Empirical analysis of liquidity thresholds for crypto assets

Abstract

This study applies the methodology of the SEC (2018) to empirically determine thresholds for liquidity of crypto assets, utilizing two metrics for assessing liquidity: the Average Daily Volume (ADV) calculated by the number of units of crypto assets traded (ADV#) and by the traded dollar amounts (ADV$). Our findings reveal that the liquidity distribution patterns for both actively and thinly traded National Market System (NMS) stocks, alongside crypto-USD pairs, exhibit comparable trends. Notably, the liquidity threshold distributions remain stable despite the inclusion of crypto assets with very low unit prices; however, the volume of units traded does affect the distribution when ADV$ is used. This research contributes to the accounting field by offering a new approach to determine liquidity benchmarks for crypto assets, potentially guiding the assessment of whether a crypto asset is traded in an active or inactive market for fair value accounting purposes.