Financial regulations and price inconsistencies across Bitcoin markets

- We show that bitcoin prices do not obey the Law of One Price (LOOP) across markets.
- Bitcoin is an identical good so the failure must be due to a markets characteristics.
- LOOP failure is associated with markets that do not require an ID to fund an account.
- Larger price deviations are associated with markets that do not require an ID.
- Despite the lack of a global regulatory framework, requiring IDs has an impact on bitcoin markets.

We document significant differences in Bitcoin prices across 11 different markets representing 26% of global Bitcoin trade volume. These differences must - due to the identical nature of all bitcoin- result from characteristics of markets themselves. We examine differences across the markets and find that those which do not require customer identification for establishing an account are more likely to deviate from representative market prices than those which do, but we cannot identify an element to predict the timing or the size of the deviation. This implies that standard financial regulations, specifically know-your-customer regulations, can have a non-negligible impact on the market for Bitcoin. This finding also implies that bitcoin price data can differ across exchanges demanding a careful approach to data sourcing.