Abstract
Researchers have assumed that bitcoin obeys the relative law of one price because, as a completely digital good, it is identical across the easily accessible markets where it is sold, with each market posting publicly available prices. However, we show that this assumption is not supported by comparing the open, close, high, low, and transaction-weighted bitcoin prices across 12 bitcoin exchanges (16% of all active exchanges and 26% of all bitcoin trade volume). Prices on exchanges that do not voluntarily enforce AML (anti-money laundering) standards deviate from long-run bitcoin price trends, while exchanges that voluntarily enforce both AML and KYC (know-your-client or know-your-customer) standards have a price premium of 0.53%-1.29%. We also show that bitcoin price volatility varies greatly across exchanges during the same time period: normalized standard deviations range from a low of 5.66% to a high of 38.87%, depending on which exchange and price series are used, though this is not as easily predicted by AML and/or KYC adherence. Researchers should exercise caution when choosing their source for bitcoin price information, as user reactions to the voluntary adoption of policies that reduce bitcoin user anonymity are substantial enough to result in bitcoin market segmentation.
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