Exploration of Price Discrepancy due to Settlement Mechanisms in Multiple Markets and their Potential Future Implications
Abstract
The paper seeks to explore the development of multiple bitcoin futures markets across the globe and tries to suggest patterns that may develop amongst investors in these products as we see the involvement of greater number of institutional investors and the rise of exotic bitcoin derivative products. Through some high-level chart analysis, the paper seeks to suggest that while statistically significant differences mayn’t exist between markets at the moment, consumers preference for the nature of bitcoin settlement and the decreasing use of bitcoin as a speculative asset may ultimately lead to increased trading volumes towards physically settled bitcoin futures markets.
Author Note
This paper was a submitted as part of MBA coursework at NYU Stern during Fall 2019. The paper was written in anticipation of the launch of Bitcoin Options Markets by CME in Jan 2020 and serves an overview of the landscape and a very specific personal viewpoint on the evolution of the market. It will hopefully serve as the first step for more research into Bitcoin Options and Bitcoin Futures Settlement behavior by the author.
A critical feedback received on the paper includes the absence of discussion on the lack of a common settlement price for Bitcoin across exchanges (Law of One Price) and its direct impact on the price of settlement of futures. Although CME’s Bitcoin Reference Rate is a step in this direction, it’s not without its flaws on not being wholly representative of the entire traded BTC Volume.
Please feel free to share your feedback on the paper and reach out in case I can help with your research or trading strategy work in the Bitcoin Futures or Bitcoin Options Market.
The Lucid Monk 