Price Discovery in Bitcoin Spot or Futures? The Jury Is Out

Abstract

This study clarifies discrepancies in previous research on the contribution of regulated Bitcoin futures to price discovery, where conclusions have varied between futures leading over spot markets or vice versa. We identify potential reasons behind these conflicting findings, including the choice of price discovery measures, sampling frequencies, modeling windows, futures contracts, and spot exchanges. Using 1-s sampling frequencies to accurately capture price discovery in the fast-paced markets and accounting for substantial noise differences between spot and futures markets, we find that the futures market generally leads spot markets, though this price leadership exhibits daily fluctuations. Moreover, we observe a pronounced increase in the futures market's contribution to price discovery around macroeconomic surprises and Tether stablecoin minting tweets.