What drives the liquidity of cryptocurrencies? A long-term analysis

Brauneis, Alexander ; Mestel, Roland ; Theissen, Erik

DOI: https://doi.org/10.1016/j.frl.2020.101537
URL: https://www.sciencedirect.com/science/article/abs/...
Document Type: Article
Year of publication Online: 2021
The title of a journal, publication series: Finance Research Letters
Volume: 39
Issue number: Article 101537
Place of publication: Amsterdam [u.a.]
Publishing house: Elsevier
ISSN: 1544-6123
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen)
Subject: 330 Economics
Abstract: We analyze the liquidity of four cryptocurrencies on four large trading venues over a four-year period. We estimate the Abdi-Ranaldo spread estimator from hourly transactions data and compare liquidity across cryptocurrencies and exchanges. In order to identify the drivers of cryptocurrency liquidity we analyze a broad set of explanatory variables from general financial markets, global cryptocurrency markets as well as variables specific to each exchange-currency pair. Volatility of cryptocurrency returns, the dollar trading volume and the number of transactions are the most important determinants of liquidity while general financial market variables have no explanatory power.

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