COVID-19 uncertainty and Bitcoin market, linking the liquidity cost to the cryptocurrency yields

The cryptocurrency market is emerging as a new asset class for the investment. As the traditional asset prices are often noted to be influenced by the liquidity risk, this study links the cryptocurrency liquidity cost to its yields. Pre-pandemic uncertainty, the Bitcoin liquidity cost was found to be priced in its returns during the same trading session. Post-pandemic crisis, the relationship was changed. The liquidity cost was reported not to be priced in the Bitcoin returns at the time of same trading session. Post-pandemic crisis, however, the liquidity cost imposed by the liquidity supplier on day t − 1 was noted to be priced in the Bitcoin return of day t . In the cryptocurrency market, this study quantifies the effects on the Bitcoin returns of its liquidity cost, and if such effects vary pre- and post-pandemic uncertainty.