Japan’s Ministry of Finance Releases Report on the Impact of Bitcoin Futures in the Cryptocurrency Market


The Policy Research Institute as part of the Ministry of Finance in Japan published a research report entitled “Research on Crypto Assets (Cryptocurrency): A Focus on Illegality, Regulations and ICOs” on May 23.


Aside from academic research on the illegality and regulations of crypto assets, including rejections of applications for bitcoin ETFs in the United States and the ICO ban in China, the report also analyzes the correlation between Bitcoin futures and the market.


The report objects to the theory that the lifting of a ban in the futures market ended the cryptocurrency bubble in consideration of the entry of institutional investors, the ease of short-selling futures, and other factors.


The price of Bitcoin began experiencing a downward trend in price around the same time that Bitcoin futures were introduced. However, reports in 2019 by Ministry of Finance researchers Takahiro Hattori and Ryo Ishida provided empirical results that refute a link between the introduction of futures and the decline in Bitcoin prices.


According to this report, if spot market prices declined due to factors such as making it possible for investors to short-sell Bitcoin futures, a significant amount of trade in Bitcoin futures could cause a decline in spot market prices in the short term.


Daily trade activity for futures and spot market prices were matched to see if there was any actual correlation between trade and price, and results indicated that despite the possibility for an increase in trade in futures to have a negative impact for around 10-20 minutes immediately after the event, it did not have a significant impact statistically after that period of time.


Furthermore, the report argues that if the introduction of futures were to be linked to the price decline in the spot market, there would need to be sufficient arbitrage between cash and futures. Research into whether there was a strong link between futures and cash at the end of 2017 is ongoing.


*This article was written by Fisco