Price discovery in Bitcoin: the impact of unregulated markets

Alexander, Carol and Heck, Daniel F (2020) Price discovery in Bitcoin: the impact of unregulated markets. Journal of Financial Stability, 50. a100776. ISSN 1572-3089

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Abstract

We analyse minute-level multi-dimensional information flows within and between bitcoin spot and derivatives. We show that perpetual swaps and futures traded on the unregulated exchanges Huobi, OKEx and BitMEX are much the strongest instruments for bitcoin price discovery and we examine potential determinants of their leadership strength. Prices on the regulated CME bitcoin futures and the US-based spot exchanges react to, rather than lead, price movements on the unregulated exchanges and they may do so relatively slowly. In a multi-dimensional setting including the main price leaders within futures, perpetuals and spot markets, the CME futures have a very minor effect on price discovery, even less than the spot exchanges Bitfinex, Bitstamp and Coinbase. Our findings highlight the persistent problems stemming from inconsistent regulation in bitcoin spot and derivatives markets, including insufficient price stability and lack of resistance to manipulative trading. We conclude that the SEC are correct to

Item Type: Article
Keywords: Bitcoin ETF, Exchange-Traded Funds, Hedging, Information Shares, Impulse Response, Speculation, Manipulation
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 27 Jul 2020 08:05
Last Modified: 18 Aug 2020 15:45
URI: http://sro.sussex.ac.uk/id/eprint/92755

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