Price relationship between bitcoin and future contracts based on bitcoin

Various types of money have emerged in line with the changing needs and conditions throughout history. The latest example of this is crypto currencies that came into our lives with Bitcoin which, thanks to blockchain technology, could operate without the need for a central authority, unlike its predecessors. Amongst the world's leading derivatives market CBOE and CME, introduced futures contracts on Bitcoin in December, 2017. Since it is a really volatile financial asset regarding the price movements in nature, the launch of futures contracts on Bitcoin is seen as an important development as it gives opportunity to investors for hedging themselves against the price risk and to speculate in a regulated market. In this study, both the short term and long term price dyanmics of Bitcoin spot and futures market have been analyzed and it is shown that there is a co-integration process between Bitcoin spot and futures' price series. Analysis of the long run dynamics of the model showed that the response of the futures prices in CME to any deviation from the equilibrium prices is substantially larger than the one seen in CBOE. For the short run dynamic of the model, it is found that there is a causality from spot prices to futures prices and vice versa. Furthermore, the measure named as "Component Share" by Gonzalo and Granger has been applied to the results of established VECM model in order to calculate the magnitude of contributions of both spot and the futures markets to the price discovery. It is found that the spot market leads the price discovery process for both of the exchanges analyzed. The possible interpretations for this higher spot market contribution to price discovery may be due to the fact that daily trading volume on the spot market is higher than the futures market and bitcoin can be traded around the clock (7/24) while futures trading is interrupted daily and also there are halts during weekends.