Too Good to be True: Arbitrage in Bitcoin Markets

Abstract: This paper examines arbitrage opportunities between cross-regional bitcoin exchanges from tick-level data from September 1, 2020, to January 31, 2021. We continue with a regression analysis to provide explanations for the cross-regional price differences. Our findings support that arbitrage opportunities exist, although to a lesser extent than three years ago. The reasoning behind this follows increased integration of markets, adoption of the instrument, and a more trustworthy sample. The largest price difference persists between the U.S. and South Korea, with a maximum of approximately 6%. In contrast, the largest average price difference prevails between the U.S. and Japan. Regressing cross-regional price differences on investor attention and stock market development show no unambiguous significance. Not unexpectedly, the random walk theory seems invincible in predicting the price differences due to the non-integrated nature of bitcoin markets worldwide.