Order Flow Impact and Price Formation in Centralized Crypto Exchanges

43 Pages Posted: 19 Jul 2024

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School; Exponential Science Foundation

Daniel F. Heck

University of Sussex Business School

Andreas Kaeck

University of Sussex

Ryan Riordan

Queen's University - Smith School of Business; Ludwig-Maximilians-University Munich, Faculty of Business Administration (Munich School of Management)

Date Written: June 15, 2024

Abstract

We study the impact of different order types on bitcoin price formation within and between Coinbase and Binance, two of the largest centralized crypto asset exchanges. We find that limit order submissions and cancellations are considerably more frequent than market orders and have a larger total contribution to price discovery. While prices are generally integrated across markets, this integration breaks down at high frequencies, allowing for price discrepancies to persist. We also highlight the differences between crypto and traditional asset markets, including the absence of order and trade interaction rules across crypto exchanges, the lack of external oversight, and the fragmentation in the market. Recent regulatory actions reflect a broader push to increase oversight in the crypto market to protect investors.

Keywords: Bitcoin, Price leadership, Limit orders, Market integration

JEL Classification: C5, E42, F31, G1, G2

Suggested Citation

Alexander, Carol and Heck, Daniel and Kaeck, Andreas and Riordan, Ryan, Order Flow Impact and Price Formation in Centralized Crypto Exchanges (June 15, 2024). Available at SSRN: https://ssrn.com/abstract=4867599 or http://dx.doi.org/10.2139/ssrn.4867599

Carol Alexander (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.coalexander.com

Exponential Science Foundation ( email )

Daniel Heck

University of Sussex Business School ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Andreas Kaeck

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Ryan Riordan

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Ludwig-Maximilians-University Munich, Faculty of Business Administration (Munich School of Management) ( email )

Schackstr. 4
Munich, 80539
Germany

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