Price discovery and microstructure in ether spot and derivative markets |
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| Institution: | 1. University of Sussex Business School, Falmer, Brighton, United Kingdom;2. Peking University HSBC Business School, Boars Hill, Oxford, United Kingdom;3. Peking University HSBC Business School, Nanshan, Shenzhen, China;4. Bank of Ireland, Bread Street, London, United Kingdom;1. Guanghua School of Management, Peking University, Beijing, China;2. Harvest Fund Management Co., Ltd, Beijing, China;3. School of International Trade and Economics, University of International Business and Economics, Beijing, China;1. Financial Econometrics Group, Deakin Business School, Deakin University, Australia;2. Lund University, Sweden;1. University of Derby, Kedleston Road Campus, Derby, DE22 1GB, UK;2. College of Business, Texas A&M University - Corpus Christi, 6300 Ocean Drive, Corpus Christi, TX 78412, United States;3. Paul L. Foster and Alejandra de la Vega Foster, Distinguished Chair in International Business, The University of Texas at El Paso, 500W University Ave., El Paso, TX 79968, United States |
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| Abstract: | Ethereum is an important blockchain, being the first and most popular public platform for the smart contracts underpinning financial transactions, time-stamping of supply chains, decentralized applications and initial coin offerings. Ethereum's cryptocurrency, ether, is actively traded on centralized exchanges, second only to bitcoin. It has attracted investor's interest primarily because of its intrinsic value – small units of ether called ‘gas’ are used, essentially, as the fuel driving smart contract transactions on the Ethereum blockchain. We ask whether off-chain trading on ether derivatives plays a dominant role in ether spot price discovery, thereby driving ether's utility value for on-chain activity. Using minute-by-minute data we find that the ether perpetual swap on BitMEX, an unregulated cryptocurrency derivative exchange, has dominant trading volume and price discovery over the major spot exchanges. Furthermore, we identify interesting hour-of-day and day-of-week effects in trading volume on the spot exchanges, and these indicate that more informed institutional players are trading ether spot and derivatives. |
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