Price Discovery in the Bitcoin Futures and Cash Markets

Abstract

Following of the popularity of Bitcoin trading in recent years, Bitcoin futures were introduced in December 2017 as an effort to provide institutional and retail investors with additional trading tools for Bitcoin. This study analyses the Bitcoin Futures mid-quote data from CBOE, and Bitcoin market index applying VAR and VECM process methodologies, Hasbrouck’s information share and Gonzalo-Granger component share measurement to examine price discovery in Bitcoin markets. Furthermore, the paper seeks to assess the Bitcoin market microstructure. The results drawn on the intraday prices show that the futures are leading the price discovery at different frequencies even with comparably low futures trading volumes. This supports the extant literature of futures-spot market price discovery and the role of informed traders in the futures market.

The peer-reviewed, final version of this study (2021) can be found here: https://www.taylorfrancis.com/chapters/edit/10.4324/9780429292903-11/price-discovery-bitcoin-futures-cash-markets-tatja-karkkainen

Keywords: Bitcoin, Crypto Currencies, Futures Exchange, Price Discovery, Financial Technology

JEL Classification: G13, G15