Bitcoin arbitrage and exchange default risk

Weiwei Guo, Silvia Intini and Hossein Jahanshahloo

Finance Research Letters, 2025, vol. 71, issue C

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.

Keywords: Bitcoin; Cryptocurrencies; Default risk; Exchanges; Arbitrage (search for similar items in EconPapers)
JEL-codes: E22 E42 F31 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:71:y:2025:i:c:s154461232401393x

DOI: 10.1016/j.frl.2024.106364

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