Microstructure and Market Dynamics in Crypto Markets

47 Pages Posted: 2 May 2024

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management; Cornell SC Johnson College of Business

Songshan Yang

Renmin University of China - Institute of Statistics and Big Data

Zhibai Zhang

New York University (NYU) - NYU Tandon School of Engineering

Date Written: April 30, 2024

Abstract

We investigate the role of market microstructure metrics in explaining and predicting price dynamics for 5 major cryptocurrencies. Using machine learning, we show how microstructure measures of liquidity and price discovery have predictive power for price dynamics of interest for electronic market making, dynamic hedging strategies and volatility estimation. We identify important own market and cross-market effects for BTC and ETH Roll measures and VPINs. Our results are little changed during crypto winter, demonstrating a stability to these effects. Our findings suggest that market dynamics of cryptocurrencies can be viewed as similar to those of other investible asset classes.

Suggested Citation

Easley, David and O'Hara, Maureen and Yang, Songshan and Zhang, Zhibai, Microstructure and Market Dynamics in Crypto Markets (April 30, 2024). Available at SSRN: https://ssrn.com/abstract=4814346 or http://dx.doi.org/10.2139/ssrn.4814346

David Easley (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Songshan Yang

Renmin University of China - Institute of Statistics and Big Data ( email )

Beijing
China

Zhibai Zhang

New York University (NYU) - NYU Tandon School of Engineering ( email )

6 MetroTech Center
Brooklyn, NY 11201
United States

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