Does bitcoin liquidity resemble the liquidity of other financial assets?

Ma, Rui; Marshall, Ben R.; Nguyen, Nhut H.; Visaltanachoti, Nuttawat

doi:10.1177/03128962211069615

Cited by 2 publications

(4 citation statements)

References 73 publications

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“…Dong et al (2022) found that decreased liquidity led to higher abnormal returns but hindered market efficiency. In their evaluation of the cost of liquidity preference for portfolios combining traditional assets and cryptocurrencies, Moreno et al (2022) demonstrated that considering liquidity made portfolios with the highest expected returns unavailable, which was similarly concluded by Ma et al (2022). Moreover, Wei (2018) discovered that liquidity played a significant role in market efficiency, while Brauneis et al (2022) reported that as liquidity levels increased, the cryptocurrency market became less inefficient.…”

Section: Literature Reviewmentioning

confidence: 94%

“…Many studies have explored liquidity and risk management in the cryptocurrency market, employing liquidity measures based on either full orderbook data focusing on BTC (Makarov and Schoar 2019;Brauneis et al , 2022Dyhrberg et al 2018;Marshall et al 2019;Ma et al 2022;Scharnowski 2021) or practical estimators (Manahov 2021;Leirvik 2022;Zhang et al 2020;Al-Yahyaee et al 2020;Wei 2018;Dimpfl 2017;Brauneis et al 2021;Theiri et al 2022;Ghabri et al 2021;Loi 2017;Koenraadt and Leung 2022;Saleemi 2021;Shi 2017;Dong et al 2022;Tang and Wang 2022;Fink and Johann 2014;Moreno et al 2022). However, the dependence structure in cryptocurrency liquidity remains less explored.…”

Section: Literature Reviewmentioning

confidence: 99%

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Relationships among return and liquidity of cryptocurrencies

Zhang,

Zhu,

et al. 2024

Financ Innov

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The cryptocurrency market is a complex and rapidly evolving financial landscape in which understanding the inter- and intra-asset dependencies among key financial variables, such as return and liquidity, is crucial. In this study, we analyze daily return and liquidity data for six major cryptocurrencies, namely Bitcoin, Ethereum, Ripple, Binance Coin, Litecoin, and Dogecoin, spanning the period from June 3, 2020, to November 30, 2022. Liquidity is estimated using three low-frequency proxies: the Amihud ratio and the Abdi and Ranaldo (AR) and Corwin and Schultz (CS) estimators. To account for autoregressive and persistent effects, we apply the autoregressive integrated moving average-generalized autoregressive conditional heteroscedasticity (ARIMA-GARCH) model and subsequently utilize the copula method to examine the interdependent relationships between the return on and liquidity of the six cryptocurrencies. Our analysis reveals strong cross-asset lower-tail dependence in return and significant cross-asset upper-tail dependence in illiquidity measures, with more pronounced dependence observed in specific cryptocurrency pairs, primarily involving Bitcoin, Ethereum, and Litecoin. We also observe that returns tend to be higher when liquidity is lower in the cryptocurrency market. Our findings have significant implications for portfolio diversification, asset allocation, risk management, and trading strategy development for investors and traders, as well as regulatory policy-making for regulators. This study contributes to a deeper understanding of the cryptocurrency marketplace and can help inform investment decision making and regulatory policies in this emerging financial domain.

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Section: Literature Reviewmentioning

confidence: 94%

Section: Literature Reviewmentioning

confidence: 99%

Relationships among return and liquidity of cryptocurrencies

Zhang,

Zhu,

et al. 2024

Financ Innov

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“…These figures correspond to 5% and 12% of the market cap respectfully (CoinGecko). However, research estimates that about 90% of trading volume of Bitcoin is associated with non-economic activity (Makarov and Schoar, 2021 [23]). As for market depth, the estimated free float for Bitcoin (Ether) is 14% (27%) as of January 2022 (based on data from Chainalysis).…”

Section: Economics Of Derivative Holdings Vs Direct Holding Of Cryptomentioning

confidence: 99%

“…Stablecoins are digital assets created, or 'minted', in exchange for fiat currency 23 , and designed to maintain a stable value relative to a national currency or other reference asset (PWG, FDIC and OCC, 2021 [4]). 24 Stablecoins issuance and usage has grown to a multiple of its initial size in a very short time span, reaching nearly USD 120 billion as of 10 February 2022 (see Figure 3.3), although the market for such instruments is highly concentrated in a few issuers (see Figure 3.4).…”

Section: Stablecoins: the Bridge That Links Decentralised To Traditio...mentioning

confidence: 99%

Institutionalisation of crypto-assets and DeFi–TradFi interconnectedness

2022

OECD Business and Finance Policy Papers

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This report examines institutional investor participation in markets for digital assets, including crypto-assets and decentralised finance (DeFi). It considers and tests potential drivers of growing supply and demand for such assets by institutional investors, analyses the potential for increasing interconnectedness between traditional finance (TradFi) and decentralised finance and identifies linkages between the two. The report then outlines the risks these growing markets may create, while also examining the potential benefits of the decentralisation of financial services, before putting forward policy recommendations.

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Does bitcoin liquidity resemble the liquidity of other financial assets?

Cited by 2 publications

References 73 publications

Relationships among return and liquidity of cryptocurrencies

Relationships among return and liquidity of cryptocurrencies

Institutionalisation of crypto-assets and DeFi–TradFi interconnectedness

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