The world of digital finance is evolving at a rapid pace, and with it, the role of cryptocurrencies in global financial systems continues to expand. At a high-level seminar titled "Digital Finance: Innovation, Development, and Regulation" hosted by the Digital Financial Assets Research Center at Tsinghua University’s School of Economics and Management, Professor He Zhiguo from the University of Chicago Booth School of Business shared key insights into the latest developments in the cryptocurrency ecosystem. Drawing from recent academic research and real-world case studies, his analysis sheds light on stablecoins, market manipulation, institutional adoption, and decentralized finance (DeFi).
This article synthesizes Professor He's remarks into a comprehensive overview of current trends shaping the crypto landscape—offering clarity for investors, researchers, and policymakers alike.
Institutional Adoption: The Case of Square’s Bitcoin Investment
One of the most notable shifts in recent years has been the increasing involvement of institutional investors in cryptocurrency markets. A prime example occurred on October 28, 2020, when Square, Inc.—the payments company led by Twitter CEO Jack Dorsey—announced the purchase of 4,709 bitcoins worth approximately $50 million at the time. This investment accounted for nearly 1% of Square’s total assets as of Q2 2020.
👉 Discover how institutional moves like Square's are reshaping crypto market dynamics.
In its official statement, Square emphasized that cryptocurrency serves as a tool for economic empowerment and offers individuals a way to participate in a global monetary system—values aligned with the company’s mission. While this move signaled growing legitimacy for digital assets, it also reignited debates about whether Bitcoin should be classified as an asset class or merely a speculative bubble.
Bitcoin as a “Bubble Asset”: A Nuanced View
Professor He Zhiguo maintains a cautious stance on Bitcoin, referring to it as a bubble asset. However, this label does not imply zero value. In economic terms, a bubble asset can sustain any price level due to self-reinforcing beliefs rather than intrinsic fundamentals such as cash flows or dividends.
“I’ve never said Bitcoin has no value. It does—particularly in privacy-preserving transactions.”
Mainstream economics often avoids deep analysis of such assets because they lack clear valuation models. Yet their market impact is undeniable. The challenge lies in distinguishing between technological innovation and financial speculation. While blockchain technology offers transformative potential, Bitcoin’s price volatility and limited use cases outside speculation raise valid concerns.
Stablecoins Under Scrutiny: The Tether Controversy
Stablecoins represent one of the most critical innovations in crypto finance, aiming to bridge traditional money with digital assets. Tether (USDT), the largest stablecoin by market capitalization, is designed to maintain a 1:1 peg with the U.S. dollar. Theoretically, every USDT token should be backed by one dollar held in reserve.
However, transparency issues have long plagued Tether Limited. Initially claiming full backing by actual fiat currency assets, the company revised its disclosure on February 25, 2019, replacing “actual fiat currency assets” with “traditional currency and cash equivalents.” This shift opened the door to using less liquid or riskier assets—including potentially Bitcoin—as part of its reserves.
In May 2019, Bitfinex’s CTO confirmed that Tether had invested in instruments beyond cash, including cryptocurrencies. More concerning was the operational model: instead of daily audits, Tether aimed only to prove sufficient reserves at month-end. This practice could incentivize end-of-month Bitcoin liquidations to meet reserve requirements.
Academic research supports this concern. A study analyzing monthly Tether issuance patterns found a consistent trend: Bitcoin returns tend to dip on or near month-end, coinciding with periods when Tether must demonstrate solvency.
| Key Insight |
|---|
| End-of-month reserve verification may induce artificial selling pressure on Bitcoin, leading to temporary negative returns. |
This creates a structural vulnerability—not just for Tether, but for the broader crypto market relying on stablecoins for liquidity and pricing stability.
Market Manipulation: The "Pump and Dump" Problem
Beyond infrastructure concerns, academic studies have identified widespread fraudulent behavior across various altcoins. One well-documented phenomenon is pump and dump schemes, where coordinated groups artificially inflate prices before selling off holdings at peak levels.
These operations often exploit community trust through tiered membership models:
- Premium members receive trading signals seconds before public release.
- Incentives are offered for recruiting new participants.
- Social proof is manufactured via coordinated messaging.
Such practices distort market efficiency and disproportionately harm retail investors. They underscore a fundamental truth: while blockchain ensures transaction transparency, it does not prevent human-driven manipulation.
DeFi and Uniswap: Innovation Meets Economic Reality
Despite these challenges, decentralized finance (DeFi) represents a promising frontier. One standout project is Uniswap, an Ethereum-based protocol enabling automated exchanges between ETH and ERC-20 tokens without intermediaries.
Uniswap operates entirely on-chain. Users interact with it through decentralized wallets, providing liquidity to trading pairs in exchange for fees generated from trades. It exemplifies how smart contracts can automate financial services like market making.
Yet even here, basic economic principles remain paramount. Liquidity provision only works if it's profitable; otherwise, participation dwindles. Technology enables efficiency—but cannot override incentives.
“Technology solves many problems,” says Professor He, “but value creation, pricing mechanisms—these are still governed by economics.”
This insight applies broadly across DeFi: innovation thrives when aligned with sound economic design.
👉 Explore how platforms like Uniswap are redefining decentralized trading.
The Future of Blockchain: Beyond Public Chains
While public blockchains attract media attention, Professor He believes consortium chains—permissioned networks operated by trusted entities—hold greater near-term potential. These systems balance transparency with control, making them suitable for enterprise applications in supply chain management, cross-border payments, and regulatory compliance.
Public chains excel in censorship resistance but struggle with scalability and governance. Consortium models offer a pragmatic middle ground—especially in regulated environments where accountability matters.
Core Keywords
- Cryptocurrency ecosystem
- Stablecoin research
- Bitcoin institutional investment
- Tether reserve transparency
- DeFi innovation
- Market manipulation
- Blockchain economics
Frequently Asked Questions (FAQ)
Q: Is Bitcoin really just a bubble?
A: While Bitcoin lacks traditional valuation metrics and exhibits bubble-like characteristics, it holds value through network effects, scarcity, and utility in certain transaction environments—especially where financial privacy is prioritized.
Q: How do stablecoins like Tether maintain their peg?
A: Ideally, each stablecoin is backed 1:1 by reserves like USD or cash equivalents. However, without regular independent audits, the actual backing remains uncertain—raising risks of de-pegging during market stress.
Q: Can DeFi protocols like Uniswap replace traditional exchanges?
A: Uniswap demonstrates the feasibility of decentralized trading, but widespread adoption depends on solving issues around slippage, gas fees, and regulatory clarity—not just technological capability.
Q: What causes end-of-month Bitcoin price drops?
A: Research suggests that stablecoins like Tether may sell Bitcoin holdings at month-end to prove reserve adequacy, creating recurring downward pressure on prices during those periods.
Q: Are pump-and-dump schemes common in crypto?
A: Yes. Due to low barriers to entry and anonymous participation, many smaller cryptocurrencies are vulnerable to coordinated manipulation targeting retail investors.
Q: Why are consortium blockchains considered more practical?
A: Because they combine distributed ledger benefits with controlled access, making them better suited for regulated industries requiring identity verification and compliance oversight.
Final Thoughts: Technology Meets Economics
The evolution of digital finance is not solely a technological journey—it's an economic experiment unfolding in real time. From institutional adoption to stablecoin mechanics and decentralized trading protocols, each layer reveals both promise and peril.
As Professor He Zhiguo emphasizes, technology enables—but economics governs. Sustainable growth in the crypto space will come not from hype or speculation, but from aligning innovative tools with sound financial principles.
👉 Stay ahead of the curve by exploring next-generation crypto ecosystems today.