Table 4 analyzes the determinants of this default probability, which is regressed against the intra-day volatility of Bitcoin and USDT, as well as daily returns of Bitcoin. Both Bitcoin volatility and USDT volatility are positively associated with default risk. Whereas a 100 basis point increase in Bitcoin volatility increases the probability of default by 4.3 basis points, a 100 basis point increase in USDT volatility increases it by 21.2 basis points. When we include both variables, only Bitcoin volatility is significant.
Determinants of the probability of run risk
| . | I . | II . | III . | IV . |
|---|---|---|---|---|
| . | P . | P . | P . | P . |
| σBTC | 0.0433*** | 0.0415*** | ||
| (0.0060) | (0.0064) | |||
| σUSDT | 0.2124*** | 0.0856 | ||
| (0.0702) | (0.0697) | |||
| RBTC | −0.0033 | 0.0008 | ||
| (0.0034) | (0.0033) | |||
| Intercept | 15.7474*** | 27.6135*** | 30.6252*** | 15.0208*** |
| (2.5363) | (1.8240) | (1.5617) | (2.6165) | |
| R2 | 0.11 | 0.02 | 0.00 | 0.12 |
| No. observations | 410 | 410 | 409 | 409 |
| . | I . | II . | III . | IV . |
|---|---|---|---|---|
| . | P . | P . | P . | P . |
| σBTC | 0.0433*** | 0.0415*** | ||
| (0.0060) | (0.0064) | |||
| σUSDT | 0.2124*** | 0.0856 | ||
| (0.0702) | (0.0697) | |||
| RBTC | −0.0033 | 0.0008 | ||
| (0.0034) | (0.0033) | |||
| Intercept | 15.7474*** | 27.6135*** | 30.6252*** | 15.0208*** |
| (2.5363) | (1.8240) | (1.5617) | (2.6165) | |
| R2 | 0.11 | 0.02 | 0.00 | 0.12 |
| No. observations | 410 | 410 | 409 | 409 |
Note: This table regresses the probability of default p on intra-day volatility of Bitcoin (BTC), Tether/USD (USDT), and BTC returns. The dependent variable in columns (I) through (IV), p, measures the probability of default. The sample runs from 28 February 2020 to 1 June 2021. White heteroscedasticity-robust standard errors are in parentheses. ***Statistically significant at the 1 percent level.