Order flow analysis of cryptocurrency markets

Abstract

Order flow analysis studies the impact of individual order book events on resulting price change. Using data acquired from BitMex, the largest cryptocurrency exchange by traded volume, the study conducts an in-depth analysis on the trade and quote dataof the XBTUSD perpetual contract. The study demonstrates that the trade flow imbalance is better at explaining contemporaneous price changes than the aggregate order flow imbalance. Overall, the contemporaneous price change exhibits a strong linear relationship with the order flow imbalance over large enough time intervals. Lack of depth and low update arrival rates in cryptocurrency markets are found to be the main differentiators between the nascent asset class market microstructure and that of the established markets.