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Bitcoin liquidity in a market microstructure

Mahmood, Mohsin; Nilssen, Martin Nikolai
Master thesis
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URI
http://hdl.handle.net/11250/2561382
Date
2018
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  • Master Thesis [3748]
Abstract
This master thesis investigates Bitcoin liquidity in a market microstructure setting and has

been divided into two parts. In the first part we examine whether there is any correlation

between the results generated by three liquidity measurement techniques (The Rolls, ILLIQ

and Coefficient of elasticity) and the actual market microstructure spread. We find that only

ILLIQ shows a moderate, statistically significant correlation with the spread.

The second part investigates whether selected primary and secondary variables affect the

spread and whether their relationship is in line with existing financial research and our

intuition. This part also examines whether there is any weekly cyclicality in Bitcoin liquidity,

and if occurrence of events affects Bitcoin liquidity or not. We find that the primary and

secondary variables have a significant impact on the bid ask spread, and that the nature of the

relationship is in line with empirical research and our intuition. Interestingly, we find that

variables which are not directly related to the market microstructure have a relatively higher

impact on the spread in comparison to variables that are directly related. We also find that

Bitcoin liquidity does not have any cyclical, weekly trends and only a few of the events have

any sort of significant impact on liquidity.

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