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Liquidity uncertainty and Bitcoin’s market microstructure

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  • Koutmos, Dimitrios

Abstract

This paper provides a novel measure of liquidity uncertainty for Bitcoin using bid–ask spread data from Bitfinex − one of the largest and most liquid Bitcoin exchanges. This measure can be used to analyze liquidity developments in Bitcoin exchanges or to gauge the immediacy associated with buying or selling Bitcoin. It then proceeds to identify what aspects of Bitcoin’s market microstructure can explain the time series behavior of this liquidity uncertainty. The estimation results are based on a Markov regime-switching model that captures episodes of high and low liquidity uncertainty for Bitcoin over the period from October 2013 to March 2018.

Suggested Citation

  • Koutmos, Dimitrios, 2018. "Liquidity uncertainty and Bitcoin’s market microstructure," Economics Letters, Elsevier, vol. 172(C), pages 97-101.
    • Handle: RePEc:eee:ecolet:v:172:y:2018:i:c:p:97-101
    DOI: 10.1016/j.econlet.2018.08.041
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; GARCH; Liquidity; Market microstructure; Markov regime-switching;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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