The Law of One Price and its Impact on Arbitrage Opportunities for Cryptocurrencies

Understanding the unprecedented growth of cryptocurrency has challenged professionals and scholars. This study involved addressing the existence of arbitrage opportunities in the Canadian cryptocurrency market. The purpose of this study was to test the theory of the law of one price (LOP) on cryptocurrency in Canada. The LOP demonstrates the value of a financial asset should be the same across different markets. The research questions for this study examined if different exchanges cause arbitrage opportunities in the Canadian cryptocurrency market and if volatility and liquidity were influencers of the arbitrage opportunities between Canadian cryptocurrency exchanges. A quantitative nonexperimental cross-sectional research design was employed with a sample population of almost 3,000 data points collected for four cryptocurrencies across four cryptocurrency exchanges. The data analysis techniques were predictive modeling and a binary logistic regression model. The study results indicated that arbitrage opportunities were found almost 100% of the time, and volatility and liquidity were weak influencers of the arbitrage opportunities. Professionals will become better equipped to protect average and inexperienced investors in cryptocurrency from the study results. The positive social change implications can enable professionals to gain greater insights into supporting and educating investors in high-risk cryptocurrencies who lack risk management knowledge or financial stability to lose a portion or all of their savings.