35 Pages Posted: 1 Mar 2018 Last revised: 7 Oct 2018
Date Written: August 31, 2018
This paper studies the efficiency of cryptocurrency markets. We consider 109 exchanges around the globe where investors can trade bitcoin for different fiat and cryptocurrency pairs and discuss the shape and structure of the distribution of daily bitcoin prices across different markets, currencies and time periods. We find that the typical price distribution is symmetric and leptokurtic with a standard deviation that varies over time between 2% to 9%. We find that a large fraction of the time variation in the dispersion of bitcoin prices depends on fluctuations in counter-party risk, liquidity, and global demand for bitcoins. On a given day, we find that 67% of the dispersion is due to price differences across exchanges located in different geographical locations. Panel estimates indicate that the variability of bitcoin discounts is lower the lower counter-party risk and bid-ask spreads. Temporary and permanent exchange shut downs are also associated in a reduction in bitcoin discounts in other markets.
Keywords: bitcoin; cryptocurrencies; market anomalies; cryptomarkets; kimchi premium
JEL Classification: G12, G14, G15, F31
Suggested Citation: Suggested Citation