Abstract
We find significant evidence of liquidity commonalities among cryptos, in particular when liquidity is estimated by relying on order-book-based proxies. Both the magnitude and pervasiveness of these co-movements are very similar to those estimated for US stocks 10 and 20 years ago. When we introduce volatility regimes based on the VCRIX volatility index on cryptocurrencies, we identify stronger liquidity co-movements in high volatility regimes across all cryptocurrencies and for all liquidity proxies. The magnitude and pervasiveness of commonalities are weaker in the low volatility regime when liquidity is arguably more idiosyncratic, affecting cryptos differently and leading to more disconnected movements relative to market liquidity. We conclude that the liquidity co-movements are not orthogonal to what was observed in the past for more centralized markets.
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