The Role of Binance in Bitcoin Volatility Transmission
39 Pages Posted: 8 Jul 2021 Last revised: 6 Aug 2021
Date Written: July 1, 2021
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: Suggested Citation