The dual impact of on-chain and off-chain factors on Bitcoin market efficiency

Guo, Weiwei ORCID: https://orcid.org/0009-0006-1075-2662, Jahanshahloo, Hossein, Spokeviciute, Laima ORCID: https://orcid.org/0000-0002-6563-5790 and Wang, Qingwei ORCID: https://orcid.org/0000-0002-3695-7846 2025. The dual impact of on-chain and off-chain factors on Bitcoin market efficiency. The British Accounting Review , 101641. 10.1016/j.bar.2025.101641

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Abstract

This paper examines how on-chain factors (number of active wallets, transaction fees, and transaction volume) and off-chain factors (liquidity and investor attention) impact Bitcoin market efficiency from April 2014 to April 2022. We identify three periods in Bitcoin’s market development: development, growth, and additional development stage. We propose three hypotheses: (1) increased investor attention enhances market efficiency, (2) a rise in active users improves efficiency directly and through liquidity and investor attention, and (3) higher transaction fees and on-chain volume positively impact efficiency directly and indirectly. Our findings support these hypotheses during Bitcoin’s development and growth periods. However, in the additional development stage, the total effect of active users, transaction fees, and transaction volume becomes negative when considering mediating effects, and largely insignificant when focusing on direct effects. Additionally, we find increased netflow between whales and exchanges, a proxy for institutional activity, improves efficiency. We conclude that as Bitcoin’s market develops, factors such as changing user composition and increased regulatory scrutiny alter the dynamics of on-chain factors and their influence on market efficiency.

Item Type:	Article
Date Type:	Published Online
Status:	In Press
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > HG Finance
Publisher:	Elsevier
ISSN:	0890-8389
Date of First Compliant Deposit:	26 March 2025
Date of Acceptance:	17 March 2025
Last Modified:	23 Apr 2025 11:30
URI:	https://orca.cardiff.ac.uk/id/eprint/177094

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