The impact of the Covid-19 crisis on the liquidity of cryptocurrencies

Abstract

We tracked the impact of the Covid-19 crisis on the liquidity of10 crypto currencies for the period from July 31, 2019 (before the crisis) to December 31, 2020 (in the Covid -19 era). We applied the vector error correction model to each crypto currency. The results show that in the short term, the COVID-19 crisis has no influence on the liquidity of cryptocurrencies except for Cardano. Similarly, in the long term, it has no impact on the liquidity of cryptocurrencies with the exception of Binance coin, Tezos and Cardano. The assumption of having a common liquidity factor implies that, in a shock of liquidity, the entire market will be affected. The cryptocurrency market, however, has proven to be different.