Network analysis on Bitcoin arbitrage opportunities |
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| Institution: | 1. School of Economics, Guangxi University, Nanning, Guangxi 530004, China;2. School of Business Administration, South China University of Technology, Guangzhou, Guangdong 510641, China;1. College of Business Administration, Hunan University, Changsha 410082, China;2. School of Finance and Statistics, Hunan University, Changsha 410082, China;3. Ningbo Institute of Technology, ZheJiang University, Ningbo 315100, China |
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| Abstract: | Many studies have shown that investment in Bitcoin could serve to diversify the stock market. The existing literature offers insight into how arbitrage trading may diminish the risks associated with cryptocurrencies. Using arbitrage data and a novel methodology, this paper uncovers pertinent insights for investors interested in hedging against losses. Evidence points to the dsx, kraken, and bitstamp exchanges as the most attractive for buying Bitcoin and the cexio, bitmarketlt, and coindeal exchanges as the most attractive for selling Bitcoin. We employ network analysis to explore the interrelationships in thirteen cryptocurrency exchanges, providing evidence that kraken and bitstamp are leaders in market-forming trends, while coindeal and dsx serve as intermediary exchanges. Overall, these findings show that investors can mitigate their trading risks by knowing precisely where to buy and sell Bitcoin and which exchanges offer arbitrage opportunities. Using these results, investors can develop long-term and algorithmic trading strategies. |
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| Keywords: | Arbitrage Network analysis Bitcoin Cryptocurrency exchanges G12 G14 G15 D85 |
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