Bitcoin Liquidity

Abstract

Bitcoin is emerging as a popular financial asset and means of transacting. However, little is known about its liquidity. We consider whether various dimensions evident in other asset class liquidity apply to bitcoin liquidity. We find there is both substantial variation in the level of liquidity across different exchanges and currency pairs and a strong systematic aspect to bitcoin liquidity. Moreover, changes in currency liquidity influence bitcoin liquidity. The pricing of bitcoin is relatively inefficient and liquidity plays an important role. Liquidity declines also contribute to bitcoin crash risk.

Keywords: Bitcoin, Liquidity, Cryptocurrency

JEL Classification: G11, G23