Buying Bitcoin

Abstract

Using live trade execution data from an institutional money manager, we measure the real-world costs and challenges a trader faces when demanding significant liquidity of Bitcoin. We provide a novel characterization of the market to purchase digital assets across exchanges and over-the-counter (“OTC”) dealers. We find that most displayed digital asset liquidity on exchanges is not readily accessible to institutional investors. However, by purchasing digital assets OTC from regulated counterparties, institutional investors can achieve comparable or better execution quality while fulfilling their fiduciary obligations.

Keywords: bitcoin, cryptocurrency, digital assets, trading, microstructure, institutional investor, bitcoin exchange

JEL Classification: G12, E4, G23