Did the introduction of Bitcoin futures crash the Bitcoin market at the end of 2017? |
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| Institution: | 1. UWA Business School, The University of Western Australia, Australia;2. Independent Researcher, Perth, Australia;1. Department of Electrical and Electronics Engineering, University of West Attica, Ancient Olive Grove Campus, 12241 Egaleo, Greece;2. Institute for Astronomy, Astrophysics, Space Applications and Remote Sensing, National Observatory of Athens, Metaxa and Vasileos Pavlou, Penteli, GR-15236 Athens, Greece;1. Finance School, Shandong Technology and Business University, 191 Binhai RD, Laishan Dist., Yantai 264005, China;2. Shandong Provincial University Financial Service Transformation Collaborative Innovation Center, 191 Binhai RD, Laishan Dist., Yantai 264005, China |
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| Abstract: | At the end of 2017, the Bitcoin price dropped significantly by approximately 70% over the two months. Since the introduction of Bitcoin futures coincided with this market crash, it is said that the new financial instrument might have caused the market crash. The literature states that the futures enabled investors to easily take a short position and hypothesizes that the selling pressure from futures could have potentially crashed the Bitcoin market. To evaluate this assumption, we investigate the empirical relationship between futures trading and the Bitcoin price by using high-frequency data. We find that Bitcoin futures trading was not significantly related to the returns on Bitcoin futures and spot returns. Therefore, we conclude that Bitcoin futures did not lead to the crash of the Bitcoin market at the end of 2017. |
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| Keywords: | Cryptocurrency Bitcoin Futures Intraday data Limit to arbitrage Vector autoregressive model |
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