Arbitrage?

trade

Settle on the blockchain for digital "assets"

Wire transfer for fiat

buy low 

sell high

buy BTC

sell BTC

move BTC to Kraken

Wire: free*; 1-5 days

Credit card: 3.5%

trading fee: 10-25 bps

flat fee in BTC \(\approx\) $4-8

\(\approx\) 10-60 minutes

trading fee: 0-26 bps

35 USD + 0.125%

($5 if >$50,000)

1-3 business days;

possible other fees/delays

The impact of the different "legs"/costs in the process?

\(\Rightarrow\) Compare arbitrage opportunities across "assets"? E.g., with different confirmation times?

Kraken's estimated deposit processing times:

BTC: 60 minutes

ETH: 6 minutes

XRP: near-instant

Also: exchanges are heterogeneous w.r.t. confirmation times, too (10-60 minutes for BTC?)

\(\Rightarrow\) Can this be exploited to better understand the role of delayed confirmation vs. other frictions?

Some exchanges allow short-selling (e.g., Kraken)

\(\Rightarrow\) Can buy and (short-)sell simultaneously 

FEES and TIME

\(\Rightarrow\) Compare arbitrage opportunities in crypto-to-fiat vs. crypto-to-crypto?

Faster and cheaper to deposit/withdraw cryptocurrencies (relative to fiat)

Able to hedge (some of) the risks of storing funds in crypto (instead of USD) after the CBOE BTC futures (Dec 2017?)

\(\Rightarrow\) Easier/cheaper arbitrage? (E.g., cheaper to "store" BTC on "sell-exchanges"?)

Paper: limits to arbitrage because of risk-aversion.

Footnote 11: "can also think of [...] risk-neutral and capital-constrained" 

Unlimited arbitrage capital \(\Rightarrow\) hold deposits at all exchanges & resolve both in/out and cross-exchange delays

To what extent are these approaches equivalent?

Higher demand for BTC \(\Rightarrow\) more transactions to be confirmed

\(\Rightarrow\) Latency and volatility are correlated (?)

\(\Rightarrow\) Implications? (Estimated bounds too conservative?)