The Role of Binance in Bitcoin Volatility Transmission

39 Pages Posted: 8 Jul 2021 Last revised: 6 Aug 2021

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School; Peking University HSBC Business School

Daniel F. Heck

University of Sussex Business School

Andreas Kaeck

affiliation not provided to SSRN

Date Written: July 1, 2021

Abstract

We analyse high-frequency realised volatility dynamics and spillovers in the bitcoin market, focusing on two pairs: bitcoin against the US dollar (the main fiat-crypto pair) and trading bitcoin against tether (the main crypto-crypto pair). We find that the tether-margined perpetual contract on Binance is clearly the main source of volatility, continuously transmitting strong flows to all other instruments and receiving only a little volatility. Moreover, we find that (i) during US trading hours, traders pay more attention and are more reactive to prevailing market conditions when updating their expectations and (ii) the crypto market exhibits a higher interconnectedness when traditional Western stock markets are open. Our results highlight that regulators should not only consider spot exchanges offering bitcoin-fiat trading but also the tether-margined derivatives products available on most unregulated exchanges, most importantly Binance.

Keywords: Bitcoin ETF, Exchange-Traded Funds, Realised Volatility, Volatility Transmission, Cryptocurrency

JEL Classification: C22, C5, E42, F31, G1, G2

Suggested Citation

Alexander, Carol and Heck, Daniel and Kaeck, Andreas, The Role of Binance in Bitcoin Volatility Transmission (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3877949 or http://dx.doi.org/10.2139/ssrn.3877949

Carol Alexander (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.coalexander.com

Peking University HSBC Business School ( email )

Daniel Heck

University of Sussex Business School ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Andreas Kaeck

affiliation not provided to SSRN ( email )

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