Bitcoin [BTC], year-to-date, is up by over 110 percent while trailing its all-time-high by over 60 percent, which would invite skeptical questions about the cryptocurrency’s volatility and hence opportunities for arbitrage. However, in light of this fluctuation, the exchanges that tout “real” volume have vastly decreased opportunities for arbitrage, claims a recent report from Bitwise Asset Management.
Following their March report, Bitwise claims the quality of arbitrage among exchanges in the real BTC spot market is “remarkable.” Despite the cryptocurrency market lacking any sort of formal “Consolidate Tape,” as present with the stock market, the price on “real” exchanges are still “coordinated.”
Two main points highlighted by Bitwise to keep BTC prices in check are effective arbitrage and institutional market makers.
Citing the SEC’s claims on the topic of effective arbitrage in the cryptocurrency market, which Bitwise referred to as “unsubstantiated,” the report mentioned two points to demonstrate the same. Firstly, the alignment of the price across “trading venues, and secondly, the pace at which the price disparity cedes.
To balance out the price deviation, Bitwise, calculates the “consolidated price” based on the last traded price of BTC on the 10 “real” exchanges and equal-weight average them to calculate the consolidated price. This price is calculated every second. To compound the analysis, the research will analyze the average deviation of price on each exchange with the aforementioned consolidated price.
Bitwise contends that the analysis, based on the above premise, on a second-by-second basis since the beginning of 2019 shows that the exchanges trade very closely. The average deviation from any exchange varied from 0.06 percent as seen on Coinbase to 0.2 percent on Bitflyer. The average deviation, taking the price on all exchanges, stood at 0.12 percent.
The report stated that the average of 0.12 percent deviation is “well within the arbitrage band,” adding that this implied,
“It suggests that institutional-quality arbitrageurs and algorithmic programs are in place that monitor the system and identify and capitalize on any pricing discrepancies to constantly keep the prices closely together.”
Furthermore, the pace at which the arbitrage opportunities are washed away details the self-coordination between exchanges. The report examined the occurrence of price deviation of more than 1 percent from the “consolidated price,” for a 12-month period since April 2018, which indicated the pace of coordination.
In the above chart, the first bar indicates that there were 1,200 instances where price deviations lasted less than one second, and, similarly, the second bar pointed to 700 such instances, so on and so forth. A summation of the above chart indicated that over 50 percent of all price disparities of 1 percent were arbitraged away in just 5 seconds, and it took 34 seconds to close the arbitrage gap on 90 percent of all price differences.
The same was consistent across all individual exchanges as well. In light of this arbitrage squeeze tracked across exchanges, Bitwise stated that the market meets “both criteria set forth by the [Securities and Exchange] Commission.” The report concluded,
“It also suggests that while bitcoin does not have a Consolidated Tape maintained by regulations such as Regulation NMS, it has a global network of spot exchanges tightly arbitraged to trade in lockstep with each other, forming a single global price.”
- Source: First Appeared Here
- Published Time: 2019-05-25 16:30:24
The views and opinions expressed in the article Bitwise Report 2.0: BTC price deviation ‘rapidly’ arbitraged; single global price possible do not reflect that of 48coins, nor of its originally published source. Article does not constitute financial advice. Kindly proceed with caution and always do your own research.
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