Trading and Arbitrage in Cryptocurrency Markets
56 Pages Posted: 21 May 2018 Last revised: 12 Jul 2019
Date Written: April 30, 2018
Cryptocurrency markets exhibit periods of large, recurrent arbitrage opportunities across exchanges. These price deviations are much larger across than within countries, and smaller between cryptocurrencies, highlighting the importance of capital controls for the movement of arbitrage capital. Price deviations across countries co-move and open up in times of large bitcoin appreciation. Countries with higher bitcoin premia over the US bitcoin price see widening arbitrage deviations when bitcoin appreciates. Finally, we decompose signed volume on each exchange into a common and an idiosyncratic component. The common component explains 80% of bitcoin returns. The idiosyncratic components help explain arbitrage spreads between exchanges.
Keywords: cryptocurrencies, bitcoin, limits to arbitrage, order flow, price impact
JEL Classification: G1, G10, G12, G14
Suggested Citation: Suggested Citation