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  3. 2026
  4. Preliminary Program
  5. Crypto in (Real) Financial Market
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Crypto in (Real) Financial Market

Paper Session

Saturday, Jan. 3, 2026 8:00 AM - 10:00 AM (EST)

Loews Philadelphia Hotel
Hosted By: American Finance Association
  • Zhiguo He, Stanford University

Blocking the Credit Chain: Cryptocurrencies, Deposits, and Bank Loan Growth

Allen Berger
,
University of South Carolina-Columbia
Jiarui Guo
,
University of South Carolina-Columbia
Stephen Karolyi
,
Office of the Comptroller of the Currency
Leili Pour Rostami
,
University of Massachusetts-Boston

Abstract

We find evidence suggesting that the demand for retail bank deposits declines when cryptocurrency returns are high, leading to lower loan growth for affected banks. We identify this channel using heterogeneity in banks’ geographic exposures to cryptocurrency-investing households. Exposed banks have deposit outflows and lower loan growth when cryptocurrency returns are high. These findings aggregate to the county level, and result in slower establishment and employment growth, especially in bank-dependent sectors. Our findings highlight a novel indirect exposure of banks to cryptocurrency markets and illustrate how participation in cryptocurrency markets can affect the real economy by weakening traditional financial intermediation.

Perpetual Futures and Basis Risk: Evidence from Cryptocurrency

Will Gornall
,
University of British Columbia
Yizhou Xiao
,
Chinese University of Hong Kong
Martin Rinaldi
,
University of British Columbia

Abstract

"We study futures contract design using the volatile cryptocurrency market as a
laboratory.
In this market, order flow frequently overwhelms arbitrage capital and
pushes futures prices above or below their underlying assets. Perpetual futures emerged
as a response to this.
These contracts tightly track their underlying due to small,
frequent payments. We show that these contracts reduced noise trader risk, dominated
trading, and improved liquidity; and rationalize those results using a tractable model.
We argue that these contracts offer potential financial stability benefits because they
improve crisis liquidity and reduce the drawdowns of common arbitrage strategies by
more than half."

Perpetual Futures Contracts and Cryptocurrency Market Quality

Qihong Ruan
,
Cornell University
Artem Streltsov
,
SUNY-Buffalo

Abstract

We examine perpetual futures contracts' impact on cryptocurrency spot market quality. Using high-frequency order book data from 2017 to 2023, we document that spot market quality follows a U-shaped pattern over perpetual contracts' eight-hour funding cycles. Exploiting both the exogenous termination of perpetual trading at Huobi Exchange and 95 staggered contract introductions, we identify a liquidity pattern: perpetual contracts increase spot trading volume while widening quoted spreads. We demonstrate that this pattern reflects increased informed trading, particularly during funding settlement hours and periods of larger funding fee magnitudes. Market makers respond to heightened adverse selection risk by widening quoted spreads.

Dark Crypto

Thomas Ernst
,
University of Maryland
Bryan Routledge
,
Carnegie Mellon University
Chester Spatt
,
Carnegie Mellon University
Ariel Zetlin-Jones
,
Carnegie Mellon University

Abstract

"We study $550 billion in dark crypto trades: off-exchange trades which do not
appear on any exchange dataset. These trades are proprietary to a large brokerage
firm, which routes orders to a number of competing off-exchange wholesalers. Dark
crypto liquidity frequently provides price improvement over and above a hypothetical
“NBBO,” and we estimate customers save between $38 and $74 million per year. A
lack of cryptocurrency regulation means the benefits of a cryptocurrency broker, and
associated access to dark crypto liquidity, are not widely known."

Discussant(s)
Dominik Supera
,
Columbia University
Songrun He
,
Washington University in St. Louis
Will Gornall
,
University of British Columbia
Jiasun Li
,
George Mason University
JEL Classifications
  • G0 - General