BitMEX Bitcoin Derivatives: Price Discovery, Informational Efficiency and Hedging Effectiveness

BitMEX is the largest unregulated bitcoin derivatives exchange, listing contracts suitable for leverage trading and hedging. Using minute-by-minute data, we examine its price discovery and hedging effectiveness. We find that BitMEX derivatives lead prices on major bitcoin spot exchanges. Bid-ask spreads, inter-exchange spreads and relative trading volumes are important determinants of price discovery. Further analysis shows that BitMEX derivatives have positive net spillover effects, are informationally more efficient than bitcoin spot prices, and serve as effective hedges against spot price volatility. Our evidence suggests that regulators prioritise investigation of the legitimacy of BitMEX and its contracts.

Keywords: bitcoin, BitMEX, market efficiency, price discovery, spillover

JEL Classification: G14

Suggested Citation: Suggested Citation

Alexander, Carol and Choi, Jaehyuk and Park, Heungju and Sohn, Sungbin, BitMEX Bitcoin Derivatives: Price Discovery, Informational Efficiency and Hedging Effectiveness (March 15, 2019). Journal of Futures Markets, 40(1):23-43, 2020, Available at SSRN: https://ssrn.com/abstract=3353583 or http://dx.doi.org/10.2139/ssrn.3353583