Arbitrage in the Bitcoin ecosystem: an investigation of the Mt. Gox exchange platform

The purpose of the thesis is to identify and describe the arbitrageactivity conducted in the Bitcoin ecosystem at its earlystages. This work is the first attempt in the literature to investigateempirically the individual behavior of the arbitrageurs,and provides evidence that they are few and sophisticated.I exploit a dataset containing the history of trades executedwithin the exchange platform Mt. Gox between 2011 and 2013.I follow and improve upon the established methods to preprocessthe data by proposing a new approach whose validityis documented extensively. Crucially, trades are labelledwith user specific identifiers, allowing to reconstruct the individualsequences of actions and thus to identify arbitrageurs,and explicit transaction costs are accounted for. The core ofthe work is thus the implementation of two novel methodologiesthat aim at identifying the triangular arbitrage activitywithin the Mt. Gox platform and the two-point arbitrageacross Mt. Gox and two counterpart exchanges, Bitstamp andBTC-e. In the former I focus on the mispricings of the bitcoinprice denominated in different fiat currencies; in the latter, Icompare differences in price - across Mt. Gox and the counterpartexchanges - denominated in the same fiat currency.I classify as arbitrageurs respectively 23 and 49 users, for atotal of 72. A comparison of aggregate statistics between arbitrageursand non arbitrageurs is given and discussed. Thiswork represents the first empirical contribution on arbitrageat the micro level that goes beyond anecdotal evidence: thefindings challenge the textbook definition of arbitrage anddemonstrate that arbitrage is conducted by a limited numberof sophisticated and specialized investors.