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What effect did the introduction of Bitcoin futures have on the Bitcoin spot market?

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  • Akanksha Jalan
  • Roman Matkovskyy
  • Andrew Urquhart

Abstract

Bitcoin futures were introduced in December 2017 and this was seen by some as a sign of the most popular cryptocurrency finally being accepted by the financial community. In this paper, we examine the impact of the introduction of Bitcoin futures on the Bitcoin spot market in terms of five characteristics – returns, volatility, skewness, kurtosis and liquidity, using a Bayesian diffusion-regression (state-space) structural time-series model. Our results indicate that the introduction of bitcoin futures potentially exerted a downward impact on the USD bitcoin spot market return and skewness and an upward one on volatility, kurtosis and liquidity, which became higher after futures were introduced. Therefore, our paper offers important insights for investors and regulators, while providing some guidance as to the potential impact of futures markets on other cryptocurrencies.

Suggested Citation

  • Akanksha Jalan & Roman Matkovskyy & Andrew Urquhart, 2021. "What effect did the introduction of Bitcoin futures have on the Bitcoin spot market?," The European Journal of Finance, Taylor & Francis Journals, vol. 27(13), pages 1251-1281, September.
    • Handle: RePEc:taf:eurjfi:v:27:y:2021:i:13:p:1251-1281
    DOI: 10.1080/1351847X.2020.1869992
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    Cited by:

    1. Dean Fantazzini, 2022. "Crypto-Coins and Credit Risk: Modelling and Forecasting Their Probability of Death," JRFM, MDPI, vol. 15(7), pages 1-34, July.
    2. Jalan, Akanksha & Matkovskyy, Roman & Yarovaya, Larisa, 2021. "“Shiny” crypto assets: A systemic look at gold-backed cryptocurrencies during the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 78(C).
    3. Dirk G. Baur & Lee A. Smales, 2022. "Trading behavior in bitcoin futures: Following the “smart money”," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(7), pages 1304-1323, July.
    4. Zhang, Chuanhai & Chen, Haicui & Peng, Zhe, 2022. "Does Bitcoin futures trading reduce the normal and jump volatility in the spot market? Evidence from GARCH-jump models," Finance Research Letters, Elsevier, vol. 47(PB).
    5. Jalan, Akanksha & Matkovskyy, Roman & Urquhart, Andrew & Yarovaya, Larisa, 2023. "The role of interpersonal trust in cryptocurrency adoption," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    6. Zhang, Chuanhai & Ma, Huan & Arkorful, Gideon Bruce & Peng, Zhe, 2023. "The impacts of futures trading on volatility and volatility asymmetry of Bitcoin returns," International Review of Financial Analysis, Elsevier, vol. 86(C).
    7. Li, Yi & Urquhart, Andrew & Wang, Pengfei & Zhang, Wei, 2021. "MAX momentum in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 77(C).
    8. Zhang, Chuanhai & Ma, Huan & Liao, Xiaosai, 2023. "Futures trading activity and the jump risk of spot market: Evidence from the bitcoin market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    9. Weige Huang & Xiang Gao, 2023. "Forecasting Bitcoin Futures: A Lasso-BMA Two-Step Predictor Selection for Investment and Hedging Strategies," SAGE Open, , vol. 13(1), pages 21582440231, January.
    10. Yang, Zixiu & Fantazzini, Dean, 2022. "Using crypto assets pricing methods to build technical oscillators for short-term bitcoin trading," MPRA Paper 115508, University Library of Munich, Germany.

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