Finance

Mid price

Price discovery

Financial economics

Futures contract

Machine learning

Econometrics

Leverage (statistics)

Economics

Spot contract

Microeconomics

Computer science

Spillover effect

Monetary economics

Ask price

Price level

Volatility (finance)

Journal of Futures Markets

BitMEX is the largest unregulated bitcoin derivatives exchange, listing contracts suitable for leverage trading and hedging. Using minute‐by‐minute data, we examine its price discovery and hedging effectiveness. We find that BitMEX derivatives lead prices on major bitcoin spot exchanges. Bid–ask spreads, interexchange spreads, and relative trading volumes are important determinants of price discovery. Further analysis shows that BitMEX derivatives have positive net spillover effects, are informationally more efficient than bitcoin spot prices, and serve as effective hedges against spot price volatility. Our evidence suggests that regulators prioritize the investigation of the legitimacy of BitMEX and its contracts.

BitMEX bitcoin derivatives: Price discovery, informational efficiency, and hedging effectiveness