I have been studying the impact of futures on cash markets for decades, so I was very interested in the new short piece of research, “How Futures Trading Changed Bitcoin Prices” FRBSF Economic Letter 2018-12 May 7, 2018 that was published this week.
Nevertheless, now that futures trading has begun, we should study how the bitcoin cash market may or should change. This recent research, however, is a good poster piece on the fact that correlation many not mean causality. Bitcoin prices have fallen since the inception of futures trading, but that does not imply that futures were the cause. It could be, but it has not been truly tested. If careful research is not done on this topic, then emotional biases will drive the discussion and not facts.
Perhaps more research is pending, but there is little evidence to make any strong judgments on the value of futures trading to control the excessive prices seen in bitcoins. There is a need to understand the impact of futures on a fragmented cash market where the pricing is based off a reference index which may not be inclusive of all trading.
Futures play a significant role in the financial system and not fully defining, reviewing, and testing of how this role is played is a disservice to the futures markets and all those who rely on the Fed to provide useful information and research on any policy debate.