Decentralized Efficiency? Arbitrage in Bitcoin Markets
Financial Analysts Journal, 76:3, 135-152, DOI: 10.1080/0015198X.2020.1733902
32 Pages Posted: 3 Dec 2018 Last revised: 16 Jul 2020
Date Written: March 29, 2018
Using tick-level bitcoin data from February 2013 to April 2018, we show significant arbitrage spreads between global bitcoin markets. Spreads follow multiple consistent patterns. Minimum and maximum prices show significant clustering. Spreads increase during the early hours of a day (according to universal coordinated time), new exchange market entries, and bitcoin heists and hacks. The full year 2017 and the first quarter of 2018 alone each had exploitable net arbitrage profit opportunity of at least US$380 million that smart money failed to capture. Based on long-term analyses, we also found that bitcoin market inefficiency has increased over time.
Keywords: Bitcoin, Cryptocurrency, Efficiency, Arbitrage, Patterns
JEL Classification: D40, G14
Suggested Citation: Suggested Citation