Market efficiency, liquidity, and multifractality of Bitcoin: A dynamic study

TL;DR

This study examines how Bitcoin's market efficiency, liquidity, and multifractality interact over time, revealing that increased liquidity correlates with improved efficiency, but periods of anti-persistence still occur, indicating complex market dynamics.

Contribution

It provides a dynamic analysis of Bitcoin's market efficiency, liquidity, and multifractality, highlighting their evolving relationships over time.

Findings

Liquidity increased after 2013, improving market efficiency.

The Hurst exponent shifted towards 0.5 with increased liquidity.

Multifractal degree relates non-linearly to market efficiency.

Abstract

This letter investigates the dynamic relationship between market efficiency, liquidity, and multifractality of Bitcoin. We find that before 2013 liquidity is low and the Hurst exponent is less than 0.5, indicating that the Bitcoin time series is anti-persistent. After 2013, as liquidity increased, the Hurst exponent rose to approximately 0.5, improving market efficiency. For several periods, however, the Hurst exponent was found to be significantly less than 0.5, making the time series anti-persistent during those periods. We also investigate the multifractal degree of the Bitcoin time series using the generalized Hurst exponent and find that the multifractal degree is related to market efficiency in a non-linear manner.