Arbitrage in the Market for Cryptocurrencies

Crépellière, Tommy; Zeisberger, Stefan

doi:10.2139/ssrn.3606053

Cited by 4 publications

(2 citation statements)

References 53 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In fact, in the online appendix we present an exercise where we use our strategy in more recent data, and results indicate that the buy-and-hold strategy yields a higher gross return. These results are consistent with the empirical evidence of Crépelière and Zeisberger (2020) and Shynkevich (2020).…”

Section: Notessupporting

confidence: 91%

Price dynamics of cryptocurrencies in parallel markets: evidence from Bitcoin exchanges in Brazil

Andrade¹,

Barros²,

Motoki

et al. 2021

SEF

View full text Add to dashboard Cite

Purpose This paper aims to study the dynamics of bitcoin prices in Brazil, a large emerging economy with an unregulated bitcoin market. Design/methodology/approach First, this study tests if the Law of One Price (LOOP) is valid for bitcoin prices in Brazil, conducting tests with data from three Brazilian exchanges. Next, this study documents bitcoin price dynamics in the short run by studying the price discovery mechanism in these exchanges. This study uses Information Share and Component Share, combining the two measures to obtain an Information Leadership Share (ILS) measure. Findings This study finds a common trend within bitcoin prices among a set of exchanges, with cointegration tests between the price series indicating that LOOP is valid in Brazilian markets in the long run. ILS indicated that, for closing prices, the most liquid exchange (Foxbit) leads discovery, whereas the least liquid (Local Bitcoin) lags, with Mercado Bitcoin in the middle both in terms of discovery and liquidity. Finally, this study provides evidence that the price variation in the market that leads price discovery can be used to construct an arbitrage in another exchange. Originality/value This research brings the first evidence of a price discovery mechanism for exchanges in Brazilian Reais. Although LOOP is valid in the long run, price leadership in bitcoin markets potentially create arbitrage opportunities in the short run. This study contributes to the growing literature of bitcoin prices with novel evidence from a large emerging economy.

show abstract

Section: Notessupporting

confidence: 91%

Price dynamics of cryptocurrencies in parallel markets: evidence from Bitcoin exchanges in Brazil

Andrade¹,

Barros²,

Motoki

et al. 2021

SEF

View full text Add to dashboard Cite

show abstract

“…Other recent studies focus instead on the nascent futures market for Bitcoin: Hattori and Ishida (2021), Shynkevich (2020), and S. Lee, El Meslmani, and Switzer (2020) obtain partially contrasting findings on the efficiency of such markets (specifically, the first two sources find evidence of efficiency in the markets; the disagreement with the tenor of most other literature can be attributed to the time window and the fact that the futures market operates in a single geographical area). For completeness, we mention that other studies investigate more broadly arbitrage in the cryptocurrency market (e.g., Gandal and Halaburda, 2014;Fischer, Krauss, and Deinert, 2019;Leung and Nguyen, 2019;Crépellière and Zeisberger, 2020).…”

Section: Relation To Prior Workmentioning

confidence: 99%

Who are the arbitrageurs? Empirical evidence from Bitcoin traders in the Mt. Gox exchange platform

Saggese¹,

Belmonte²,

Dimitri³

et al. 2021

Preprint

View full text Add to dashboard Cite

We mine the leaked history of trades on Mt. Gox, the dominant Bitcoin exchange from 2011 to early 2014, to detect the triangular arbitrage activity conducted within the platform.The availability of user identifiers per trade allows us to focus on the historical record of 440 investors, detected as arbitrageurs, and consequently to describe their trading behavior. We begin by showing that a considerable difference appears between arbitrageurs when indicators of their expertise are taken into account. In particular, we distinguish between those who conducted arbitrage in a single or in multiple markets: using this element as a proxy for trade ability, we find that arbitrage actions performed by expert users are on average non profitable when transaction costs are accounted for, while skilled investors conduct arbitrage at a positive and statistically significant premium. Next, we show that specific trading strategies, such as splitting orders or conducting arbitrage non aggressively, are further indicators of expertise that increase the profitability of arbitrage. Most importantly, we exploit withinuser (across hours and markets) variation and document that expert users make profits on arbitrage by reacting quickly to plausible exogenous variations on the official exchange rates.We present further evidence that such differences are chiefly due to a better ability of the latter in incorporating information, both on the transactions costs and on the exchange rates volatility, eventually resulting in a better timing choice at small time scale intervals. Our results support the hypothesis that arbitrageurs are few and sophisticated users.

show abstract