How to measure the liquidity of cryptocurrency markets?

•We compare high-frequency measures of liquidity with easy to compute low-frequency measures for the two cryptocurrencies BTC and ETH.•Low frequency liquidity measures are relatively good estimates of actual liquidity in cryptocurrency markets.•Spread estimators based on high and low prices capture the time-series variation of actual bid-ask spreads well.•The Amihud (2002) illiquidity ratio and the Kyle and Obizhaeva (2016) estimator best estimate the level of the liquidity benchmark measures. This paper investigates the efficacy of low-frequency transactions-based liquidity measures to describe actual (high-frequency) liquidity. We show that the Corwin and Schultz (2012) and Abdi and Ranaldo (2017) estimators outperform other measures in describing time-series variations, irrespective of the observation frequency, trading venue, high-frequency liquidity benchmark, and cryptocurrency. Both measures perform well during high and low return, volatility and volume periods. The Kyle and Obizhaeva (2016) estimator and the Amihud (2002) illiquidity ratio outperform when estimating liquidity levels. These two estimators also reliably identify liquidity differences between trading venues. Overall, the results suggest that there is not yet a universally bestmeasure but there are reasonably good low-frequency measures.