Arbitrage impact on the relationship between XRP price and correlation tensor spectra of transaction networks

TL;DR

This paper explores how arbitrage opportunities influence the relationship between XRP price fluctuations and the spectral properties of transaction network correlation tensors, revealing distinct behaviors during bubble and non-bubble periods.

Contribution

It introduces a novel analysis linking arbitrage-driven XRP price dynamics with correlation tensor spectra of transaction networks, highlighting differences across market regimes.

Findings

Anti-correlation during bubble periods between XRP price and tensor spectra.

No significant correlation during non-bubble periods.

Validation through reshuffled and simulated data confirms robustness.

Abstract

The increasing use of cryptoassets for international remittances has proven to be faster and more cost-effective, particularly for migrants without access to traditional banking. However, the inherent volatility of cryptoasset prices, independent of blockchain-based remittance mechanisms, introduces potential risks during periods of high volatility. This study investigates the intricate dynamics between XRP price fluctuations across diverse crypto exchanges and the correlation of the largest singular values of the correlation tensor of XRP transaction networks. Particularly, we show the impact of arbitrage opportunities across different crypto exchanges on the relationship between XRP price and correlation tensor spectra of transaction networks. Distinct periods, non-bubble and bubble, showcase different characteristics in XRP price fluctuations. Establishing a connection between XRP price and transaction networks, we compute correlation tensors and singular values, emphasizing the significance of the largest singular value. Comparisons with reshuffled and Gaussian random correlation tensors validate the uniqueness of the empirical tensor. A set of simulated weekly XRP prices, resembling arbitrage opportunities across various crypto exchanges, further confirms the robustness of our findings. It reveals a pronounced anti-correlation during bubble periods and a non-significant correlation during non-bubble periods with the largest singular value, irrespective of price fluctuations across different crypto exchanges.