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Arbitrageurs in the Bitcoin ecosystem: Evidence from user-level trading patterns in the Mt. Gox exchange platform

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  • Saggese, Pietro
  • Belmonte, Alessandro
  • Dimitri, Nicola
  • Facchini, Angelo
  • Böhme, Rainer

Abstract

We mine the leaked history of trades on Mt. Gox, the dominant Bitcoin exchange from 2011 to early 2014, in order to detect the triangular arbitrage conducted on the platform. To this end, we exploit user identifiers per trade to identify and describe the individual trading patterns of 440 arbitrageurs. Moreover, we introduce proxies for expertise and document that the expert users' distribution of profits first-order stochastically dominates that of non-expert users. Most importantly, by including user fixed effects, we show that expert users make profits on arbitrage by reacting quickly to plausible exogenous variations on the official exchange rates. A small number of expert arbitrageurs are able to conduct the vast majority of the arbitrage actions and systematically yield higher profits: our results provide empirical evidence that arbitrageurs are few and sophisticated users, characterized by the ability to incorporate information and to quickly react to exogenous shocks within short time scale intervals.

Suggested Citation

  • Saggese, Pietro & Belmonte, Alessandro & Dimitri, Nicola & Facchini, Angelo & Böhme, Rainer, 2023. "Arbitrageurs in the Bitcoin ecosystem: Evidence from user-level trading patterns in the Mt. Gox exchange platform," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 251-270.
  • Handle: RePEc:eee:jeborg:v:213:y:2023:i:c:p:251-270
    DOI: 10.1016/j.jebo.2023.07.025
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    Cited by:

    1. Pietro Saggese & Esther Segalla & Michael Sigmund & Burkhard Raunig & Felix Zangerl & Bernhard Haslhofer, 2023. "Assessing the Solvency of Virtual Asset Service Providers: Are Current Standards Sufficient?," Papers 2309.16408, arXiv.org, revised Apr 2024.
    2. Bernhard Haslhofer & Burkhard Raunig & Pietro Saggase & Esther Segalla & Michael Sigmund & Felix Zangerl, 2023. "Assessing the Solvency of Virtual Asset Service Providers: Are Current Standards Sufficient? (Pietro Saggese, Esther Segalla, Michael Sigmund, Burkhard Raunig, Felix Zangerl, Bernhard Haslhofer)," Working Papers 248, Oesterreichische Nationalbank (Austrian Central Bank).

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    Keywords

    Arbitrage; Bitcoin; Cryptocurrency exchanges; Behavioral finance;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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