Microstructure and Market Dynamics in Crypto Markets
47 Pages Posted: 2 May 2024
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.
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