Informed trading in the Bitcoin market

Bitcoin's price sensitivity to the material events makes informed trading very profitable in this new market. We propose a novel indicator to assess informed trades ahead of cryptocurrency-related events. Using trade-level data of USD/BTC exchange rates, we find evidence of informed trading in the Bitcoin market prior to large events: Quantiles of the order sizes of buyer-initiated (seller-initiated) orders are abnormally high before large positive (negative) events, compared to the quantiles of seller-initiated (buyer-initiated) orders. When examining the timing of informed trades, we further notice that informed traders prefer to build their positions two days before large positive events and one day before large negative events. The profits of informed trading in the Bitcoin market are estimated to be considerably large.