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Bitcoin arbitrage and exchange default risk

Author

Listed:
  • Guo, Weiwei
  • Intini, Silvia
  • Jahanshahloo, Hossein

Abstract

We investigate how exchange default risk and liquidity affect Bitcoin cross-exchange arbitrage opportunities. Analysing minute-level data from 16 cryptocurrency exchanges (April 2013–April 2024), we find arbitrage opportunities last longer when higher-risk exchanges have higher prices, as traders are cautious of default risks. There is a strong positive relation between capital flows from high-risk to low-risk exchanges and arbitrage opportunities, showing a preference for safer exchanges. Liquidity accelerates arbitrage by enabling faster execution, but high transaction fees and blockchain congestion slow capital transfers. The paper highlights exchange risk, liquidity, and transaction costs as key factors in Bitcoin market efficiency.

Suggested Citation

  • Guo, Weiwei & Intini, Silvia & Jahanshahloo, Hossein, 2025. "Bitcoin arbitrage and exchange default risk," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s154461232401393x
    DOI: 10.1016/j.frl.2024.106364
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    More about this item

    Keywords

    Bitcoin; Cryptocurrencies; Default risk; Exchanges; Arbitrage;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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