What determines bitcoin liquidity? A penalized regression approach

【Author】 Ahmed, Walid M. A.

【Source】APPLIED ECONOMICS LETTERS

【影响因子】1.287

【Abstract】We investigate which factors contribute most to the liquidity of Bitcoin, using a diverse universe of candidate factors reflecting key developments in the crypto market and the global economy. The empirical analysis relies on three regularized linear regression methods, viz. LASSO, adaptive LASSO, and elastic net. We also apply a cross-fit partialing-out LASSO instrumental-variables regression model, as a supplementary approach to handle endogeneity. Findings reveal that trading volume and realized volatility of Bitcoin, cryptocurrency hacks, Ethereum liquidity, and public attention are the most common drivers of liquidity, irrespective of the penalized regression approach and liquidity proxy adopted. Our evidence confirms the paramountcy of cryptocurrency-specific factors over global economic and financial ones in influencing Bitcoin liquidity.

【Keywords】Bitcoin; liquidity determinants; LASSO; adaptive LASSO; elastic net

【发表时间】

【收录时间】2022-07-25

【文献类型】理论性文章

【主题类别】

区块链治理-市场治理-数字货币