The Impact of Derivatives on Cash Markets: Evidence From the Introduction of Bitcoin Futures Contracts

76 Pages Posted: 8 Aug 2020 Last revised: 18 May 2021

See all articles by Patrick Augustin

Patrick Augustin

McGill University

Alexey Rubtsov

Global Risk Institute

Donghwa Shin

University of North Carolina at Chapel Hill, Kenan-Flagler Business School

Date Written: July 10, 2020

Abstract

Cryptocurrencies provide a unique opportunity to identify how derivatives impact cash markets. They are fully fungible across multiple trading venues and futures contracts were selectively introduced on bitcoin (BTC) exchange rates against the USD in December 2017. Following the futures introduction, we find a significantly greater increase in cross-exchange price synchronicity for BTC-USD relative to other exchange rate pairs, as demonstrated by an increase in price correlations and a reduction in arbitrage opportunities. We also find support for an increase in price efficiency, market quality, and liquidity. Overall, our analysis supports the view that the introduction of BTC-USD futures was beneficial to the bitcoin cash market by making the underlying prices more informative.

Keywords: bitcoin, blockchain, cryptocurrencies, derivatives, fintech, regulation

JEL Classification: G12, G13, G14, O33, Y80

Suggested Citation

Augustin, Patrick and Rubtsov, Alexey and Shin, Donghwa, The Impact of Derivatives on Cash Markets: Evidence From the Introduction of Bitcoin Futures Contracts (July 10, 2020). Available at SSRN: https://ssrn.com/abstract=3648406 or http://dx.doi.org/10.2139/ssrn.3648406

Patrick Augustin (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

HOME PAGE: http://https://patrickaugustin.ca/

Alexey Rubtsov

Global Risk Institute ( email )

55 University Avenue, Suite 1801
Toronto, ON M5J 2H7
Canada

Donghwa Shin

University of North Carolina at Chapel Hill, Kenan-Flagler Business School ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States
6096137699 (Phone)

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