Since its advent in 2009, Bitcoin has evolved from a novel virtual currency which is essentially traded among enthusiasts, to an innovative monetary system attracting the attention of mainstream media for its conceptual unmatched merits. Today, bitcoin’s market capitalization exceeded 27 billion USD and the transaction volume is growing steadily along a diversified scale. At the time of writing of this article, there are 16,322,800 bitcoins in circulation, according to data from blockchain.info, and there are more than 54 cryptocurrency exchanges offering bitcoin trading against various fiat currencies such us USD, AUD, CHF, CAD, GBP, CNY, JPY, EUR, HKD and PLN.

The day when only a single exchange entirely dominated the bitcoin market have gone and today, multiple exchanges compete for the 24 hour trading volume. During the first year, bitcoin was traded only privately; nevertheless, in 2010, the first cryptocurrency exchanges emerged, and Mt.Gox claimed market leadership back then. During the next two years, Mt.Gox maintained its leader position, harnessing a market share that exceeded 80%. Afterwards, bitcoin trading volume on Bitstamp, Bitfinex and BTC-e skyrocketed following Mt.Gox’s collapse, due to multiple legal issues and technical incidents. In February 2014, Mt.Gox halted all trading operations following a major security breach.

When economic literature is considered, studies tackling the “bitcoin phenomenon” are more or less limited, especially the process of price discovery across various exchanges. A recently published paper analyzed the process of price discovery across the Bitcoin/USD market starting from Mt.Gox’s collapse all the way through to Bitfinex’s hack attack (from March 1st, 2014 to November 30th, 2016). Geweke’s feedback measures along with estimated pairwise via hourly returns have shown that there exists a positive correleation between market share, as estimated by trading volume, and the total feedback.

The paper analyzed transaction data from 14 bitcoin exchanges, which were active for at least a year throughout the sampling period; Bitstamp, Bitfinex, Coinbase, BTC-e, LakeBTC, ItBit, Kraken, LocalBitcoins, Onecoin, HitBTC, CampBX, Rock, Bitbay and BitKonan. The authors of the paper found out that information is transmitted among exchanges within approximately one hour, at least when considering the biggest four exchanges (Bitfinex, BTC-e, Bitstamp and ItBit); however, lagged feedback emerges namely from the major exchange. Smaller exchanges exhibit some delay in reacting to price information and are consequently considered as satellite exchanges.

Bitfinex was shown to be the most essential bitcoin exchange in transmitting price information to the market; the relative importance of lagged feedback from Bitfinex to the bitcoin market is 18.29%, while the lagged feedback from the bitcoin market to Bitfinex is estimated by no more than 0.6% of the overall feedback. The volatility in each pair’s major exchange is the main factor for explaining feedback measures, which sustains the claim that volatility’s information based component increases relative to the exchange’s dimension.

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