Arbitrage Behavior amongst Multiple Cryptocurrency Exchange Markets

Compared with fiat currencies, cryptocurrencies are usually more vulnerable to speculation and thus lead to massive price fluctuations, which makes exchanging cryptocurrencies a potentially profitable but risky endeavor. We aim to contribute to the understanding of the arbitrage behavior involving multiple cryptocurrency exchange markets. Specifically, we applied a Bellman-Ford based algorithm to detect possible arbitrage opportunities. By investigating historical data from three cryptocurrency exchange markets, i.e., Gemini, Coinbase, and Kraken, we designed experiments to identify how often arbitrage was possible in the past as well as the factors that contribute to the existence of arbitrage. We believe this may bring insights into strategies to stabilize the cryptocurrency exchange markets.

I. Introduction

Blockchain technology exploded onto the computer science scene in 2008 when an anonymous user (or users), writing under the pseudonym Satoshi Nakamoto [21], sent to a cryptography mailing list a description of new technology by the name of "Bitcoin". Bitcoin was the first successful decentralized digital asset that is now generally known as a type of cryptocurrency. Popular attributes of cryptocurrencies include the idea that they are completely decentralized and do not rely on a third-person intermediary for transactions which, however, is true for all other conventional currencies.