Price Discovery and Microstructure in Ether Spot and Derivative Markets

26 Pages Posted: 16 Jan 2020 Last revised: 13 Apr 2020

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School; Peking University HSBC Business School

Jaehyuk Choi

Peking University - HSBC School of Business

Hamish Massie

University of Sussex Business School; Bank of Ireland Corporate and Markets UK

Sungbin Sohn

Peking University - HSBC Business School

Date Written: April 13, 2020

Abstract

Ethereum is an important blockchain, being the first and most popular public platform for the smart contracts underpinning financial transactions, time-stamping of supply chains, decentralized applications and initial coin offerings. Ethereum's cryptocurrency, ether, is actively traded on centralized exchanges, second only to bitcoin. It has attracted investor's interest primarily because of its intrinsic value -- small units of ether called `gas' are used, essentially, as the fuel driving smart contract transactions on the Ethereum blockchain. We ask whether off-chain trading on ether derivatives plays a dominant role in ether spot price discovery, thereby driving ether's utility value for on-chain activity. Using minute-by-minute data we find that the ether perpetual swap on BitMEX, an unregulated cryptocurrency derivative exchange, has dominant trading volume and price discovery over the major spot exchanges. Furthermore, we identify interesting hour-of-day and day-of-week effects in trading volume on the spot exchanges, and these indicate that more informed institutional players are trading ether spot and derivatives.

Keywords: BitMEX, Cryptocurrency, Ethereum, Futures, Perpetual Swaps

JEL Classification: G13, G14

Suggested Citation

Alexander, Carol and Choi, Jaehyuk and Massie, Hamish and Sohn, Sungbin, Price Discovery and Microstructure in Ether Spot and Derivative Markets (April 13, 2020). International Review of Financial Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3511533 or http://dx.doi.org/10.2139/ssrn.3511533

Carol Alexander (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.carolalexander.org

Peking University HSBC Business School ( email )

Jaehyuk Choi

Peking University - HSBC School of Business ( email )

University Town
Shenzhen, Guangdong 518055
China

HOME PAGE: http://www.jaehyukchoi.net/phbs_en

Hamish Massie

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

Bank of Ireland Corporate and Markets UK ( email )

Bow Bells House
Bread Street
London, EC4M 9BE
United Kingdom

Sungbin Sohn

Peking University - HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China
+86-755-26035324 (Phone)
+86-755-26035344 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
138
Abstract Views
553
rank
224,099
PlumX Metrics