Journal
FINANCE RESEARCH LETTERS
Volume 51, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2022.103332
Keywords
Cryptocurrencies; Cryptoassets; Bitcoin; Arbitrage; Exchanges
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We investigate the potential sources of arbitrage opportunities in the Bitcoin market, considering the congested network and volatile prices. By controlling for endogeneity, we find that increased exchanges volume and on-chain activity reduce the arbitrage opportunities. These findings support the notion that the Bitcoin market is highly volatile and risky, but its behavior aligns with standard economic and financial intuition.
We investigate potential sources of emerging statistical arbitrage opportunities in the Bitcoin market across five exchanges - Binance, Bitfinex, Bitstamp, Coinbase, and Kraken - via the instrumental variables approach to control for apparent endogeneity. We show that arbitrage opportunities arise when the network is congested and Bitcoin prices are volatile. Increased exchanges volume and on-chain activity increase the correlation between exchanges and thus reduce the arbitrage opportunities. These outcomes are intuitive and economically valid which supports the notion that Bitcoin market is highly volatile and risky but its behavior follows standard economic and financial intuition.
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