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arXiv · 2410.22443

What Do Bitcoin Premiums Measure? Evidence from Global P2P Markets

Yanan Niu
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Abstract

This paper studies what Bitcoin (BTC) premiums in peer-to-peer (P2P) markets measure. Using transaction-level data from LocalBitcoins, we construct BTC premiums for 80 currencies relative to the U.S. dollar and relate them to blockchain transaction conditions, centralized crypto market (CEX) conditions, cross-border payment frictions, and foreign exchange (FX) markets. We show that these premiums reflect both trading frictions within crypto markets and local frictions in access to cross-border payments. They vary systematically with blockchain conditions and broader crypto market conditions, including BTC returns and volatility, and they are larger in countries facing greater frictions in conventional cross-border payment channels. This pattern is especially pronounced in economies with binding institutional constraints, i.e., tight capital controls and non-floating exchange-rate regimes, consistent with greater reliance on P2P crypto markets as an alternative cross-border payment channel. We further show that rising FX pressure is absorbed mainly through prices rather than trading volumes, and that P2P BTC premiums predict subsequent official exchange rate depreciation. Although premium levels differ across countries, their predictive content remains broadly similar. Overall, P2P BTC premiums reflect limits to arbitrage across crypto trading venues, especially where formal cross-border payment channels are more constrained, and they also embed forward-looking information about currency depreciation.

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Yanan Niu. 2024-10-29. What Do Bitcoin Premiums Measure? Evidence from Global P2P Markets. https://arxiv.org/abs/2410.22443

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