INTRADAY LIQUIDITY

PROFILES OF BITCOIN
FUTURES AND MICRO
BITCOIN FUTURES
HAOJIE WANG
SHANKAR NARAYANAN
JUNE 22, 2021 EXECUTIVE SUMMARY

Micro Bitcoin futures have higher liquidity than Bitcoin futures.

Price discovery of Micro Bitcoin futures is still dominated by trading activity of

Bitcoin futures.

Bitcoin and related synthetics have gained significant attention in the last few years.
Several institutions prefer trading Bitcoin synthetics such as the Bitcoin futures
(exchange symbol, BTC) listed on the CME as the execution of the actual Bitcoin involves
counterparty risks. Recently, CME also introduced Micro Bitcoin futures (exchange
symbol, MBT). The notional of MBT is one-fiftieth of the BTC contract unit. This paper
aims to analyze the intraday profiles of BTC futures and compare them against the
liquidity of the MBT. We do so by using intraday data from May 2021 until now. Our
measurements indicate higher liquidity in micro bitcoin futures. We also find that
trading activity in Bitcoin futures explains the price discovery of Micro Bitcoin futures
more than the other way around.

We analyze intraday liquidity profiles of BTC and MBT using Amihud Illiquidity and
Kyle’s Lambda measurements with 30 minutes time window. As defined in the previous
QB papers [1, 2], Kyle’s lambda is the slope of the regression of price change against the
signed order flow imbalance (trade imbalance) in the same duration. The following two
equations summarize the same as well.
𝑛
1 |𝑅𝑡 |
AmihudIlliquidity = ∑ (1)
𝑛 𝑡=1 𝑉𝑡

Δ𝑃𝑡 = 𝛼 + 𝜆 ∗ OFI𝑡 + 𝜖𝑡 (2)

where 𝑅𝑡 and 𝑉𝑡 are return and trading volume in the same duration; Δ𝑃𝑡 and OFI𝑡 are
mid-price change and order flow imbalance in the same duration. Order flow imbalance
is defined as: OFI = Buy Volume − Sell Volume.

Figures 1 and 2 show the intraday profiles of Amihud illiquidity (scaled by 104 ) and
Kyle’s Lambda. We see that Amihud Illiquidity and Kyle’s Lambda are higher for BTC

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 than that of MBT futures, indicating that the MBT futures are more liquid. We also find a
remarkable drop in illiquidity using both the measures from 7 am until an hour before
closing.

FIGURE 1
Intraday liquidity Intraday Liquidity Profile, BTC
profiles of most
traded BTC are
averaged over last
several weeks.
12
Y-ticks show a lower 6
liquidity in BTC.
10
Amihud Illiquidity

Kyle’s Lambda
5

8
4

6
3

4
Amihud Illiquidity
Kyle’s Lambda
2

18:00 20:00 22:00 00:00 02:00 04:00 06:00 08:00 10:00 12:00 14:00 16:00

Chicago Time (CT)

FIGURE 2
Intraday liquidity Intraday Liquidity Profile, MBTM1
profiles of most
traded MBT are
averaged over last 5
several weeks. 3.0
Y-ticks show a
higher liquidity in
MBT. 2.5
4
Amihud Illiquidity

Kyle’s Lambda
2.0
3
1.5

2
1.0
Amihud Illiquidity
Kyle’s Lambda
0.5

18:00 20:00 22:00 00:00 02:00 04:00 06:00 08:00 10:00 12:00 14:00 16:00

Chicago Time (CT)

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 INTRADAY To explain price discovery between the two Bitcoin futures, we further analyze the
LIQUIDITY PROFILES relationship of trade directions in the most traded outright symbol of the two futures.
OF BITCOIN FUTURES As in [3], we define the conditional probability as the probability of the next trade on
AND MICRO BITCOIN MBT (BTC) having same-direction, conditioning on a trade on BTC (MBT). The probability
FUTURES is shown in Figure 3. We see the likelihood that the next MBT trade has the same trade
PAGE 3 direction following a BTC trade is higher than the other way round. Furthermore, the
possibility of next same-direction trade on MBT (conditioning on a BTC trade) increases
with the trade size of BTC; however, gain on the probability of next same-direction trade
on BTC (conditioning on a MBT trade) from a larger MBT trade size is quite limited. This
is evidence that BTC dominates the bitcoin futures.

Additionally, we also run the two regressions as mentioned below. The specified models,
along with their univariate counterparts, help us confirm if the trade imbalance of BTC
explains the price discovery of MBT futures.
Δ𝑃𝑡,𝐵𝑇𝐶 = 𝛼 + 𝛿1 ∗ 𝑂𝐹𝐼𝑡,𝐵𝑇𝐶 + 𝛿2 ∗ 𝑂𝐹𝐼𝑡,𝑀𝐵𝑇 + 𝜖𝑡 (3)
Δ𝑃𝑡,𝑀𝐵𝑇 = 𝛼 + 𝛿1 ∗ 𝑂𝐹𝐼𝑡,𝑀𝐵𝑇 + 𝛿2 ∗ 𝑂𝐹𝐼𝑡,𝐵𝑇𝐶 + 𝜖𝑡 (4)
Here Δ𝑃𝑡 is the mid-price change, and 𝑂𝐹𝐼𝑡 is the signed order flow imbalance in the
same duration for the specific instrument as mentioned above. We use most traded
contracts to generate the coefficients. For comparison, we also run univariate regressions
in Table 1. Price changes are adjusted for the shared tick size.

Three conclusions can be drawn from regression results. First, BTC and MBT are highly
correlated, as 𝛿2 in equations (3) and (4) are significantly positive. Second, trading on
BTC impacts the bitcoin futures market five times as much as trading on MBT does,
which can be seen from columns (2) and (4) in Table 1. Third, trading activities in BTC
explain the price movement of MBT as much as its own trading does, as 𝑅2 in column (4)
is twice as that in column (3). BTC is still dominating the bitcoin futures market.

In summary, the bitcoin futures market shows higher liquidity during the CME day hours.
Although volume and liquidity of MBT futures are higher than those of the BTC, Bitcoin
futures dominates the two futures’ price discovery. We offer this using both regressions
and analysis of the trade directions. Most likely this is driven by that informed
institutional traders are more involved in BTC while uninformed retail traders are more
in MBT. Traders can use this information to guide their execution.

References

[1] Shankar Narayanan and Reza Gholizadeh, “Cross Impact of Eurex Equity Index
Futures”,QB White Paper, February 10, 2020.
[2] Shankar Narayanan, “Microstructure of Treasury Futures and Options on Treasury
Futures: From 2015 Until Now”,QB White Paper, January 6, 2021.
[3] Dobrislav Dobrev and Ernst Schaumburg, “High-Frequency Cross-Market Trading:
Model Free Measurement and Applications”,Atlanta Fed Conference on Financial
Stability Implications of New Technology, October 2018.

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 FIGURE 3
𝑃(same-direction MBT trade follows) 𝑃(same-direction BTC trade follows)
Conditional
probability is
estimated by the
empirical 0.8 0.8
proportion of the
BTC (MBT) trades,
following which the
next MBT (BTC)
trade has the same
trade direction, 0.7 0.7
relative to the total 𝑝
number of BTC
(MBT) trades.

0.6 0.6

1 2-3 ≥4 1 2 3-4 ≥5
Trade Size of BTC Trade Size of MBT

TABLE 1
Regression Results
of Price Change on
Dependent variable:
BTC and MBT Δ𝑃𝑡,𝐵𝑇𝐶 Δ𝑃𝑡,𝑀𝐵𝑇
against their Order (1) (2) (3) (4)
Flow Imbalance. 𝑂𝐹𝐼𝑡,𝐵𝑇𝐶 0.814 ∗∗∗
0.713 ∗∗∗
0.701∗∗∗
Numbers in (0.025) (0.027) (0.027)
parenthesis show
standard error of 𝑂𝐹𝐼𝑡,𝑀𝐵𝑇 0.134∗∗∗ 0.170∗∗∗ 0.140∗∗∗
the estimate. (1-min (0.006) (0.007) (0.006)
duration)
Constant −0.015 −0.078 −0.069 −0.092
(0.117) (0.136) (0.143) (0.137)

Observations 8,802 6,933 6,933 6,933

R2 0.111 0.169 0.088 0.170
Adjusted R2 0.111 0.169 0.087 0.170
Residual Std. Error 10.961 11.333 11.921 11.368
F Statistic 1,094.331∗∗∗ 704.467∗∗∗ 664.724∗∗∗ 711.336∗∗∗
∗ ∗∗ ∗∗∗
Note: p<0.1; p<0.05; p<0.01

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