In brief
- Recent academic studies have found that Bitcoin price discovery now takes place in derivative markets rather than spot markets.
- Bitcoin prices on regulated derivative markets react to, rather than lead, price movements of unregulated exchanges.
- The introduction of spot Bitcoin ETFs has had a positive impact on the wider crypto market, studies found.
Professor Andrew Urquhart is Professor of Finance and Financial Technology and Head of the Department of Finance at Birmingham Business School (BBS).
This is the sixth instalment of the Professor Coin column, in which I bring important insights from published academic literature on cryptocurrencies to the Decrypt readership. In this article, we’ll investigate cryptocurrency derivatives.
Bitcoin has gone from being an obscure digital asset traded by blockchain enthusiasts to one of the most traded and recognizable assets in the world—even becoming a major topic of discussion in Donald Trump’s U.S. presidential election victory and subsequent policy drive.
It, along with other cryptocurrencies, have become more and more ‘financialized’ in that they are more accepted in the financial system and traded by more and more institutional investors.
This has been enabled by the introduction and success of Bitcoin futures, options, futures ETFs and spot Bitcoin ETFs, which enable investors to gain exposure to Bitcoin without having to custody BTC themselves. These derivative assets also enable hedging and more sophisticated trading of digital assets. But what impact have these derivative products had on digital markets?
Where does price discovery take place?
One important issue with the introduction of derivative markets is where does price discovery originate—is it in the derivative market, or the spot market?
Fassas et al (2020) show that, after the introduction of Bitcoin futures markets on the CME and CBOE, the futures market plays a more important role in incorporating new information about the price of Bitcoin, rather than the spot price. Therefore, price discovery now takes place in derivative markets.
But what about unregulated derivative markets? Alexander et al (2020) study the leading unregulated Bitcoin derivative exchange, BitMEX and show that their derivative prices lead major Bitcoin spot exchanges. Further, BitMEX derivatives are informationally more efficient than spot prices, and serve as effective hedges against spot price volatility.
In follow-up work, Alexander and Heck (2020) show that perpetual swaps and futures traded on unregulated exchanges like Huobi, OKEx and BitMEX are the price leaders, and that prices on regulated derivative markets (CME) react to, rather than lead, price movements of unregulated exchanges.
However, recent work by Frino et al (2025) argue that the futures market generally leads spot markets, though this price leadership exhibits daily fluctuations.
The impact of Bitcoin derivatives
Beyond leading prices, what effect have derivatives had on the Bitcoin market in general? Jalan et al (2021) document a clear downward impact on the price of Bitcoin after their introduction, but an upward impact of the volatility, therefore showing the detrimental effect of the introduction of futures contracts.
However, recent work by Conlon et al (2024) document that CME futures trading volume is not a source of systemic risk, and that the vast majority of the risk comes from the spot Bitcoin market.
How Bitcoin spot ETFs have influenced markets
However, the big recent story in the news was the introduction of spot Bitcoin ETFs in January 2024 and how this has influenced markets. The emerging literature suggests the positive impact of their introduction on not just Bitcoin markets, but other cryptocurrencies too, as price increased and volatility fell, support the stabilization hypothesis (Babalos et al 2025).
A very detailed study by Hornback and Whaley (2025) shows that the inflows into spot ETFs have surpassed $75 billion and their performance relative to Bitcoin futures and futures-based ETFs has been nothing short of extraordinary. Nonetheless, the study outlines quite stark differences between the approved ETFs in terms of management fees, tracking performance, composition and volatility.
More analysis will come to the fore as time passes on the impact of the introduction of spot ETFs to the cryptocurrency market. Given the events of the last 16 months and the huge inflows into all cryptocurrency derivatives, they offer a way of gaining exposure to cryptocurrencies, gaining hedging opportunities while not incurring the cost and hassle of custody.
As more derivatives become available, more and more institutional investors and traders will enter the market—and whether this is beneficial to the cryptocurrency market remains to be seen.
For more information, see:
Alexander, C., Choi, J., Park, H., Sohn, S. (2020). BitMEX Bitcoin derivatives: Price discovery, informational efficiency, and hedging effectiveness. Journal of Futures Markets, 40, 23-43.
Alexander, C., Heck, D. F. (2020). Price discovery in Bitcoin: The impact of unregulated markets. Journal of Financial Stability, 50, 100776.
Babalos, V., Bouri, E., Gupta, R. (2025). Does the introduction of US spot Bitcoin ETFs affect spot returns and volatility of major cryptocurrencies? The Quarterly Review of Economics and Finance, 102, 102006.
Conlon, T., Corbet, S., McGee, R. (2024). The Bitcoin volume-volatility relationship: A high frequency analysis of futures and spot exchanges. International Review of Financial Analysis, 91, 103013.
Fassas, A. P., Papadamou, S., Koulis, A. (2020). Price discovery in Bitcoin futures. Research in International Business and Finance, 52, 10116.
Frino, A., Gaudiosi, R., Webb, R. I., Zhou, Z. I. (2025). Price Discovery in Bitcoin Spot or Futures? The Jury is Out. Journal of Futures Markets, 45, 269-288.
Jalan, A., Matkovskyy, R., Urquhart, A. (2021). What effect did the introduction of Bitcoin futures have on the Bitcoin spot market? European Journal of Finance, 27, 1251-1281.
Hornback, A., Whaley, R. (2025) Spot Bitcoin ETFs: The Struggle Was Worth It. Financial Analysts Journal, 81(2), 1-12
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