Bitcoin futures: An effective tool for hedging cryptocurrencies

Sebastião, Hélder; Godinho, Pedro

doi:10.1016/j.frl.2019.07.003

Cited by 64 publications

(33 citation statements)

References 23 publications

(26 reference statements)

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“…In December 2017, the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT) commenced trading in Bitcoin futures. 36 In addition, centralized market exchanges, such as BitMEX, FTX, OKEx, and Binance, provide sufficient volumes of derivatives or margin trading with BTC as an underlying asset.…”

Section: Marketmentioning

confidence: 99%

New Crypto-Secured Lending System with a Two-Way Collateral Function

Kim¹

2021

ledger

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All existing secured loans, including crypto-secured loans, are provided under the condition that the collateral entrusted by the borrower is kept safe during the loan term. In other words, they use a one-way collateral function. Thus, a frequent drawback of these loans is that the collateral value increases if and only if the collateral price increases. To resolve this problem, this paper proposes a new crypto-secured lending system incorporating a new two-way collateral function. It would allow a borrower to invest proportions of their own collateral by predicting the market in both directions to make profits irrespective of whether the price of the collateral increases or decreases. This benefits the borrower since profit can be made even if the price of the collateral drops, by betting on the price decrease. This new lending system could include a new hedged portion, unlike traditional secured lending systems. As a result, larger loans can be made under this arrangement; further, this portion provides the advantage of reducing the underlying collateral price volatility risk.

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Section: Marketmentioning

confidence: 99%

New Crypto-Secured Lending System with a Two-Way Collateral Function

Kim¹

2021

ledger

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“…Our sample ends in July 2020, when bitcoin was quoted around USD 10,000. Arguably, the 2013 and 2017 peaks came from boosts in the popularity of bitcoin [33], and the sharp decline at the beginning of 2018 was associated with the launch of bitcoin futures by the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) [54].…”

Section: Data and Preliminary Analysismentioning

confidence: 99%

Price Appreciation and Roughness Duality in Bitcoin: A Multifractal Analysis

2021

Self Cite

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Since its launch in 2009, bitcoin has thrived, attracting the attention of investors, regulators, academia, and the public in general. Its price dynamics, characterized by extreme volatility, severe jumps, and impressive long-term appreciation, suggest that bitcoin is a new digital asset. This study presents a comprehensive overview of the fractality of bitcoin in a high-frequency framework, namely by applying Multifractal Detrended Fluctuation Analysis (MF-DFA) and a Multifractal Regime Detecting Method (MRDM) to Bitstamp 1 min bitcoin returns from January 2013 to July 2020. The results suggest that bitcoin is multifractal, with smaller and larger fluctuations being persistent and anti-persistent, respectively. Multifractality comes from significant long-range correlations, which cast some doubts on the informational efficiency at this frequency, but mainly comes from fat-tails, which highlights the significant risks undertaken by investors in this market. Our most important result is that the degree and richness of multifractality is time-varying and increased after 2017, when volumes and prices experienced an explosive behaviour. This complexity puts into perspective the duality of bitcoin: while it is characterized by long-run attractiveness and increasing valuation, it also has a high short-run instability. Hence, this study provides some empirical evidence supporting the relationship between these two observable features.

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“…To illustrate how cryptocurrency derivatives can be used, Sebastião and Godinho (2019) investigated the hedging properties of BTC futures. The authors considered an equal and opposite hedge, as well as optimal hedge ratios estimated using the ordinary least squares, and dynamic conditional correlation GARCH approach.…”

Section: Literature Reviewmentioning

confidence: 99%

Price discovery in the cryptocurrency option market: A univariate GARCH approach

Venter

Maré

Pindza

2020

Cogent Economics & Finance

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In this paper, two univariate generalised autoregressive conditional heteroskedasticity (GARCH) option pricing models are applied to Bitcoin and the Cryptocurrency Index (CRIX). The first model is symmetric and the other takes asymmetric effects into account. Furthermore, the accuracy of the GARCH option pricing model applied to Bitcoin is tested. Empirical results indicate that asymmetry is not an important factor to consider when pricing options on Bitcoin or CRIX, this is consistent with findings in the literature. In addition, the GARCH option pricing model provides realistic price discovery within the bid-ask spreads suggested by the market.

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Bitcoin futures: An effective tool for hedging cryptocurrencies

Cited by 64 publications

References 23 publications

New Crypto-Secured Lending System with a Two-Way Collateral Function

New Crypto-Secured Lending System with a Two-Way Collateral Function

Price Appreciation and Roughness Duality in Bitcoin: A Multifractal Analysis

Price discovery in the cryptocurrency option market: A univariate GARCH approach

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