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Bitcoin unchained: Determinants of cryptocurrency exchange liquidity

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  • Brauneis, Alexander
  • Mestel, Roland
  • Riordan, Ryan
  • Theissen, Erik

Abstract

We study bitcoin to US dollar (BTCUSD) liquidity and liquidity determinants using order book data from three large cryptocurrency exchanges. The BTCUSD market is more liquid than US equity markets with bid–ask spreads often below 1 basis point. We find that BTCUSD liquidity is largely explained by same-exchange past liquidity, past cryptocurrency market-wide liquidity and volatility, and fees charged on the blockchain for bitcoin transfers. Surprisingly, we find that BTCUSD liquidity is unrelated to broader financial markets and financial market liquidity.

Suggested Citation

  • Brauneis, Alexander & Mestel, Roland & Riordan, Ryan & Theissen, Erik, 2022. "Bitcoin unchained: Determinants of cryptocurrency exchange liquidity," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 106-122.
    • Handle: RePEc:eee:empfin:v:69:y:2022:i:c:p:106-122
    DOI: 10.1016/j.jempfin.2022.08.004
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    Citations

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    Cited by:

    1. Skander Slim & Ibrahim Tabche & Yosra Koubaa & Mohamed Osman & Andreas Karathanasopoulos, 2023. "Forecasting realized volatility of Bitcoin: The informative role of price duration," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(7), pages 1909-1929, November.
    2. Natashekara, Karthik & Sampath, Aravind, 2024. "Informed trading and cryptocurrencies. New evidence using tick-by-tick data," Finance Research Letters, Elsevier, vol. 61(C).
    3. Pietro Saggese & Esther Segalla & Michael Sigmund & Burkhard Raunig & Felix Zangerl & Bernhard Haslhofer, 2023. "Assessing the Solvency of Virtual Asset Service Providers: Are Current Standards Sufficient?," Papers 2309.16408, arXiv.org, revised Apr 2024.
    4. Fatih Ecer & Tolga Murat & Hasan Dinçer & Serhat Yüksel, 2024. "A fuzzy BWM and MARCOS integrated framework with Heronian function for evaluating cryptocurrency exchanges: a case study of Türkiye," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-29, December.
    5. Simona-Vasilica Oprea & Irina Alexandra Georgescu & Adela Bâra, 2024. "Is Bitcoin ready to be a widespread payment method? Using price volatility and setting strategies for merchants," Electronic Commerce Research, Springer, vol. 24(2), pages 1267-1305, June.
    6. Bernhard Haslhofer & Burkhard Raunig & Pietro Saggase & Esther Segalla & Michael Sigmund & Felix Zangerl, 2023. "Assessing the Solvency of Virtual Asset Service Providers: Are Current Standards Sufficient? (Pietro Saggese, Esther Segalla, Michael Sigmund, Burkhard Raunig, Felix Zangerl, Bernhard Haslhofer)," Working Papers 248, Oesterreichische Nationalbank (Austrian Central Bank).
    7. Adel Benhamed & Ahlem Selma Messai & Ghassen El Montasser, 2023. "On the Determinants of Bitcoin Returns and Volatility: What We Get from Gets?," Sustainability, MDPI, vol. 15(3), pages 1-21, January.

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    More about this item

    Keywords

    Cryptocurrencies; Liquidity; Bid–ask spread; Determinants;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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