The regulated tail that wags the honey badger?

Last year’s main story was the growing institutional adoption of bitcoin amid a period of unprecedented fiscal and monetary stimulus globally. 2020 was a year with increased presence from institutional investors in bitcoin, but to what extent?

Key findings:

  • The regulated bitcoin futures on CME has a far more pronounced price leadership role in bitcoin’s price discovery now, compared to back in 2019.

  • We argue that due to the more pronounced leading role of the CME futures, the SEC should consider approving the pending bitcoin ETFs. The market has matured, and U.S. retail investors deserve a viable exchange-traded investment option for their 401Ks.

This article draws on data from a price discovery analysis performed by Jens Vig and Vetle Lunde titled “The regulated tail that wags the honey badger”. The analysis set out to identify the impact of the increased institutional presence in bitcoin by performing a multivariate price discovery analysis from June 1st, 2020, till April 31st, 2021. The analysis sought to identify how important the regulated futures market has become in bitcoin and contrast it to a similar analysis conducted by Carol Alexander and Daniel Heck for 2019. The Alexander and Heck paper can be found here

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