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Bitcoin arbitrage

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  • Shynkevich, Andrei

Abstract

We investigate arbitrage at four decentralized bitcoin exchanges that contribute to calculation of the index serving as the underlying price for the CME bitcoin futures. Deviations from price parity are much higher on average, more volatile, exhibit persistency and occasionally reach fairly large extremes during the 2016–2017 period, becoming economically small, much less volatile and sporadic afterwards. We design an arbitrage investment strategy based on the premise of convergence to parity and account for transaction costs. Profitable arbitrage opportunities have become sparse and scarce since 2018.

Suggested Citation

  • Shynkevich, Andrei, 2021. "Bitcoin arbitrage," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320308886
    DOI: 10.1016/j.frl.2020.101698
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Spot market; Price deviation; Arbitrage;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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