Bitcoin Arbitrage is the practice of taking advantage of price differences of Bitcoin on various Bitcoin Exchanges. These price differences emerge because certain Bitcoin exchanges are more liquid than others. Bigger Bitcoin exchanges with more trading volumes will ‘drive’ the price of the rest of the market.
Smaller exchanges follow the price of larger ones, with a small lag. That small lag is what makes Bitcoin Arbitrage possible..
When reviewing the Bitcoin price, it is important to remember that there’s no standard or global Bitcoin price. Bitcoin isn’t pegged in any way to the USD or to any other currency, country or any exchange.
Supply and Demand
Bitcoin exchanges are places where people who have Bitcoin (supply) can sell it to those who want it (demand). This also means that if you have two exchanges —Exchange A and Exchange B— that both support USD and BTC, it doesn’t mean that the price of Bitcoin will be the same on both of them. The price will simply be whatever supply and demand dictates.
If an exchange sees more people selling than they are buying, the price is likely to drop, as supply outweighs demand. The same goes for more people buying on that particular exchange, should demand outweigh supply, the price will go up.
Small Exchange Lag
Smaller exchanges follow the price of larger ones, with a small lag. That small lag helps make arbitrage possible.
Buying on one Bitcoin Exchange, then selling on another Bitcoin exchange, with the view of capitalising on the Bitcoin price difference, carries risk. The primary risk in using this method to capitalise on a pricing difference at 2 different exchanges is the risk of the BTC price moving down whilst the BTC is in transit from the exchange where you purchased BTC to the exchange where you intend selling BTC for a small profit.
With volatility and rapid price movements of the past, this risk is a fairly substantial . The price moving upwards will obviously yield a better return.
Prices have the tendency to take the stairs up and elevator down.
The costs of performing this arbitrage are fairly hefty and include:
1. A 5% exchange charge for using your card
2. An unfavourable exchange rate
3. A fee for transferring your currency into BTC
4. A Blockchain fee for transferring BTC to the exchange on which you plan to sell
5. A receiving fee for receiving BTC at receiving exchange
6. A fee for exchanging BTC to local currency
7. A withdrawal fee
By the time you are finished with the fees, the margin remaining might not be worth the risk and effort.
The process can take a minimum of 2 days, more likely 3 – 4 days. This leaves you with the opportunity of only being able to trade 10 x per month.
The money leaving your credit card will have to form part of your discretionary allowance.(South Africa)
It is an allowance within an overall limit of R1 million per calendar year which a South African resident over the age of 18 years may avail of. This then limits you to, assuming you can do 10x trades per month, R 8333 per trade.
Realising the costs, risks, legal limitations and time restrictions of using the Old School method, ArbFin set about finding a methodology that would eliminate all the downside.
The graph below is a record of the arbitrages identified in a 48 Hour snapshot.The ArbFin method is a clever way of leveraging off 2 Exchange accounts, and utilizing the supply and demand changes that occur at Luno over time, for profit – without the hassle of constantly moving money, and risking BTC movements.
The primary benefits of using the ArbFin Method
- Balance Exposure
- Reduce Cost – The costs of executing an arbitrage using the ArbFin methodology is only 1.25%
- Exponentially more trade opportunities
- Does not contravene local exchange control regulation
The ArbFin arbitrage market tracker has all the features you need to confidently trade the numerous arbitrage opportunities, including:
- Key Data to determine your arbitrage position
- Historical views on the 48 Hour market and arbitrage opportunities
- Key Current Data to assist in setting arbitrage target
- An alert feature which alerts you via a number of methods, on when the ideal trading conditions are aligning – This feature allows you to get on with your business and not have to track your position constantly
Currently the data supports the South African Luno exchange and :
An account at Luno and at least one of the other exchanges is required to exploit this unique opportunity
ArbFin plans on rolling out over the next few month to :
Various arbitrage opportunities happen daily. Finding them can be tedious and time consuming. The Bitcoin Arbitrage workshop will assist you in understanding and capitalising bitcoin opportunities.
Arbfin has developed a software designed to assist you in identifying numerous arbitrage opportunities, that occur daily, with alert features. Members get access to the Bitcoin Arbitrage Trading software.