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The Role of Binance in Bitcoin Volatility Transmission

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  • Carol Alexander
  • Daniel F. Heck
  • Andreas Kaeck

Abstract

We analyse high-frequency realized volatility dynamics and spillovers between centralized crypto exchanges that offer spot and derivative contracts for bitcoin against the US dollar or the stable coin tether. The tether-margined perpetual contract on Binance is clearly the main source of volatility, continuously transmitting strong flows to all other instruments and receiving very little volatility from other sources. We also find that crypto exchanges exhibit much higher interconnectedness when traditional Western stock markets are open. Especially during the US time zone, volatility outflows from Binance are much higher than at other times, and Bitcoin traders are more attentive and reactive to prevailing market conditions. Our results highlight that market regulators should pay more attention to the tether-margined derivatives products available on most self-regulated exchanges, most importantly on Binance.

Suggested Citation

  • Carol Alexander & Daniel F. Heck & Andreas Kaeck, 2022. "The Role of Binance in Bitcoin Volatility Transmission," Applied Mathematical Finance, Taylor & Francis Journals, vol. 29(1), pages 1-32, January.
    • Handle: RePEc:taf:apmtfi:v:29:y:2022:i:1:p:1-32
    DOI: 10.1080/1350486X.2022.2125885
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    4. Alessio Brini & Jimmie Lenz, 2024. "A Comparison of Cryptocurrency Volatility-benchmarking New and Mature Asset Classes," Papers 2404.04962, arXiv.org.
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