Abstract
<h3>Practical Applications Summary</h3> In <b>Bitcoin Price Anomalies: Peer-to-Peer (P2P) Trading on LocalBitcoins</b> from the Summer 2019 issue of <b><i>The Journal of Alternative Investments</i></b>, authors <b>Mark Holub</b> (of the <b>UWA Business School</b> at the <b>University of Western Australia</b>) and <b>Jackie Johnson</b> (an independent researcher in Perth, Australia) investigate why prices on the LocalBitcoins peer-to-peer (P2P) marketplace run higher than on regular exchanges. They also explore whether investors can make gains by buying low on an exchange and selling high on LocalBitcoins (a process known as arbitrage). The answer is yes—but for not much money, and only by taking a lot of risk. The price differences are caused by differences in how the two marketplaces let investors buy and sell. LocalBitcoins lets buyers use PayPal, credit cards and gift card codes—which are risky for sellers because payments may fail. So, sellers set higher prices for riskier payment methods. Also, trades at the highest prices are rare and for not much money—meaning buyers with money to spend aren’t eager to pay a premium. So, investors can make small profits through arbitrage, but only if they are willing to assume significant risk. They should decide for themselves whether that is worth it. <b>TOPICS:</b>Currency, risk management, performance measurement
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