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

57 Pages Posted: 8 Aug 2020

See all articles by Patrick Augustin

Patrick Augustin

McGill University, Desautels Faculty of Management

Alexey Rubtsov

Global Risk Institute

Donghwa Shin

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

Date Written: July 10, 2020

Abstract

We exploit a unique feature of cryptocurrency markets to provide new evidence on how derivatives impact cash markets. In December 2017, the CME Group and CBOE Global Markets both introduced futures contracts on bitcoin (BTC) against USD, but not on any other cryptocurrency exchange rate pairs. Because identical cryptocurrencies trade on multiple exchanges, we can examine how the introduction of bitcoin futures changed various attributes of BTC-USD relative to other cryptocurrency pairs, keeping exchange characteristics constant. Following the futures introduction, we find a significant increase in cross-exchange BTC-USD price synchronicity relative to other exchange rate pairs, as demonstrated by an increase in price correlations and a reduction in arbitrage opportunities. We also find evidence in support of an increase in market efficiency and market quality. There is suggestive evidence of increasing market liquidity, although these results are weaker. 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, Block-chain, Cryptocurrencies, Derivatives, FinTech, Regulation

JEL Classification: C1, C2, 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, Desautels Faculty of Management ( email )

1001 Sherbrooke Street West
Quebec
Montreal, Quebec H3A 1G5
Canada

HOME PAGE: http://www.patrickaugustin.se

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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