A Million Metaorder Analysis of Market Impact on the Bitcoin

TL;DR

This paper provides a comprehensive empirical analysis of Bitcoin market impact, confirming the square-root law across four decades and analyzing order flow components, contributing to understanding price impact models.

Contribution

It offers the first large-scale analysis of Bitcoin market impact with over one million metaorders, validating impact laws and decomposing order flow.

Findings

Square-root law holds over four decades.

Impact persists throughout the entire metaorder trajectory.

Long-term impact decay is driven by uninformed order flow.

Abstract

We present a thorough empirical analysis of market impact on the Bitcoin/USD exchange market using a complete dataset that allows us to reconstruct more than one million metaorders. We empirically confirm the "square-root law'' for market impact, which holds on four decades in spite of the quasi-absence of statistical arbitrage and market marking strategies. We show that the square-root impact holds during the whole trajectory of a metaorder and not only for the final execution price. We also attempt to decompose the order flow into an "informed'' and "uninformed'' component, the latter leading to an almost complete long-term decay of impact. This study sheds light on the hypotheses and predictions of several market impact models recently proposed in the literature and promotes heterogeneous agent models as promising candidates to explain price impact on the Bitcoin market -- and, we believe, on other markets as well.