Bitcoin Arbitrage: The Role of a Single Exchange

Ethan Flowerday, Neil Gandal, Hanna Halaburda, Eric Olson and Gabriela Ardel

No 20567, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines arbitrage in Bitcoin markets and the role of a single exchange, Bitfinex, in shaping market inefficiencies. Using tick-level data from four major centralized exchanges between 2017-2020, we find that nearly 80\% of arbitrage opportunities were concentrated on Bitfinex, where Bitcoin traded at a sustained premium. Removing Bitfinex from the system cuts the frequency and size of spreads, lowers the volatility–arbitrage correlation from 0.86 to 0.59, and shortens median lifetime from 11 to 4 minutes. Event studies trace the mispricing to fiat liquidity constraints and regulatory frictions specific to Bitfinex. The findings extend limits of arbitrage theory to digital assets, showing how venue level constraints propagate system wide inefficiency and suggest that secure fiat routs, rather than faster trading speed alone, are crucial for cryptocurrency price convergence. This challenges the assumption that arbitrage alone is sufficient to eliminate price discrepancies in digital asset markets.

Keywords: Arbitrage; Cryptocurrencies (search for similar items in EconPapers)
JEL-codes: G2 G21 (search for similar items in EconPapers)
Date: 2025-08
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