The underlying transparency of the Bitcoin blockchain allows transactions in the network to be tracked in near real-time. When someone transfers a large number of Bitcoins, the market receives this information and traders can adjust their expectations based on the new information. This paper investigates trading volume and its relation to asymmetric information around transfers on the Bitcoin blockchain. We collect data on 2132 large transactions on the Bitcoin blockchain between September 2018 and November 2019, where 500 or more Bitcoins were transferred. Using event study methodology, we identify significant positive abnormal trading volume for the 15-minute window before a large Bitcoin transaction as well as during and after the event. Using public information about Bitcoin addresses of cryptocurrency exchanges as proxies for information asymmetry, we find that transactions with high levels of information asymmetry negatively affect abnormal trading volume once the event becomes public knowledge, while some effects are even opposite for transactions with lower information asymmetry. The results show that blockchain transaction activity is a relevant aspect of Bitcoin‘s microstructure, as informed traders make use of the information in general and adjust their expectations based on the degree of information asymmetry.
Keywords: market efficiency; informational efficiency; asset pricing; asymmetric information; cryptocurrency; event study; transaction activity; informed trading; cryptocurrency exchanges
Lennart Ante. Bitcoin transactions, information asymmetry and trading volume. Quantitative Finance and Economics, 2020, 4(3): 365-381. doi: 10.3934/QFE.2020017