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Price Discovery of a Speculative Asset: Evidence from a Bitcoin Exchange

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  • Eric Ghysels

    (Department of Economics and Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599, USA)

  • Giang Nguyen

    (Smeal College of Business, Pennsylvania State University, University Park, PA 16802, USA)

Abstract

We examine price discovery and liquidity provision in the secondary market for bitcoin—an asset with a high level of speculative trading. Based on BTC-e’s full limit order book over the 2013–2014 period, we find that order informativeness increases with order aggressiveness within the first 10 tiers, but that this pattern reverses in outer tiers. In a high volatility environment, aggressive orders seem to be more attractive to informed agents, but market liquidity migrates outward in response to the information asymmetry. We also find support to the Markovian learning assumption often made in theoretical models of limit order markets.

Suggested Citation

  • Eric Ghysels & Giang Nguyen, 2019. "Price Discovery of a Speculative Asset: Evidence from a Bitcoin Exchange," JRFM, MDPI, vol. 12(4), pages 1-26, October.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:4:p:164-:d:280394
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    References listed on IDEAS

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    Cited by:

    1. Saketh Aleti & Bruce Mizrach, 2021. "Bitcoin spot and futures market microstructure," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(2), pages 194-225, February.
    2. Papavassiliou, Vassilios G. & Kinateder, Harald, 2021. "Information shares and market quality before and during the European sovereign debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    3. Rebekka Buse & Konstantin Gorgen & Melanie Schienle, 2022. "Predicting Value at Risk for Cryptocurrencies With Generalized Random Forests," Papers 2203.08224, arXiv.org, revised Oct 2024.

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