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Does the Introduction of US Spot Bitcoin ETFs Affect Spot Returns and Volatility of Major Cryptocurrencies?

Author

Listed:
  • Vassilios Babalos

    (Department of Accounting and Finance, University of Peloponnese, Antikalamos, 24100 Kalamata, Greece)

  • Elie Bouri

    (School of Business, Lebanese American University, Lebanon)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

This paper provides first empirical evidence on whether the introduction of US spot Bitcoin ETFs affected the returns and volatility of major cryptocurrencies. Using data from December 18, 2017 to March 15, 2024 and applying various Generalized Autoregressive Conditional Heteroskedasticity (GARCH) with exogenous predictors (X), i.e., GARCH-X models, the main results show that the volatility of major cryptocurrencies, namely Ethereum, Ripple, and Litecoin, decreased following the SEC approval, which supports the stabilization hypothesis. No impact is noticed for the Bitcoin spot market, whereas the returns of Grayscale Bitcoin Trust (which represents the first publicly-traded Bitcoin fund in the US) increased following the introduction of Bitcoin ETFs. Further analysis on the returns and volatility of Bitcoin futures and Ethereum futures indicate an insignificant impact by the launch of US spot Bitcoin ETFs. Our findings enhance the limited understanding on the price discovery and functioning of the cryptocurrency markets, which could be useful for investors, regulators, and policymakers.

Suggested Citation

  • Vassilios Babalos & Elie Bouri & Rangan Gupta, 2024. "Does the Introduction of US Spot Bitcoin ETFs Affect Spot Returns and Volatility of Major Cryptocurrencies?," Working Papers 202416, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202416
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    More about this item

    Keywords

    US spot Bitcoin ETFs introduction; SEC approval; Cryptocurrency spot returns and volatility; GARCH-X models;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G00 - Financial Economics - - General - - - General

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