The lack of a regulated data feed and the abundance of crypto exchanges make it hard for investors to access the high-frequency bid-ask spreads used for calculating liquidity. As a result, most traders rely on lower-frequency transaction-based data, such as daily high, low and closing prices to evaluate market quality.

A recently published paper from the Journal of Banking and Finance explores which transaction-based liquidity measures investors should use when (i) calculating the level of liquidity, and (ii) comparing liquidity across exchanges. Comparing these measures against a set of benchmark liquidity estimates based on order book data, they find the following:

Measures that use high, low and closing prices (B and D in the subsequent section) best capture variations in cryptocurrency liquidity.
The relative performance of liquidity measures does not depend on the liquidity regime, but the two best measures outperform most during periods of high volatility and high volume.
Investors should use different measures for estimating the level of liquidity vs comparing liquidity across exchanges.