The Impact of Derivatives Trading on Bitcoin Spot Market Volatility

Elaine's Idle Mind

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Bitcoin fell another 14% against the USD this past month. Or maybe bitcoin held steady as the dollar rallied. Depends what universe you live in.

Last week, Silicon Valley Meets Wall Street panelists theorized that the introduction of derivatives markets would reduce bitcoin price volatility.

Do highly-leveraged bets stabilize their underlying markets?

Options and futures expiration dates see increased trading volume and volatility. Investors have to close out of their positions, sometimes options holders try to push underlying prices in their favor, or some take stock positions to hedge their options exposure.

Enough speculation. Let’s look at historical markets following the introduction of derivatives trading. I read all this shit so you don’t have to.

Markets Effect on volatility Reference
Kuala Lumpur Stock Exchange increase Pok & Poshakwale 2004
Korea Stock Exchange increase Bae, et al 2004
Spanish Stock Market decrease Pilar & Rafael 2002
Italian Stock Exchange decrease Bologna…

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