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

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

Journal of Economic Behavior & Organization, 2023, vol. 213, issue C, 251-270

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.

Keywords: Arbitrage; Bitcoin; Cryptocurrency exchanges; Behavioral finance (search for similar items in EconPapers)
JEL-codes: C58 D53 G11 G40 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:213:y:2023:i:c:p:251-270

DOI: 10.1016/j.jebo.2023.07.025

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