41 Pages Posted: 27 Jun 2018
Date Written: June 12, 2018
Bitcoin is emerging as a popular financial asset and means of transacting. However, little is known about its liquidity. This paper addresses this deficit. 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 less efficient than stock pricing and liquidity plays an important role, with the inefficient pricing being more prevalent on days with less liquidity. Liquidity declines also contribute to bitcoin crash risk.
Keywords: Bitcoin, Liquidity, Cryptocurrency
JEL Classification: G11, G23
Suggested Citation: Suggested Citation