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The Impact of Derivatives on Spot Markets: Evidence from the Introduction of Bitcoin Futures Contracts

Author

Listed:
  • Patrick Augustin

    (McGill University, Montreal, Quebec H3A 0G4, Canada; Canadian Derivatives Institute, Montréal, Quebec H3T 2A7, Canada)

  • Alexey Rubtsov

    (Global Risk Institute, Toronto, Ontario M5J 2H7, Canada; Toronto Metropolitan University, Toronto, Ontario M5B 0C3, Canada)

  • Donghwa Shin

    (University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

Abstract

Cryptocurrencies provide a unique opportunity to identify how derivatives impact spot markets. They are fully fungible and trade across multiple spot exchanges at different prices, and futures contracts were selectively introduced on Bitcoin (BTC) exchange rates against the U.S. dollar (USD) in December 2017. Following the futures introduction, we find a significantly greater increase in cross-exchange price synchronicity for BTC–USD relative to other exchange rate pairs as demonstrated by an increase in price correlations and a reduction in arbitrage opportunities and volatility. We also find support for an increase in price efficiency, market quality, and liquidity. The evidence suggests that futures contracts allowed investors to circumvent arbitrage frictions associated with short-sale constraints, arbitrage risk associated with block confirmation time, and market segmentation. Overall, our analysis supports the view that the introduction of BTC–USD futures was beneficial to the Bitcoin spot market by making the underlying prices more informative.

Suggested Citation

  • Patrick Augustin & Alexey Rubtsov & Donghwa Shin, 2023. "The Impact of Derivatives on Spot Markets: Evidence from the Introduction of Bitcoin Futures Contracts," Management Science, INFORMS, vol. 69(11), pages 6752-6776, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6752-6776
    DOI: 10.1287/mnsc.2023.4900
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    Cited by:

    1. Aslanidis, Nektarios & Bariviera, Aurelio & Kapetanios, George & Sarafidis, Vasilis, 2025. "Heterogeneous Exposures to Systematic and Idiosyncratic Risk across Crypto Assets: A Divide-and-Conquer Approach," MPRA Paper 125124, University Library of Munich, Germany.
    2. Meiyu Wu & Li Wang & Haijun Yang, 2024. "Heterogeneity in the volatility spillover of cryptocurrencies and exchanges," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-46, December.
    3. Chen, Yu-Lun & Xu, Ke & Yang, J. Jimmy, 2025. "Market impact of the bitcoin ETF introduction on bitcoin futures," International Review of Financial Analysis, Elsevier, vol. 97(C).

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