BitMEX Funding Correlation with Bitcoin Exchange Rate

TL;DR

This study analyzes the relationship between BitMEX funding rates and Bitcoin exchange rates, establishing causality and developing a predictive GARCH model to forecast funding rates for market trend analysis.

Contribution

It demonstrates the heteroskedastic nature of funding rates, establishes causality with Bitcoin prices, and introduces a GARCH-based predictive model for funding rates.

Findings

Funding rates are heteroskedastic.

Funding rates Granger-cause Bitcoin prices.

GARCH models effectively predict funding rates.

Abstract

This paper examines the relationship between Inverse Perpetual Swap contracts, a Bitcoin derivative akin to futures and the margin funding interest rates levied on BitMEX. This paper proves the Heteroskedastic nature of funding rates and goes onto establish a causal relationship between the funding rates and the Bitcoin inverse Perpetual swap contracts based on Granger causality. The paper further dwells into developing a predictive model for funding rates using best-fitted GARCH models. Implications of the results are presented, and funding rates as a predictive tool for gauging the market trend is discussed.