IDEAS home Printed from https://ideas.repec.org/p/usi/wpaper/860.html
   My bibliography  Save this paper

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

Author

Listed:
  • Pietro Saggese
  • Alessandro Belmonte
  • Nicola Dimitri
  • Angelo Facchini
  • Rainer Böhme

Abstract

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

Suggested Citation

  • Pietro Saggese & Alessandro Belmonte & Nicola Dimitri & Angelo Facchini & Rainer Böhme, 2021. "Who are the arbitrageurs? Empirical evidence from Bitcoin traders in the Mt. Gox exchange platform," Department of Economics University of Siena 860, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:860
    as

    Download full text from publisher

    File URL: http://repec.deps.unisi.it/quaderni/860.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Garcia & Claudio Juan Tessone & Pavlin Mavrodiev & Nicolas Perony, 2014. "The digital traces of bubbles: feedback cycles between socio-economic signals in the Bitcoin economy," Papers 1408.1494, arXiv.org.
    2. Pavel Ciaian & Miroslava Rajcaniova & d’Artis Kancs, 2016. "The economics of BitCoin price formation," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1799-1815, April.
    3. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
    4. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128, Elsevier.
    5. John M. Griffin & Amin Shams, 2020. "Is Bitcoin Really Untethered?," Journal of Finance, American Finance Association, vol. 75(4), pages 1913-1964, August.
    6. Péter Kondor, 2009. "Risk in Dynamic Arbitrage: The Price Effects of Convergence Trading," Journal of Finance, American Finance Association, vol. 64(2), pages 631-655, April.
    7. Julia Reynolds & Leopold Sögner & Martin Wagner, 2021. "Deviations from Triangular Arbitrage Parity in Foreign Exchange and Bitcoin Markets," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 13(2), pages 105-146, June.
    8. Harris, Lawrence E & Gurel, Eitan, 1986. "Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures," Journal of Finance, American Finance Association, vol. 41(4), pages 815-829, September.
    9. Froot, Kenneth A. & Dabora, Emil M., 1999. "How are stock prices affected by the location of trade?," Journal of Financial Economics, Elsevier, vol. 53(2), pages 189-216, August.
    10. Bouri, Elie & Azzi, Georges & Dyhrberg, Anne Haubo, 2017. "On the return-volatility relationship in the Bitcoin market around the price crash of 2013," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 11, pages 1-16.
    11. Katsiampa, Paraskevi, 2017. "Volatility estimation for Bitcoin: A comparison of GARCH models," Economics Letters, Elsevier, vol. 158(C), pages 3-6.
    12. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    13. Adrian (Wai-Kong) Cheung & Eduardo Roca & Jen-Je Su, 2015. "Crypto-currency bubbles: an application of the Phillips-Shi-Yu (2013) methodology on Mt. Gox bitcoin prices," Applied Economics, Taylor & Francis Journals, vol. 47(23), pages 2348-2358, May.
    14. Takahiro Hattori & Ryo Ishida, 2021. "The relationship between arbitrage in futures and spot markets and Bitcoin price movements: Evidence from the Bitcoin markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(1), pages 105-114, January.
    15. Lee, Charles M. C. & Radhakrishna, Balkrishna, 2000. "Inferring investor behavior: Evidence from TORQ data," Journal of Financial Markets, Elsevier, vol. 3(2), pages 83-111, May.
    16. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    17. Dyhrberg, Anne H. & Foley, Sean & Svec, Jiri, 2018. "How investible is Bitcoin? Analyzing the liquidity and transaction costs of Bitcoin markets," Economics Letters, Elsevier, vol. 171(C), pages 140-143.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saggese, Pietro & Belmonte, Alessandro & Dimitri, Nicola & Facchini, Angelo & Böhme, Rainer, 2023. "Arbitrageurs in the Bitcoin ecosystem: Evidence from user-level trading patterns in the Mt. Gox exchange platform," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 251-270.
    2. Andrea Flori, 2019. "Cryptocurrencies In Finance: Review And Applications," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(05), pages 1-22, August.
    3. Parthajit Kayal & Purnima Rohilla, 2021. "Bitcoin in the economics and finance literature: a survey," SN Business & Economics, Springer, vol. 1(7), pages 1-21, July.
    4. Kajtazi, Anton & Moro, Andrea, 2019. "The role of bitcoin in well diversified portfolios: A comparative global study," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 143-157.
    5. Neveen Ahmed & Omar Farooq & Nidaa Hamed, 2023. "Relation Between Bitcoin and Its Forks: An Empirical Investigation," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 49(2), pages 249-261, April.
    6. Aurelio F. Bariviera & Ignasi Merediz‐Solà, 2021. "Where Do We Stand In Cryptocurrencies Economic Research? A Survey Based On Hybrid Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 377-407, April.
    7. Panagiotidis, Theodore & Stengos, Thanasis & Vravosinos, Orestis, 2019. "The effects of markets, uncertainty and search intensity on bitcoin returns," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 220-242.
    8. Flori, Andrea, 2019. "News and subjective beliefs: A Bayesian approach to Bitcoin investments," Research in International Business and Finance, Elsevier, vol. 50(C), pages 336-356.
    9. Gregor Dorfleitner & Carina Lung, 2018. "Cryptocurrencies from the perspective of euro investors: a re-examination of diversification benefits and a new day-of-the-week effect," Journal of Asset Management, Palgrave Macmillan, vol. 19(7), pages 472-494, December.
    10. Toan Luu Duc Huynh, 2019. "Spillover Risks on Cryptocurrency Markets: A Look from VAR-SVAR Granger Causality and Student’s-t Copulas," JRFM, MDPI, vol. 12(2), pages 1-19, April.
    11. Haffar, Adlane & Le Fur, Éric, 2022. "Time-varying dependence of Bitcoin," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 211-220.
    12. Ahmed, Walid M.A., 2020. "Is there a risk-return trade-off in cryptocurrency markets? The case of Bitcoin," Journal of Economics and Business, Elsevier, vol. 108(C).
    13. John E. Marthinsen & Steven R. Gordon, 2022. "The Price and Cost of Bitcoin," Papers 2204.13102, arXiv.org.
    14. D’Amato, Valeria & Levantesi, Susanna & Piscopo, Gabriella, 2022. "Deep learning in predicting cryptocurrency volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 596(C).
    15. Syuhada, Khreshna & Hakim, Arief & Suprijanto, Djoko & Muchtadi-Alamsyah, Intan & Arbi, Lukman, 2022. "Is Tether a safe haven of safe haven amid COVID-19? An assessment against Bitcoin and oil using improved measures of risk," Resources Policy, Elsevier, vol. 79(C).
    16. Parthajit Kayal & G. Balasubramanian, 2021. "Excess Volatility in Bitcoin: Extreme Value Volatility Estimation," IIM Kozhikode Society & Management Review, , vol. 10(2), pages 222-231, July.
    17. Yue, Yao & Li, Xuerong & Zhang, Dingxuan & Wang, Shouyang, 2021. "How cryptocurrency affects economy? A network analysis using bibliometric methods," International Review of Financial Analysis, Elsevier, vol. 77(C).
    18. Paweł Sakowski & Anna Turovtseva, 2020. "Verification of Investment Opportunities on the Cryptocurrency Market within the Markowitz Framework," Working Papers 2020-41, Faculty of Economic Sciences, University of Warsaw.
    19. Ahmed, Walid M.A., 2022. "Robust drivers of Bitcoin price movements: An extreme bounds analysis," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    20. Cristina Chinazzo & Vahidin Jeleskovic, 2024. "Forecasting Bitcoin Volatility: A Comparative Analysis of Volatility Approaches," Papers 2401.02049, arXiv.org.

    More about this item

    Keywords

    Arbitrage; Bitcoin; Cryptocurrency Exchanges; Financial Econometrics; Behavior of Economic Agents;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:usi:wpaper:860. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fabrizio Becatti (email available below). General contact details of provider: https://edirc.repec.org/data/desieit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.