We investigate how exchange default risk and liquidity affect Bitcoin cross-exchange arbitrage opportunities. Analyzing 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.
Bitcoin Arbitrage and Exchange Default Risk
Silvia Intini;
2024-01-01
Abstract
We investigate how exchange default risk and liquidity affect Bitcoin cross-exchange arbitrage opportunities. Analyzing 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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
