Abstract
The majority of electronic markets worldwide employ limit order books, and the recently emerging exchanges for cryptocurrencies pose no exception. With this work, we empirically analyze whether commonly observed empirical properties from established limit order exchanges transfer to the cryptocurrency domain. Based on the literature, we establish a structured methodological framework to conduct analyses in a systematic and comprehensive way. We then present results from a unique and extensive limit order data set acquired from major cryptocurrency exchanges for the currency pair Bitcoin to US Dollar. We recover many observations from mature markets, such as a symmetry between the average ask and the average bid side of the order book, autocorrelation in returns on the smallest time scales only, volatility clustering and the timing of large trades. We also observe some idiosyncrasies: The distributions of trade size and limit order prices deviate from commonly observed patterns. Also, we find limit order books to be relatively shallow and liquidity costs to be relatively high when compared to established markets.
Highlights
With this paper, we aim to empirically characterize limit order books (LOBs) from several Bitcoin exchanges, and to examinine stylized facts typically observed at a large range of traditional markets
Following the methodology outlined in the previous section, we present results for the cryptocurrency exchange BitFinex and the currency pair BTC/US Dollar (USD)
We have empirically characterized limit order books and resulting trades from major cryptocurrency exchanges, thereby using a structured and comprehensive framework of analyses and commonly observed facts derived from the literature
Summary
We aim to empirically characterize limit order books (LOBs) from several Bitcoin exchanges, and to examinine stylized facts typically observed at a large range of traditional markets. Cryptocurrency markets are of academic interest for several reasons: Leaving technological advances aside, cryptocurrency markets represent a unique opportunity to study properties of an emerging market for a largely unregulated asset, which does not (yet) “fulfill the main properties of a standard currency” (Bariviera et al 2017). It is, of interest to contrast the extensive body of results on traditional limit order exchanges with analyses on cryptocurrency exchanges. Other works focus on stylized facts of price time series (Bariviera et al 2017; Brandvold et al 2015; Chan et al 2017; Chu et al 2017; Easwaran et al 2015; Zargar and Kumar 2019; Zhang et al 2018) or the liquidity at the best bid and best ask—see Dimpfl (2017) and Dyhrberg et al (2018)
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