The Exchange Inclusion Effect in the Cryptocurrency Market

Abstract

This article investigates the effect of major exchange-related events on cryptocurrency markets with respect to the inclusion of cryptocurrency derivatives in major regulated exchanges. The world’s first Ether futures launched on February 8, 2021, providing an ideal setting to investigate the price effect following its launch in the cryptocurrency market. The article also is a first attempt to explore the price reactions of cryptocurrency in the spot market to the effective trading of cryptocurrency derivatives in major regulated exchanges. Using an event-study methodology, the article shows the launch of cryptocurrency derivatives in major regulated exchanges experienced a significant increase in price on the announcement day, followed by a significant decrease in price a few months later. Such market anomalies are consistent with the stock price behaviors predicted by the index inclusion effect commonly documented in stock market literatures.