Bitcoin Markets

Abstract

This paper analyzes the price formation and market microstructure of the Bitcoin. Bitcoin returns, volatility, turnover, liquidity, price efficiency, and price cointegration are researched in detail. In addition, the Bitcoin ownership structure and its implications on these characteristics is determined. We find that in the last years the Bitcoin price experienced extreme returns at high volatility. The price is not informationally efficient. Market fragmentation and liquidity increased in the last years, and the largest Bitcoin exchanges are cointegrated in terms of prices. Of all Bitcoin transactions, only about 13 percent are exchange traded. Ownership, transaction frequency, and size are broadly dispersed across the more than 15 million Bitcoin users. While the network is large, it is dominated by a few big players that own and trade a high fraction of the market.

Keywords: Bitcoin, Market Efficiency, Market Microstructure

JEL Classification: G12, G14