The Intraday Dynamics of Bitcoin

Abstract

Bitcoin has received much investor attention in recent years, however, there remains a lot of scepticism and lack of understanding of this cryptocurrency. We contribute to the growing literature of Bitcoin by examining the intraday variables of the leading Bitcoin exchange with the highest information share from 1st November 2014 to 31st October 2016 to reveal the intraday stylized facts of Bitcoin and also study the intraday interaction between returns, volume, bid-ask spread and volatility. Employing GMT-stamped tick data aggregated to the 5-mintuely frequency, we find that volume, bid-ask spread and volatility all experience n-shaped patterns throughout the day which suggests that European and North American traders are the main drivers of Bitcoin trading and volatility. It also suggests that volatility and the bid-ask spread are highly related as suggested by Roll (1984), which is probably due to the lack of market makers in Bitcoin markets. We also find that all intraday variables are highly correlated, possess significant lead-lag relationships and there is significant bilateral Granger causality.

Keywords: Bitcoin; Cryptocurrency; Intraday Patterns; Granger causality; Lead-Lag; High-Frequency

JEL Classification: F30; G02; G15