The determinants of price discovery on bitcoin markets

Abstract

This paper investigates whether market quality, uncertainty, investor sentiment and attention, and macroeconomic news affect bitcoin price discovery in spot and futures markets. Over the period December 2017–March 2019, we find significant time variation in the contribution to price discovery of the two markets. Increases in price discovery are mainly driven by relative trading costs and volume, and uncertainty to a lesser extent. Additionally, medium‐sized trades contain most information in terms of price discovery. Finally, higher news‐based bitcoin sentiment increases the informational role of the futures market, while attention and macroeconomic news have no impact on price discovery.

Is It Possible to Forecast the Price of Bitcoin?

“…Forecasting is only slightly improved by adding step-by-step further variables. (ii) Contrary to literature (Kapar and Olmo [110], Entrop et al [111]), we do not identify clear price fundamentals for Bitcoin. (iii) Bitcoin does not seem to be integrated into commodities.…”

Fractional cointegration in bitcoin spot and futures markets

“…The spot price (BTC/USD) data is sourced from http://Crypto.com Exchange and the futures price (BTC/USD) data from the Chicago Mercantile Exchange (CME). Following Entrop et al (2019), we use the most actively traded futures contract on each day in our sample. The trading hours of CME bitcoin futures are from Sunday to Friday from 6:00 p.m. to 5:00 p.m. (5:00 p.m. to 4:00 p.m. CT).…”

“…Entrop et al (2019) find that relative trading volume is positively related to price discovery, while the trading cost is negatively related to price discovery. During the pandemic period, we can see that trading volume in bitcoin spot market increases from 29 billion on January 31, 2020 to 74 billion on March 13, 2020 (Figure 2).…”

Who leads in intraday gold price discovery and volatility connectedness: Spot, futures, or exchange‐traded fund?

“…Hence, we choose 1 min as our suitable frequency, indicated by trading frequency and volatility signature plots. Moreover, sampling at a higher frequency will result in minimal correlations, avoid loss of information, and greater incorporation of information (Entrop et al, 2020; Wallace et al, 2019). It will also facilitate a meaningful comparison between domestic and international analyses.…”