean difference test between Tuesday and other days and found the weekend offered the lowest levels of significant price changes.



The results are likely correlated to crypto’s round-the-clock trading times compared to traditional markets, meaning more people are likely to trade during days when they are at work taking a break during the weekend, they said.



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Bitcoin’s Price Movement is ‘Highly Predictable’ on Set Days, Study Finds

Ben Strack

<div id="highlights-block_6285486c715ef" class="highlights">
 <ul>
 <li>Blockworks Research will first focus on DeFi and seeks to expand its coverage to other sectors</li>
 <li>Web application’s offerings to include project and tokenomics analysis, daily briefs with market updates, and protocol and project models</li>
 </ul>
 
</div>



Blockworks has launched a research offering designed for a range of investors and industry watchers seeking to learn more about DeFi and other crypto sectors.&nbsp;&nbsp;



The media company’s co-founders, Jason Yanowitz and Michael Ippolito, unveiled <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">the new web application</a> Wednesday during the Permissionless event in Palm Beach, which Blockworks is co-hosting.



Founded in 2018, Blockworks has spent the past few years building out its events and conferences, as well as its podcast network, editorial brand and newsletter.



“We’ve been building this huge community of investors who are investing into crypto with this core thesis that crypto will eventually become one of the largest asset classes in the world,” Yanowitz said. “Now, it’s time to go deeper.”&nbsp;



Blockworks Research will focus on DeFi (decentralized finance) and seeks to expand its coverage to other sectors. The company will publish research on segments such as layer-1s, layer-2s, DAOs, gaming and NFTs — starting at the product and protocol level.



The company has a 10-person research team and plans to scale the unit over time, Yanowitz said.



The offering was designed for crypto executives seeking to keep up with industry development, as well as builders, investors and retail traders.



In addition to data, Blockworks Research will offer project and tokenomics analysis, daily briefs with market updates, protocol and project models, corporate access calls, governance updates and access to analysts.&nbsp;



The launch comes after the crash of Terra’s algorithmic stablecoin, UST, and the blockchain’s other native token, LUNA. Though the timing wasn’t planned, Ippolito said, the recent events are a good reminder of the need for better data and analysis.



“There’s definitely a lot of…following people and not doing their own research,” he said. “So one of the things we feel we can give back to the community is providing good primary research, and hopefully that can advance the space.”



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Blockworks Unveils New Research Offering

Jacquelyn Melinek

<div id="highlights-block_621f6168d370a" class="highlights">
 <ul>
 <li>About 1 in 4 women already own crypto, the survey found</li>
 <li>Other subsectors in the industry remain largely untapped by women as only 5% have bought an NFT or participated in crypto mining</li>
 </ul>
 
</div>



About one-third of women are planning on buying cryptocurrencies this year, according to a new survey conducted by BlockFi. Of those women, 60% said they plan on buying digital assets within the next few months.



That’s more than double the 29% of women who said, in a September 2021 survey, they would purchase within the next year. 



“There’s no better way to learn about something new than by doing — especially when diving into the seemingly complex world of crypto,” Flori Marquez, founder and senior vice president of operations of BlockFi, said in a statement. 



About one in four women already own cryptoassets, and of that group, a majority of them have never sold what they’ve bought.



The findings also showed women are buying bitcoin, dogecoin and ether the most — at 71%, 42% and 18%, respectively. However, other subsectors in this space remain largely untapped by women, as only 5% have bought a non-fungible token (NFT) or participated in crypto mining.



In general, the crypto sector is a heavily male-dominated industry. Out of the 121 leading crypto companies, only five of them, or 4.13%, had female founders, according to <a href="https://cryptohead.com/cryptocurrency-company-index/?msID=5717aa95-8a58-4454-9210-9f72fa4cd4a0" target="_blank" rel="noreferrer noopener">research</a> by Crypto Head. Of those founders — Marquez being one of them — all the companies also have at least one male founder, too.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/Nu87tROsif4_LwFU8AQdFN_KSrq-YCJdhr-PlI68I_p1_pqovr6rQH9Qm2KIBukFKrNqmxkXoGC_nKT82IWu6ngxoSDvpQjY07_XSKtQvrjtzI_TaWshx_s7MLyDCa3Atp5FdraY" alt=""/><figcaption>Source: Crypto Head</figcaption></figure>



The number of women in the industry is set to grow, though. The BlockFi survey found that 15% of women are interested in working in crypto, but only 10% plan on applying to crypto or blockchain-focused companies within the next year.&nbsp;



“It’s very exciting to know that women are becoming more aware of the benefits of owning crypto and expressing interest in working in the crypto sector,” Marquez said. “Now it’s our responsibility to continue to close the education gap and provide as many on-ramps as possible, so women can easily gain exposure to crypto markets and get comfortable doing more with their crypto.”&nbsp;



The survey was conducted by a third-party survey panel at the end of January and consisted of 1,031 female Americans between the ages of 18 and 65. This is the third edition of its “Real Talk” survey, which is focused on female Americans’ attitudes toward crypto, financial wellness and career aspirations.&nbsp;



&#8220;Crypto is becoming a part of everyday financial wellness, and we must continue to educate new adopters and make financial products that are simple and easy to use,&#8221; Marquez told Blockworks. &#8220;Mass adoption presents a significant opportunity to drive inclusion in the industry.



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Survey: One-third of Women Plan To Buy Crypto This Year

<div id="highlights-block_61f19d9467ff2" class="highlights">
 <ul>
 <li>The total value locked across layer-1 protocols jumped 1,237% from $18.7 billion at the beginning of 2021 to about $250 billion by year-end, according to DeFiLlama data </li>
 <li>Uniswap accounted for the &#8220;lion&#8217;s share&#8221; of volume with $779 billion traded on its protocol</li>
 </ul>
 
</div>



The number of clear-cut use cases for cryptocurrencies ballooned last year in a trend Coinbase expects to continue in 2022 — especially when it comes to DeFi, NFTs, the metaverse and play-to-earn gaming.



“We’ve now started to see the real use cases start to emerge, compared to a lot of old rhetoric that people rely on about Bitcoin and store of value,” David Duong, Coinbase’s head of institutional research, told Blockworks.&nbsp;



In the exchange’s institutional arm’s “<a href="https://www.coinbase.com/prime/2021-year-in-review?utm_source=twitter&amp;utm_medium=organic&amp;utm_campaign=in_i_m_w_m_awa_twi_soc_0_institutional-2021-year-review" target="_blank" rel="noreferrer noopener">2021 Year in Review</a>,” Duong said an area to watch is the U.S. regulatory landscape, which is “primed for more clarity in 2022.” Meanwhile, the move toward Web3 technologies is accelerating, he said.



“Well now we have a completely different environment we’re seeing new layer-1 chains and networks being developed, hosting a number of programs and platforms that really are going to represent a new shift for the world away from Web1, Web2 to a <a href="https://cms.blockworks.co/metaverse-will-empower-creators-ceo-says/" target="_blank" rel="noreferrer noopener">Web3</a> world,” Duong said.&nbsp;



 The total value locked (TVL) across layer-1 protocols jumped 1,237% from $18.7 billion at the beginning of 2021 to about $250 billion by the end, according to <meta charset="utf-8">DeFiLlama <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">data</a>.



<div class="wp-block-image"><figure class="aligncenter size-full is-resized"><img decoding="async" loading="lazy" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png" alt="" class="wp-image-16084" width="835" height="424" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=758 758w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=50 50w" sizes="(max-width: 835px) 100vw, 835px" /></figure></div>



The majority of the TVL is pooled into lending and borrowing protocols such as <a href="https://cms.blockworks.co/aave-arc-to-provide-30-financial-institutions-access-to-private-pools-of-defi-liquidity/" target="_blank" rel="noreferrer noopener">Aave</a> or Compound, as well as decentralized exchanges like <a href="https://cms.blockworks.co/uniswap-delegates-consider-liquidity-mining-to-kickstart-ethereum-layer-2-adoption/" target="_blank" rel="noreferrer noopener">Uniswap</a> and Curve, according to Duong.



Duong expects volatility to persist as crypto remains in the nascent stages of Web3 adoption.



As of Jan. 25, the total TVL on DeFi protocols declined about 19% from the end of 2021 to $201.9 billion.&nbsp;



“Overall it’s still a growth number. These things will fluctuate like anything in the world — there’s no straight linear growth,” Duong said. 



Decentralized exchanges (DEXs) gathered over $1 trillion in cumulative volume last year, with Uniswap taking “the lion’s share,” the report found. For reference, the Uniswap protocol has traded over $779 billion across 86 million trades, according to its <a href="https://uniswap.org/" target="_blank" rel="noreferrer noopener">website</a>.&nbsp;&nbsp;



Though DEX trading volumes typically trail centralized exchanges, there have been instances where Uniswap surpasses Coinbase in trading activity.&nbsp;



Duong declined to share projections for DeFi protocol TVL levels for 2022, but said, “I do think it’s going to continue to grow. The space as a whole has a lot of opportunities still with DEXs, AMMs, and liquidity pools, which are in their initial stages.” 



He expects more users to turn to DEXs like Uniswap as the yield possibilities of liquidity pools rise and there’s less concern about token volatility.&nbsp;



“If you look at Uniswap and returns from liquidity pools compared to traditional finance, those yields are very attractive and people are starting to realize that more and more,” he said. “That search for yield has definitely benefited crypto and Uniswap is evidence of that.”.



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Coinbase: DeFi Growth Spikes as Crypto Shifts to Web3 Technologies

<div id="highlights-block_61e9dd4f589c2" class="highlights">
 <ul>
 <li>A report by Bitwise Asset Management and ETF Trends found that 94% of financial advisors fielded crypto questions from clients in 2021 </li>
 <li>There was a roughly even split between advisers considering an investment in crypto equities versus direct crypto investments this year</li>
 </ul>
 
</div>



Financial advisors increasingly included crypto in client portfolios last year, according to <a href="https://static.bitwiseinvestments.com/Research/Bitwise-ETF-Trends-2022-Benchmark-Survey.pdf">a recent survey</a> — and even more money managers plan to deploy capital in the space this year.



The findings, released by Bitwise Asset Management and ETF Trends on Thursday, indicate that the percentage of financial professionals investing client funds in crypto rose from 9% to 15% over the past year. Most holdings, for now, are small, with 80% of respondents capping digital assets to 5% of a given portfolio.&nbsp;



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="708" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg" alt="" class="wp-image-15807" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=372 372w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=378 378w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=317 317w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-2-1024x708.jpg?w=1470 1470w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure></div>



“Crypto has gone from a tulip craze-style fad to a real, lasting phenomenon,” ETF Trends Managing Editor Lara Crigger told Blockworks. “Advisors can&#8217;t just ignore the questions anymore. They must be proactive about crypto education, not just for their clients but for themselves.”



The survey included 619 responses from independent registered investment advisors, broker-dealer representatives and financial planners in the US.&nbsp;



<h3>Allocations to the space grow</h3>



To go along with the 15% of advisors that invested in crypto last year, an additional 14% said they will “probably” or “definitely” have crypto holdings this year.&nbsp;



The expected increase comes as 94% of advisors reported receiving questions from clients about crypto in 2021, up from 81% the year before



Crigger said she expects advisors adding crypto to their clients’ investment mix to rise sharply, noting that 47% of advisors said they have personal crypto holdings — a near-doubling from the year before.&nbsp;



“Seems like an odd mismatch, perhaps, but I think advisors aren&#8217;t willing to put their clients in something that they haven&#8217;t experienced for themselves,” she said. “Right now, they&#8217;re conducting hands-on research, using their own accounts. If it makes sense, they&#8217;ll apply that knowledge to their clients&#8217; portfolios.”&nbsp;



More advisors than now, however, are remaining on the sidelines, citing volatility concerns, plus a lack of regulatory clarity.&nbsp;



<div class="wp-block-image"><figure class="aligncenter size-large is-resized"><img decoding="async" loading="lazy" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg" alt="" class="wp-image-15808" width="553" height="768" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=737 737w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=216 216w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=185 185w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=188 188w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=158 158w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=58 58w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=36 36w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Advisor-Crypto-Survey-Chart-737x1024.jpg?w=944 944w" sizes="(max-width: 553px) 100vw, 553px" /></figure></div>



Though more than half of respondents said they’re concerned about volatility, the same number believe that bitcoin will top $100,000 within five year. Just 15% last year estimated the cryptocurrency would rise that high over the same period.&nbsp;



Bitcoin traded around $42,600 at 4 p.m. ET on Thursday, up 1.8% over the last 24 hours.



<h3>Ways to invest in crypto</h3>



Though the US Securities and Exchange (SEC) approved <a href="https://cms.blockworks.co/what-does-demand-for-bitcoin-futures-etfs-look-like-in-2022/">bitcoin futures-based ETFs</a> to hit the market in October, the agency <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/">has not yet approved</a> an ETF that would invest in bitcoin directly.&nbsp;



The SEC on Thursday denied a bitcoin ETF proposed by First Trust and SkyBridge Capital, according to a<a href="https://www.sec.gov/rules/sro/nysearca/2022/34-94006.pdf"> filing</a>.



The survey found that 82% of advisors said they’d prefer investing in a spot bitcoin ETF versus a futures-based alternative&nbsp; — which could be a long ways off in the U.S.&nbsp;



Meanwhile other advisors are focused on investing in the stocks of companies with exposure to digital assets. About 46% were bullish on buying crypto-related equities, compared to 45% interested in buying crypto outright.&nbsp;



The outlook on blue-chip crypto stocks such as Coinbase has become more rosey lately as companies look to diversify their revenue streams. Bank of America Research Analyst Jason Kupferberg said in a research note earlier this month that he’s upgraded Coinbase to a buy rating as the company plans to add products this year.&nbsp;



<meta charset="utf-8"><a href="https://cms.blockworks.co/ark-invest-coinbase-is-an-attractive-long-term-play/">Research professionals at Ark Invest have said</a> that Coinbase’s position as a crypto on-ramp and its additional planned launches make it an attractive long-term play. The firm bought about 200,000 shares of Coinbase across three of its ETFs over a two-day span earlier this month.



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Survey: Financial Advisors Increasingly Allocating to Crypto

Sam Reynolds

<div id="highlights-block_616476f903ba2" class="highlights">
 <ul>
 <li>Critics of Tether often point to its frequent USDT minting near periods of market volatility to suggest a conspiracy that Tethers are minted in order to stabilize, and prop up the market</li>
 <li>CrossTower research suggests that Tether minting has had no material impact on price and rather follow capital flow</li>
 </ul>
 
</div>



Is Tether issuance timed to support the rise of the price of bitcoin during periods of market volatility? No, says a new paper from CrossTower Research.&nbsp;



A <a href="https://newrepublic.com/article/160905/tether-cryptocurrency-scam-enrich-bitcoin-investors" target="_blank" rel="noreferrer noopener">common belief</a> amongst those skeptical of the merits of the digital asset market is that Tether (USDT) is minted in large measure to <a href="https://www.theverge.com/22620464/tether-backing-cryptocurrency-stablecoin" target="_blank" rel="noreferrer noopener">support the growth</a> in the price of bitcoin.



Tether Limited certainly lends itself to conspiracy. With its outsized role in the broader crypto market — USDT accounting for 70% of all volume on centralized exchanges — and opaque structure with <a href="https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether" target="_blank" rel="noreferrer noopener">questionable holdings</a>, it has been <a href="https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether" target="_blank" rel="noreferrer noopener">described recently</a> as a company that seems to be “practically quilted out of red flags.”



But often reality is less interesting than imagination.&nbsp;



Tether is currently the fourth-largest digital asset by market cap, according to <a href="https://www.coingecko.com/en" target="_blank" rel="noreferrer noopener">CoinGecko data</a>, with $69 billion USDT in circulation. Its closest stablecoin competitor, <a href="https://cms.blockworks.co/celsius-reportedly-borrowed-1b-from-tether-with-bitcoin-as-collateral/" target="_blank" rel="noreferrer noopener">Circle’s</a> USDC, has a market cap of just over $33 billion.&nbsp;&nbsp;



<h3>The Tether tie</h3>



The belief that there was, or is, some deliberate relationship between Tether mints and the price of bitcoin first began in 2018 when an anonymous report was published — “<a href="https://www.tetherreport.com/" target="_blank" rel="noreferrer noopener">The Tether Report”</a> — which claimed that 40% of bitcoin price growth could be attributed to Tether.



<a href="https://poseidon01.ssrn.com/delivery.php?ID=542020096000010096113080070065068102026044031032057003066126105028004098107026113066031056003008104040034096126064110019002088027091046046045108065096110108089017004077083060020091016071122113080065025003122025122064019075070109077066024085027070005102&amp;EXT=pdf&amp;INDEX=TRUE" target="_blank" rel="noreferrer noopener">Another paper</a> from University of Texas at Austin finance professors John Griffin and Amin Shams argued that even though the positive price action from Tether minting was small, sometimes just 1%, if timed correctly during periods of market volatility there were “substantial aggregate price effects” downstream.&nbsp;



“These distortive effects, when unwound, could have a considerable negative impact on cryptocurrency prices,” they wrote. “Our findings support the historical narrative that dubious activities are associated with bubbles and can contribute to further price distortions.”



CrossTower notes that many of the crypto derivatives and futures contracts are denominated in USDT, which has contributed to the growth of the stablecoin alongside the popularity of crypto derivatives.



CrossTower points to Tether’s use in dodging Chinese capital controls as one of its many utilities which have led to its continued market dominance despite the numerous questions around it.&nbsp;



“With growing institutional investment into the crypto market, we would expect an increase in the amount of Tether being created,&#8221; the company stated in the report.



<h3>Price action</h3>



According to CrossTower’s analysis of pricing data, Tether mints do not follow weak price action, nor do they have a material impact on price.



<blockquote class="wp-block-quote">CrossTower found that Tether’s mints, usually occurring on a Monday, followed lower bitcoin and ether prices that occurred simply because of reduced crypto trading over the weekend. However, other mints that occurred were related to positive price action in the 30 days or seven days preceding the mint.&nbsp;</blockquote>



When minting occurs, pricing action doesn’t change much over a median average. CrossTower noted that those days during which mints preceded a positive price move occurred during a broader bull market trend.



CrossTower says that, for bitcoin, the mean price increase on the day of minting ranged from 1.5% to 1.9%; however the day before the mean price increase ranged from 1.0% to 1.9% — the day-to-day price increase was not materially different from the broader trend.&nbsp;



Furthermore, the day after the mint, CrossTower’s research showed bitcoin&#8217;s gains were rather subdued, with a mean price increase ranging from 0.7% to 1.2%.



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="996" height="469" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg" alt="" class="wp-image-9211" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=996 996w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/2021-10-11-Tether_crop.jpg?w=80 80w" sizes="(max-width: 996px) 100vw, 996px" /><figcaption>Price movement around a Tether mint day for mint sizes &gt;$100M; Source: CrossTower Research</figcaption></figure></div>



“All in, our findings suggest that USDT mints could have led to higher bitcoin, but largely disproves the notion that these mints were predicated on negative price performance in the&nbsp; days before,” wrote CrossTower. “We note that there are simply too many confounding factors that make it difficult to attribute the price movements of bitcoin solely to mints of Tether. It could also simply reflect that Tether mints are reflective of real inflows into the crypto ecosystem.”



This story was updated on October 11, 2021, at 5:27 pm ET



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CrossTower Research: Tether Mints Follow Strong Price Action

<div id="highlights-block_61018fdacf0d4" class="highlights">
 <ul>
 <li>Bitcoin continued to show low correlation to other benchmarks during the time frame. Its 12-month correlation was closest to ethereum’s daily returns at 67.2%, followed by the S&#038;P 500 asset at a much lower 14.1% correlation, the data showed. </li>
 <li>Coinbase noted that many major ETF issuers believe the US SEC could give the “go-ahead” to the crypto ETFS in 2021 or 2022.</li>
 </ul>
 
</div>



The first half of 2021 was one of the most active periods on record for crypto, said Brian Foster, a member of Coinbase’s Institutional Sales, Trading, and Prime Services team and Coinbase Ventures, in the company’s H1 2021 Review <a href="https://assets.ctfassets.net/c5bd0wqjc7v0/4kKRqK0SCt0DDDjXuo5NRX/fc893f70e08204df25df490d7bcf3e88/Coinbase-Institutional-H1-2021-in-Review.pdf" target="_blank" rel="noreferrer noopener">report</a>.&nbsp;



The first six months brought in new all-time highs in asset prices, user adoption and trader activity, Foster said.&nbsp;



“Crypto saw continued price volatility — total market capitalization began the year at $769 billion, peaked at $2.4 trillion in May, and ended the period at $1.4 trillion, registering a net gain of 86% year to date,” he added.&nbsp;



At the end of the first half, bitcoin stored $657 billion in global wealth as institutional investors, such as traditional hedge funds, endowments and corporates increased their exposure over the period. Compared to other asset classes, bitcoin increased 280% in the last 12 months, even after declining from mid-April highs of about $64,000, according to the report.&nbsp;



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="512" height="217" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg" alt="BTC vs. other assets in last 12 months" class="wp-image-5946" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-6.jpg?w=80 80w" sizes="(max-width: 512px) 100vw, 512px" /></figure>



As other assets also increased at lower percentages, bitcoin continued to show low correlation to other benchmarks during the time frame. Its 12-month correlation was closest to ethereum’s daily returns at 67.2%, followed by the <a href="https://cms.blockworks.co/sp-dow-jones-brings-crypto-to-wall-street/" target="_blank" rel="noreferrer noopener">S&amp;P</a> 500 asset at a much lower 14.1% correlation, the data showed.&nbsp;&nbsp;



<h3>Ethereum outperforms</h3>



In general, ethereum outperformed benchmark assets, including bitcoin in H1 with the crypto-asset appreciating 895% in the 12-month period compared to bitcoin’s appreciation of 280%. Ethereum rose about 210% over the 6-month period ending June 30, the data showed.&nbsp;



A handful of factors contributed to ethereum&#8217;s outperformance, mainly increased usage of decentralized finance protocols built on Ethereum, which validated the network’s value as a global financial utility and platform for developers alike, the report wrote.



Additionally, investor optimism grew as Ethereum’s transitions to <a href="https://cms.blockworks.co/celsius-to-launch-eth2-staking-pool-gives-users-more-ethereum-for-their-ethereum/" target="_blank" rel="noreferrer noopener">ETH 2.0</a>, which will introduce a new proof-of-stake consensus to turn ethereum into a yielding asset, and the launch of <a href="https://cms.blockworks.co/singapores-qcp-capital-predicts-market-volatility-from-eip-1556-upgrade/" target="_blank" rel="noreferrer noopener">EIP-1559</a>, which is expected to decrease the supply of ethereum by burning its gas fees as the network is used.&nbsp;



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="512" height="216" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg" alt="Coinbase report showing daily returns of assets" class="wp-image-5947" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/07/unnamed-5.jpg?w=80 80w" sizes="(max-width: 512px) 100vw, 512px" /></figure>



Overall, the first half of 2021 brought ethereum’s five-year performance total return to 17.962% for the period. Many of Coinbase’s large institutional clients — including hedge funds, endowments and corporations — increased or added first-time exposure to ethereum during that time period as they believe the asset has long-term power equivalent to bitcoins, just in a differentiated way in their portfolios, it said.&nbsp;



<h3>ETF outlook&nbsp;</h3>



Many new applications for ETFs have been filed with the US Securities and Exchange Commission in recent months from firms like <a href="https://cms.blockworks.co/global-x-adds-to-stack-of-bitcoin-etfs-proposed-to-sec/" target="_blank" rel="noreferrer noopener">Global X</a>, <a href="https://cms.blockworks.co/ark-files-for-bitcoin-etf/" target="_blank" rel="noreferrer noopener">Ark Investment Management</a>, <a href="https://cms.blockworks.co/sec-delays-approval-of-vaneck-bitcoin-etf-again/" target="_blank" rel="noreferrer noopener">VanEck</a> and investment banking company <a href="https://cms.blockworks.co/goldman-files-for-defi-and-blockchain-equity-etf/" target="_blank" rel="noreferrer noopener">Goldman Sachs</a>.



Over a dozen applications to list a bitcoin ETF have been knocked down by the US SEC in the past on the basis of exchange rules “designed to prevent fraudulent and manipulative acts and practices, to protect investors and the public interest,&#8221; said the report.



But, Coinbase’s institutional practice monitored developments in the crypto exchange-traded fund market and said it expects an eventual US crypto ETF approval, but did not clarify when. It also noted that many major ETF issuers believe the SEC could give the “go-ahead” to the crypto ETFS in 2021 or 2022.&nbsp;



“There are a number of factors driving this optimism,” the report said.&nbsp;



The new chairman of the SEC, Gary Gensler, is seen as a knowledgeable person in the crypto space and more likely than previous chairmen to allow a crypto ETF to list. Additionally, desire for cryptocurrencies have boomed recently among both institutional investors and retail investors, with growing demand for exposure without the need to directly buy, hold or sell underlying assets.&nbsp;



While the market is continuously changing, Coinbase’s report said a growing base of well-known institutions have begun to engage with crypto and the regulated bitcoin futures market has grown substantially over time, giving the industry more credibility. In regards to growth, the CME’s monthly notional trading volumes increased from $6 billion in June 2020 to over $34 billion in June 2021, up over 466% year on year.  



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