Did the Introduction of Bitcoin Futures Crash the Bitcoin Market at the End of 2017?
24 Pages Posted: 10 Jan 2019 Last revised: 19 Mar 2020
Date Written: February 1, 2019
Abstract
At the end of 2017, the Bitcoin price dropped significantly by around 70% over two months. Since the introduction of Bitcoin futures coincided with this market crash, the new financial instrument might have caused the market crash, the literature emphasizing that the futures enabled investors to easily take a short position and suggesting the selling pressure from futures could have potentially crashed the Bitcoin market. To evaluate this assumption, we investigate the empirical relationship between the futures trade and Bitcoin price by using high-frequency data. We find that the trade of Bitcoin futures was not significantly related to the returns on Bitcoin futures and spot returns. Therefore, we conclude Bitcoin futures did not lead to the crash of the Bitcoin market at the end of 2017.
Keywords: cryptocurrency, Bitcoin, futures, intraday data, vector autoregressive model
JEL Classification: G14, G12
Suggested Citation: Suggested Citation