Bitcoin arbitrage and exchange default risk

Guo, Weiwei ORCID: https://orcid.org/0009-0006-1075-2662, Intini, Silvia and Jahanshahloo, Hossein ORCID: https://orcid.org/0000-0003-0786-2415 2025. Bitcoin arbitrage and exchange default risk. Finance Research Letters 71 , 106364. 10.1016/j.frl.2024.106364

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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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Elsevier
ISSN:	1544-6123
Date of First Compliant Deposit:	12 November 2024
Date of Acceptance:	25 October 2024
Last Modified:	26 Nov 2024 16:16
URI:	https://orca.cardiff.ac.uk/id/eprint/173664

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