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Information, noise, and efficiency in cryptocurrency markets

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  • Flowerday, Ethan

Abstract

This study examines how different information sources contribute to cryptocurrency price formation by applying an information decomposition framework. Using daily data for major cryptocurrencies from 2015-2025, return variation is decomposed into market-wide information, coin-specific public and private information, and noise. Market-wide information accounts for over one-third of return variance. This magnitude exceeds levels observed in equity markets and indicates strong co-movement across cryptocurrencies. Coin-specific public information explains a meaningful share of returns, while order-flow-related information plays a limited role. Noise contributes less than one-fifth of returns, challenging the view that cryptocurrency prices are predominantly noise-driven. A post-2017 structural shift is documented, characterized by declining noise and rising market-wide information. Robustness checks using alternative proxies for market-wide information confirm that cryptocurrencies increasingly behave as an integrated asset class shaped by common market-level shocks.

Suggested Citation

  • Flowerday, Ethan, 2026. "Information, noise, and efficiency in cryptocurrency markets," Finance Research Letters, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finlet:v:94:y:2026:i:c:s154461232600231x
    DOI: 10.1016/j.frl.2026.109700
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