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Introduction To Crypto Currency Arbitrage
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Introduction To Crypto Currency Arbitrage
Continuing the series of articles on Abitrage
#The Idea behind Crypto Currency Arbitrage

Introduction To Crypto Currency Arbitrage

💹💹💹Crypto Currency arbitrage is an investment strategy in which investors buy bitcoins on one exchange and then quickly sell them at another exchange for a profit. Because bitcoins trade at different prices on different exchanges, it’s an opportunity that many investors have seized in recent years.

Arbitrage is not unique to Bitcoin investing. It occurs across the capital markets, wherever the same asset trades for different prices in different places. To take advantage of those inefficiencies, investors will buy in one place and sell in another to exploit those price differences.

Bitcoin arbitrage differs from other forms of arbitrage in that it’s harder to place a value on Bitcoin.

Bitcoin arbitrage differs from other forms of arbitrage in that it’s harder to place a value on Bitcoin. Because it’s completely digital and not based on an underlying asset, it doesn’t have the same pricing conventions as do equities and bonds, which are tied to the performance of a company, municipality or nation.

With there are more than 200 exchanges available to people investing in cryptocurrency, there are likely to be many different Bitcoin prices available at any given moment for people who want to try crypto arbitrage. But not all exchanges are created equal. Some have enormous trading volumes, while others aren’t as active. The trading volume on each affects the liquidity and the available prices on a given exchange.

How Profitable Is Bitcoin Arbitrage?

Bitcoin arbitrage has the potential to be an enormously profitable way to invest in Bitcoin. One well-known 2017 example saw Bitcoin selling on Kraken for $17,212, but on Bitstamp for a mere $16,979. At that moment, investors potentially stood to make $233 per Bitcoin by buying them on Bitstamp, and then quickly selling them on Kraken.

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On a basic level, successful Bitcoin arbitrage depends on looking for gaps between the prices on one cryptocurrency exchange and another, and then executing a buy and a sell.

Cryptocurrency markets exhibit periods of large, recurrent arbitrage opportunities across exchanges. These price deviations are much larger across than within countries, and smaller between cryptocurrencies, highlighting the importance of capital controls for the movement of arbitrage capital.”

Earning money both ways, If the Market is pumping, we start abitrage trades, if it is dumping, we continue arbitrage

Buying pressure on bitcoin often leads to opening-up of the arbitrage spreads. The regions with higher price deviations also see greater increase in arbitrage spreads. This result can be attributed to tighter capital controls or weaker financial institutions in locations outside the United States and Europe. This explanation is further supported by much smaller arbitrage spreads between cryptocurrencies relative to fiat currencies on these exchanges.

The prices in other countries are typically higher compared with those in the United States, and these arbitrage spreads co-move at the same time across regions. Indonesia, Australia, Singapore, Japan, and South Korea show a correlation in arbitrage spreads of more than 75%, and almost half of the areas show a correlation of more than 50%.

These price deviations can persist from several hours to days and weeks, and they are normally larger across countries than within the same country (even in the regions with highly liquid exchanges).

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