On the efficiency and its drivers in the cryptocurrency market : the case of Bitcoin and Ethereum

Most previous studies on the market efciency of cryptocurrencies consider time evolution but do not provide insights into the potential driving factors. This study addresses this limitation by examining the time-varying efciency of the two largest cryptocurrencies, Bitcoin and Ethereum, and the factors that drive efciency. It uses daily data from August 7, 2016, to February 15, 2023, the adjusted market inefciency magnitude (AMIMs) measure, and quantile regression. The results show evidence of time variation in the levels of market (in)efciency for Bitcoin and Ethereum. Interestingly, the quantile regressions indicate that global fnancial stress negatively afects the AMIMs measures across all quantiles. Notably, cryptocurrency liquidity positively and signifcantly afects AMIMs irrespective of the level of (in) efciency, whereas the positive efect of money fow is signifcant when the markets of both cryptocurrencies are efcient. Finally, the COVID-19 pandemic positively and signifcantly afected cryptocurrency market inefciencies across most quantiles.