What If Bitcoin Futures Had Never Been Introduced?

Abstract

Bitcoin futures were introduced in December 2017 and was seen by some as a sign that the most popular cryptocurrency was being accepted by the financial community. In this paper, we examine what the Bitcoin market would look like if Bitcoin futures were never introduced. We implement a Bayesian diffusion-regression (state-space) structural time-series model that enables us to predict the counterfactual market response in a synthetic control that would have occurred had no futures market been introduced. Our results indicate that if bitcoin futures had never been introduced, the USD bitcoin spot market return and skewness would be higher, while volatility, kurtosis and liquidity would be lower. Therefore, our paper offers important insights for investors and regulators, while also providing some guidance to the potential impact of futures markets on other cryptocurrencies.

Keywords: Bitcoin Futures, Returns, Volatility, Liquidity