CeBER Working Paper No. 2017-5

This paper analyses the price discovery process in the USD/Bitcoin market since the Mt.Gox bankruptcy until the aftermath of the hack attack on Bitfinex (01-Mar-2014 until 30-Nov-2016). The Geweke feedback measures, estimated pairwise using hourly returns, show that there is a positive relationship between the total feedback and market share, measured by trading volume, that most of the information is transmitted between exchanges within an hour, at least for the main four exchanges (Bitfinex, Bitstamp, BTC-e and ItBit), while lagged feedback runs mainly from the major exchange. Other minor exchanges seem to react to price information with some delay and are thus considered as merely satellite exchanges. Bitfinex stands out as the most important exchange in transmitting information to the market: the relative importance of the lagged feedback from Bitfinex to the market is 18.29% while the lagged feedback from the market to Bitfinex accounts only for 0.60% of the total feedback. The volatility in the major exchange in each pair is the main factor explaining the feedback measures, sustaining the claim that the information-based component of volatility increases with the relative dimension of the exchange.