Order Flow Impact and Price Formation in Centralized Crypto Exchanges
43 Pages Posted: 19 Jul 2024
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: Suggested Citation