Market Efficiency and its Determinants: Macro-Level Dynamics and Micro-Level Characteristics of Cryptocurrencies.

This research investigates how market-wide conditions (macro aspects) and individual cryptocurrency-specific characteristics (micro aspects) influence the efficiency of cryptocurrency markets. Macro aspects encompass the impacts of overall market liquidity, volatility, and global uncertainty events (e.g., the COVID-19 pandemic and geopolitical conflicts) on market efficiency. Micro aspects focus on cryptocurrency-specific attributes, such as liquidity and volatility levels, and their effects on price delays. Our findings reveal that rising liquidity and declining volatility enhance market efficiency at both macro and micro levels. Furthermore, we observe that during the periods of uncertainty, inefficiencies are exacerbated among less liquid and more volatile cryptocurrencies. We propose that the perceived uncertainties and substantial transaction costs associated with cryptocurrencies that lack liquidity and exhibit high volatility act as deterrents, diminishing the eagerness of active traders to participate in arbitrage trading. Consequently, this leads to inefficiencies in the market. The results of this study offer valuable insights for financial market regulators and authorities as well as investors associated with the crypto market, particularly during the times of financial turmoils.