This paper studies the liquidity of Bitcoin using the time series daily data over the period 1/1/2014 to 12/31/2015. Based on the available data for Bitcoin, five liquidity measures are chosen to compare the liquidities among five Bitcoin exchanges and the liquidities of different sizes of stocks. The results suggest that the liquidity of Bitcoin depends on the choice of the Bitcoin exchanges, and Bitfinex, one of the Bitcoin exchanges, provides the highest liquidity for Bitcoin trading. Moreover, the results indicate that, on average, stocks are more liquid than Bitcoin.

Digital currencies, such as Bitcoin, have emerged as an alternative form of money, untethered to traditional money and largely unregulated. As such, digital currency represents a wild frontier for investors who might otherwise be shopping for gold or foreign currencies, with serious risks. The present work considers digital currency from a traditional asset pricing perspective. Setting aside risks of seller fraud or currency theft, we examine fluctuation and systematic risk in the price of Bitcoin. From this perspective, Bitcoin does not appear to carry much systematic risk --despite its high volatility --and so is a reasonable candidate for inclusion in investors' portfolios. Some illustrative examples suggest that the optimal amount of Bitcoin to include in investor portfolios may be tiny or instead substantial -as high as 21 percent of total financial assets.