Abstract
Recently, cryptocurrencies have drawn considerable attention from investors around the world. Such digital assets have also raised numerous hot issues in academic fields. Among them, Bitcoin is the most well-known and most notorious. After it was created in 2009, Bitcoin kept rising in price and reached its peak in late 2017. After that, it plunged dramatically. Coincidentally, Bitcoin futures also launched in December 2017. We are curious about the role Bitcoin futures play in the Bitcoin market. In this study, we investigate the relationship between Bitcoin and Bitcoin futures. First, we compare the optimal hedge ratios using three different hedge strategies, the na?ve hedge, the ordinary least squares (OLS) method, and dynamic hedging with the bivariate BEKK-GJR-GARCH model. Dynamic hedging is the most effective of the three methods; the level of risk reduction is around 59%. Then we test whether the volatility of Bitcoin would be significantly different before and after Bitcoin futures (BTC) launched. Our results support the hypothesis.
Highlights
Investors worldwide, eager to have an exciting ride, have been fascinated by Bitcoin, the genesis cryptocurrency created in 2009
The other was to test whether the volatility of Bitcoin would be significantly different before and after Bitcoin futures launched
We began by using the data of the underlying spot, Bitcoin Reference Rate (BRR), and the Bitcoin futures price, BTC, from the Thomson Reuters Eikon (Eikon) database
Summary
Eager to have an exciting ride, have been fascinated by Bitcoin, the genesis cryptocurrency created in 2009. For one decade, there has been no observable fading of the craze for Bitcoin, given the increasing trade volumes. Bitcoin is notorious for its volatile price movement, when we look several years back at Bitcoin’s history, we see that its price increased relatively steadily. During the critical year 2017, the price of Bitcoin skyrocketed from $1000 in January to a record high of $20,000 in December, as reported on the CoinDesk.
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