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Network analysis on Bitcoin arbitrage opportunities

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  • Bruzgė, Rasa
  • Šapkauskienė, Alfreda

Abstract

Many studies have shown that investment in Bitcoin could serve to diversify the stock market. The existing literature offers insight into how arbitrage trading may diminish the risks associated with cryptocurrencies. Using arbitrage data and a novel methodology, this paper uncovers pertinent insights for investors interested in hedging against losses. Evidence points to the dsx, kraken, and bitstamp exchanges as the most attractive for buying Bitcoin and the cexio, bitmarketlt, and coindeal exchanges as the most attractive for selling Bitcoin. We employ network analysis to explore the interrelationships in thirteen cryptocurrency exchanges, providing evidence that kraken and bitstamp are leaders in market-forming trends, while coindeal and dsx serve as intermediary exchanges. Overall, these findings show that investors can mitigate their trading risks by knowing precisely where to buy and sell Bitcoin and which exchanges offer arbitrage opportunities. Using these results, investors can develop long-term and algorithmic trading strategies.

Suggested Citation

  • Bruzgė, Rasa & Šapkauskienė, Alfreda, 2022. "Network analysis on Bitcoin arbitrage opportunities," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:ecofin:v:59:y:2022:i:c:s1062940821001704
    DOI: 10.1016/j.najef.2021.101562
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    References listed on IDEAS

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    Cited by:

    1. Ao Shu & Feiyang Cheng & Jianlei Han & Zini Liang & Zheyao Pan, 2023. "Arbitrage across different Bitcoin exchange venues: Perspectives from investor base and market related events," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(5), pages 5183-5210, December.
    2. Kristoufek, Ladislav & Bouri, Elie, 2023. "Exploring sources of statistical arbitrage opportunities among Bitcoin exchanges," Finance Research Letters, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Arbitrage; Network analysis; Bitcoin; Cryptocurrency exchanges;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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