The Structural Impact of Bitcoin Spot ETFs on Liquidity and Risk Spillovers in the Cryptocurrency Market

Abstract

The listing of Bitcoin spot exchange-traded funds (ETFs) is regarded as a milestone in the “institutionalization” process of the cryptocurrency market.There has yet to be a systematic review in academia as to whether this is a structural inflection point for liquidity and risk spilloversThe microstructure of the Bitcoin Market following the launch of Bitcoin spot ETFs (Jan 2024). Cryptocurrency market underwent significant changes. First, the Authorized Participant (AP) subscription and redemption mechanism introduced by the ETFs effectively compresses price spreads across exchanges and enhances weekend market liquidity depth.These customer quotes show the market price of Ethereum Futures. This also has the effect of concentrating liquidity on leading platforms, making it more difficult for small to mid-sized exchanges to survive. Second, by incorporating Bitcoin (BTC) into the traditional margin account system via ETFs, risk contagion has transformed from an “extreme tail event” into a “routine, strong feedback pattern,” gradually diminishing Bitcoin’s hedging properties. Lastly, the integration of futures-spot arbitrage activities with margin accounts shortens the duration of volatility spillovers. This paper constructs a review framework of “institutional shock—futures-spot interaction—market structure evolution,” providing replicable and updatable literature references and empirical support for subsequent regulatory monitoring and cross-asset portfolio optimization for investors.