Asymmetric Flow Impact: Spot Noise vs. Futures Calm in Bitcoin Volatility

• Ananya Sharma

  Author

The crucial question in financial economics is whether trading activity stabilizes or destabilizes the cryptocurrency market. This paper examines the asymmetrical association of trading volume with Bitcoin realized volatility between decentralized spot exchanges and the Chicago Mercantile Exchange (CME) futures market. Using daily data from January 2017 to March 2021, we construct two realized volatility measures, including one based on the BRR methodology of the CME. The expected and unexpected components of daily trading volume are decomposed within an ARIMA framework to demarcate normal liquidity from unanticipated trades. Empirical results demonstrate a clear asymmetry over the segments of the market. Unexpected trading volume in the spot market is a significant and economically meaningful driver of realized volatility, explaining roughly 20% of its daily variation. This highlights how noise-driven retail trading dominates this aspect. On the contrary, unexpected CME futures volume only slightly increases volatility, and expected futures volume actually reduces volatility. Such findings indicate that the futures market helps with liquidity provision, hedging, and efficient risk transfer. Robustness checks using various volatility estimators, semi-variance decomposition, macroeconomic controls, and on-chain activities affirm the stability of these estimates. This research sheds light on cryptocurrency market regulation, institutional risk management, and volatility forecasting.

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