Bitcoin unchained: Determinants of cryptocurrency exchange liquidity
Alexander Brauneis, Roland Mestel, Ryan Riordan, Erik Theissen
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.
Topics & Concepts
Market liquidityCryptocurrencyLiquidity riskAccounting liquidityLiquidity crisisMarket makerLiquidity premiumMarket impactMonetary economicsBusinessLiberian dollarMarket microstructureEconomicsEquity (law)Order (exchange)Financial systemFinancial economicsFinanceStock marketBiologyPaleontologyHorseLawComputer securityPolitical scienceComputer scienceBlockchain Technology Applications and SecurityFinancial Markets and Investment StrategiesBanking stability, regulation, efficiency