Testing Stylized Facts of Bitcoin Limit Order Books

• Main Authors: Matthias Schnaubelt, Jonas Rende, Christopher Krauss
• Format: Article
• Language: English
• Published: MDPI AG 2019-02-01
• Series: Journal of Risk and Financial Management
• Subjects: limit order book; cryptocurrency; stylized fact; high-frequency finance; liquidity costs; transaction costs
• Online Access: https://www.mdpi.com/1911-8074/12/1/25

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.