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. Futures prices are primarily determined by two complementary forces. a. When the underlying asset is liquid, covered interest arbitrage assures that futures prices are

. Futures prices are primarily determined by two complementary forces.

a. When the underlying asset is liquid, covered interest arbitrage assures that futures prices are equal to forward prices according to interest rate parity; FutT d/f = FT d/f = S0 d/f((1+id )/(1+if ))T .

b. When the underlying asset is illiquid, arbitrage cannot enforce the equality of futures and forward prices. Nevertheless, speculative activity should assure that futures and forward prices are unbiased expectations of future spot exchange rates according to FutT d/f = FT d/f = E[ST d/f]. Which of these two forces do you believe to be the more important influence for Bitcoin futures?

That is, would you characterize the market for Bitcoins as liquid or illiquid?

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