Crypto arbitrage: do it yourself or use a provider?

Despite the costs, there are some major advantages to using a provider.
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Crypto veterans remember with fondness the days in 2017 when the bitcoin arbitrage premium screamed past 20% and even momentarily above 30% – not often, but often enough to make some very wealthy individuals.

To put that in more practical terms, there were times when bitcoin could be sold in SA at prices 20-30% higher than overseas exchanges. More usually, the price difference ranged between 4% and 8% which was still interesting enough to create a vibrant cottage industry for those savvy enough to negotiate the technicalities of bitcoin arbitrage.

Returns like this could be banked in a matter of hours. You would purchase forex in the morning, ship it to a foreign exchange like Kraken, buy bitcoin and ship it back to SA for sale the same day. By evening time, all going well, you had a fat profit sitting in your crypto wallet.

What could go wrong?

That sounds wonderfully easy, but things could just as easily go wrong: forex could go ‘missing’ for days, by which time the arbitrage profit had evaporated; forex exchange rates could shift during a trade, eating into the expected profit; between purchasing the bitcoin on foreign exchange and shipping it back to SA, the bitcoin price could collapse and so wipe out the arbitrage profit; or greed could enter the picture, and you try to sell your bitcoin for a percentage point or two above the current market price, only to see the price move the other way.

How Coindirect solves these problems

Coindirect is an international crypto platform headquartered in London with offices in the UK, SA, New York and Hong Kong.

One of its SA offerings is a fully hedged arbitrage service, which means clients suffer no loss on their capital invested.

Says Coindirect’s global head of trading Chris Harmse: “Arbitrage has been around for years. Individuals have been doing this since the early days of bitcoin when there was significant arbitrage even between local exchanges, let alone foreign exchanges.”

One of the biggest risks in arbitrage is the length of time exposed to the market. As we have seen in recent weeks, bitcoin is capable of dropping 5% or even 10% in a matter of hours.

“It’s essential to complete the arbitrage trade as quickly as possible and so reduce any chance of market prices moving against you and eliminating the expected profit,” says Harmse.

“We solved this problem by hedging our clients’ position using our own balance sheet – and credit the client’s account with their initial rand capital plus net profit within a matter of minutes, rather than the hours it would take doing arbitrage the normal way.

“We have solved all the key risks that you would face trying to arbitrage on your own. We’ve eliminated the forex risk by using our own balance sheet to credit the client’s account, and we have eliminated the market risk because we provide liquidity on both sides of the arbitrage trade – overseas and local. What this means is that we can complete an arbitrage trade in about three minutes, so your exposure to the market is minimal.”

Clients can set desired minimum profit range

A unique aspect of Coindirect’s arbitrage offering allows clients to choose their minimum net profit range.

For example, where clients select a target net profit of 2%, Coindirect will not execute a trade until the arbitrage gap is wide enough to cover its own costs and deliver a 2%-plus profit to the client per trade.

Costs

Clients need a minimum of R100 000 to take advantage of the service, and Coindirect charges 1% of the capital on each arbitrage trade. That does not include the R500 Swift fee plus 0.35% for forex handling, making a total of 1.85%.

About Coindirect

In addition to its arbitrage service, Coindirect provides a platform for its 321 000 users to buy and sell more than 40 cryptocurrencies and provides a cross-border payment service with same-day settlement. It also operates an over-the-counter (OTC) desk for businesses and private clients to conduct large volume crypto transactions. Since its launch in 2017 Coindirect has moved more than €300 million (R5.1 billion).

To register for Coindirect’s arbitrage service, sign up here.

Brought to you by Coindirect.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

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