Advertisement

Cryptocurrency Derivatives: The Case of Bitcoin

  • Yakup SöylemezEmail author
Chapter
Part of the Contributions to Economics book series (CE)

Abstract

The effects of digitalization on the business ecosystem and business models are increasing day by day. Businesses and individuals intensely benefit from the services that FinTech platforms offer. As a result, there are significant changes in the structure of financial institutions and financial instruments. Blockchain technologies play an important role in the transformation of business ecosystems. In particular, cryptocurrencies are recognized by individuals, institutions, and governments as an economic asset. However, the high price volatility of cryptocurrencies shows that they have significant risks. Cryptocurrency derivatives are used to hedge against and benefit from price movements. This study aims to provide a basic framework for cryptocurrency derivatives. In this study, the most traded cryptocurrency type, Bitcoin derivatives, are used.

References

  1. Abramova, S., & Böhme, R. (2016). Perceived benefit and risk as multidimensional determinants of Bitcoin use: A quantitative exploratory study. In 37th ICIS, Dublin, Ireland.Google Scholar
  2. Allayannis, G., & Ofek, E. (2001). Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20(2), 273–296.CrossRefGoogle Scholar
  3. Anagnostopoulos, I. (2018). Fintech and Regtech: Impact on regulators and banks. Journal of Economics and Business, 100, 7–25.CrossRefGoogle Scholar
  4. Bentov, I., Kumaresan, R., & Miller, A. (2017, December). Instantaneous decentralized poker. In International conference on the theory and application of cryptology and information security (pp. 410-440). Cham: Springer.Google Scholar
  5. Bocconi Students Investment Club. (2018). What’s wrong McFly? Chicken? Back to the Bitcoin futures. Retrieved December 20, 2018, from http://www.bsic.it/whats-wrong-mcfly-chicken-back-bitcoin-futures
  6. Boenkost, W., & Schmidt, W. M. (2005). Cross currency swap valuation. Retrieved from SSRN 1375540.Google Scholar
  7. Bohmann, M., Michayluk, D., & Patel, V. (2018). Price discovery in commodity derivatives: Speculation or hedging? Retrieved from SSRN 3055554.Google Scholar
  8. Böhme, R., Christin, N., Edelman, B., & Moore, T. (2015). Bitcoin: Economics, technology, and governance. Journal of Economic Perspectives, 29(2), 213–238.CrossRefGoogle Scholar
  9. Brito, J., Shadab, H. B., & Castillo O’Sullivan, A. (2014). Bitcoin financial regulation: Securities, derivatives, prediction markets, and gambling. Columbia Science and Technology Law Review, 16, 144–221.Google Scholar
  10. Chambers, N. (2007). Türev piyasalar (2. Baskı). İstanbul: Beta Yayınları.Google Scholar
  11. Cindicator. (2018). Bitcoin futures: Market evolution. Retrieved March 15, 2019, from https://cindicator.com/bitcoin-futures-analysis.pdf
  12. Commodity Futures Trading Commission. (2006). The CFTC glossary: A guide to the language of the futures industry. CreateSpace Independent Publishing Platform.Google Scholar
  13. Cretarola, A., & Figà-Talamanca, G. (2017). A confidence-based model for asset and derivative prices in the Bitcoin market. arXiv:1702.00215.Google Scholar
  14. Crosby, M., Pattanayak, P., Verma, S., & Kalyanaraman, V. (2016). Blockchain technology: Beyond bitcoin. Applied Innovation, 2(6–10), 71.Google Scholar
  15. DeVries, P. D. (2016). An analysis of cryptocurrency, Bitcoin, and the future. International Journal of Business Management and Commerce, 1(2), 1–9.Google Scholar
  16. Duffie, D., & Huang, M. (1996). Swap rates and credit quality. The Journal of Finance, 51(3), 921–949.CrossRefGoogle Scholar
  17. Dyhrberg, A. H. (2016). Hedging capabilities of Bitcoin. Is it the virtual gold? Finance Research Letters, 16, 139–144.CrossRefGoogle Scholar
  18. Financial Conduct Authority. (2018). Cryptocurrency derivatives. Retrieved March 13, 2019, from https://www.fca.org.uk/news/statements/cryptocurrency-derivatives
  19. Financial Stability Board. (2018). Monitoring of FinTech. Retrieved March 15, 2019, from http://www.fsb.org/work-of-the-fsb/policy-development/additional-policy-areas/monitoring-of-fintech
  20. Goldfeder, S., Kalodner, H., Reisman, D., & Narayanan, A. (2018). When the cookie meets the blockchain: Privacy risks of web payments via cryptocurrencies. Proceedings on Privacy Enhancing Technologies, 2018(4), 179–199.CrossRefGoogle Scholar
  21. Graf, C. (2019). Mapping the cryptocurrency derivative landscape, is regulation needed? Retrieved March 13, 2019, from https://www.cryptoglobe.com/latest/2019/01/mapping-the-cryptocurrency-derivative-landscape-is-regulation-needed
  22. Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2018). Portfolio diversification with virtual currency: Evidence from Bitcoin. International Review of Financial Analysis.  https://doi.org/10.1016/j.irfa.2018.03.004 CrossRefGoogle Scholar
  23. Herlihy, M. (2018, July). Atomic cross-chain swaps. In Proceedings of the 2018 ACM symposium on principles of distributed computing (pp. 245–254). ACM.Google Scholar
  24. Johnson, L. L. (1960). The theory of hedging and speculation in commodity futures. Review of Economic Studies, 27(3), 139–151.CrossRefGoogle Scholar
  25. Kapar, B., & Olmo, J. (2019). An analysis of price discovery between Bitcoin futures and spot markets. Economics Letters, 174, 62–64.CrossRefGoogle Scholar
  26. Liu, Z., Chen, L., Li, L., & Zhai, X. (2014). Risk hedging in a supply chain: Option vs. price discount. International Journal of Production Economics, 151, 112–120.CrossRefGoogle Scholar
  27. Madan, D. B., Reyners, S., & Schoutens, W. (2019). Advanced model calibration on Bitcoin options. Digital Finance, 1–21.Google Scholar
  28. Merton, R. C. (1973). Theory of rational option pricing. Theory of Valuation, 229–288.Google Scholar
  29. Möser, M., Böhme, R., & Breuker, D. (2014, March). Towards risk scoring of Bitcoin transactions. In International conference on financial cryptography and data security (pp. 16–32). Berlin: Springer.Google Scholar
  30. Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system Google Scholar
  31. Peters, G. W., Chapelle, A., & Panayi, E. (2016). Opening discussion on banking sector risk exposures and vulnerabilities from virtual currencies: An operational risk perspective. Journal of Banking Regulation, 17(4), 239–272.CrossRefGoogle Scholar
  32. Poon, J., & Dryja, T. (2016). The bitcoin lightning network: Scalable off-chain instant payments.Google Scholar
  33. Silva, F.C. (2018). Option pricing under jump-diffusion processes: Calibration to the bitcoin options market. Instıtuto Superıor De Cıêncıas Do Trabalho E Da Empresa Faculdade De Cıêncıas Da Unıversıdade De Lısboa. Departamento De Fınanças Departamento De Matemátıca. Master ThesisGoogle Scholar
  34. Sinclair, E. (2010). Option trading: Pricing and volatility strategies and techniques (Vol. 445). Hoboken, NJ: Wiley.Google Scholar
  35. Sopov, V., Purtova D. & Noxon, A. (2019). Swap.Online White Paper. Retrieved March 1, 2019, from https://wiki.swap.online/en.pdf
  36. Statistics. Retrieved March 13, 2019., from https://www.blockchain.com/
  37. Top 100 Cryptocurrencies by Market Capitalization. Retrieved March 3, 2019, from https://coinmarketcap.com/Google Scholar
  38. Türkmen, S. Y. (2018). Industry 4.0 and Turkey: A financial perspective. In Strategic design and innovative thinking in business operations (pp. 273–291). Cham: Springer.Google Scholar
  39. Vora, G. (2015). Cryptocurrencies: Are disruptive financial innovations here? Modern Economy, 6(07), 816.CrossRefGoogle Scholar
  40. Wilmott, P. (2013). Paul Wilmott introduces quantitative finance. Hoboken, NJ: Wiley.Google Scholar
  41. Wüst, K., & Gervais, A. (2018, June). Do you need a Blockchain? In 2018 Crypto Valley conference on blockchain technology (CVCBT) (pp. 45–54). IEEE.Google Scholar
  42. Zanuiddin, A. (2019). Guide to crypto derivatives: What is cryptocurrency derivatives? Retrieved March 10, 2019, from https://masterthecrypto.com/what-is-cryptocurrency-derivatives-guide-crypto-derivatives

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Department of Accounting and TaxZonguldak Bülent Ecevit UniversityZonguldakTurkey

Personalised recommendations