A Million Metaorder Analysis of Market Impact on the Bitcoin

18 Pages Posted: 10 Dec 2014 Last revised: 22 Sep 2015

See all articles by Jonathan Donier

Jonathan Donier

Université Paris VI Pierre et Marie Curie

Julius Bonart

Capital Fund Management

Date Written: July 13, 2015

Abstract

We present a thorough empirical analysis of market impact on the Bitcoin/USD exchange market using a complete dataset that allows us to reconstruct more than one million metaorders. We empirically confirm the "square-root law'' for market impact, which holds on four decades in spite of the quasi-absence of statistical arbitrage and market marking strategies. We show that the square-root impact holds during the whole trajectory of a metaorder and not only for the final execution price. We also attempt to decompose the order flow into an "informed'' and "uninformed'' component, the latter leading to an almost complete long-term decay of impact. This study sheds light on the hypotheses and predictions of several market impact models recently proposed in the literature and promotes heterogeneous agent models as promising candidates to explain price impact on the Bitcoin market -- and, we believe, on other markets as well.

Keywords: price impact, bitcoin, market microstructure, price formation

Suggested Citation

Donier, Jonathan and Bonart, Julius, A Million Metaorder Analysis of Market Impact on the Bitcoin (July 13, 2015). Available at SSRN: https://ssrn.com/abstract=2536001 or http://dx.doi.org/10.2139/ssrn.2536001

Jonathan Donier (Contact Author)

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

Julius Bonart

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

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