The Intraday Bitcoin Response to Tether Minting and Burning Events: Asymmetry, Investor Sentiment, And "Whale Alerts" On Twitter

TL;DR

This study examines how Bitcoin prices react within minutes to Tether minting and burning events, revealing asymmetrical responses influenced by investor sentiment and social media alerts, with implications for market dynamics.

Contribution

It uncovers the asymmetric and state-dependent Bitcoin responses to USDT supply changes, highlighting the role of Twitter alerts and investor sentiment in these reactions.

Findings

Bitcoin responds positively to USDT minting within 5-30 minutes

Response declines after 60 minutes post-event

Positive investor sentiment amplifies Bitcoin's response during USDT minting

Abstract

Tether Limited has the sole authority to create (mint) and destroy (burn) Tether stablecoins (USDT). This paper investigates Bitcoin's response to USDT supply change events between 2014 and 2021 and identifies an interesting asymmetry between Bitcoin's responses to USDT minting and burning events. Bitcoin responds positively to USDT minting events over 5- to 30-minute event windows, but this response begins declining after 60 minutes. State-dependence is also demonstrated, with Bitcoin prices exhibiting a greater increase when the corresponding USDT minting event coincides with positive investor sentiment and is announced to the public by data service provider, Whale Alert, on Twitter.