Mean-Variance Tradeoff of Bitcoin Inverse Futures

Abstract

We focus on the risk analysis of Bitcoin inverse futures, with variance or volatility taken as the risk measure. We derive explicit representations for the expectation and variance of the returns on Bitcoin inverse futures and obtain their first-order approximations. The empirical studies show that Bitcoin inverse futures are more (resp. less) risky than standard futures when the market is in backwardation (resp. contango). We further find that Bitcoin inverse futures bear higher downside risk, as measured by semi-deviation, than standard futures.

Keywords: Bitcoin, Downside Risk, Futures, Volatility

JEL Classification: G11, G32