Has crypto arbitrage gone to sleep for good?

The arbitrage premium has narrowed to as low as 1% in recent weeks and even turned negative. Have no fear, says Ovex. We’ve been here before.
Arbitrage and passive income from cryptos are here to stay, says Ovex. Image: Dado Ruvic/Reuters

The crypto arbitrage gap has narrowed to 1% and less in recent weeks, well below the more typical 2-5% that prevailed for much of the last year.

This has prompted some to question whether the arbitrage opportunity is disappearing.

“I don’t think so,” says Ovex CEO Jon Ovadia. ”We’ve been through similar periods in the past when the arbitrage premium virtually disappeared for weeks and even months. There was a long period in 2018, for example, when the arbitrage premium ranged between zero and about 1% and 2%.

“The arbitrage premium will return. It always does in countries like South Africa that have exchange controls. We’re always going to pay a premium for internationally-traded assets like bitcoin and stablecoins like True USD [TUSD].”

The key determinant of the arbitrage premium for bitcoin is supply and demand: demand has slumped in the last two months, and that accounts for the nearly 50% drop in price. Ovadia says the crash in crypto prices accounts for the narrowing arbitrage gap, though it would be foolish to imagine that the gap will not return.

“We’ve seen this before. When volatility returns to the market, the arbitrage premium widens. And as long as we have exchange controls that place a limit on South Africans’ ability to acquire foreign exchange with which to purchase internationally-traded assets like bitcoin, we are going to have opportunities to make profits from crypto assets.”

Ovex’s referral programme

Ovadia says it is ironic that thousands of South Africans have been introduced to crypto arbitrage in the last 12 months, and Ovex recently introduced a referral programme, adding another way to earn passive income from crypto arbitrage. The programme pays out R1 000 for each new client introduced for the first 10 clients, and then scaling up from there.

Source: Ovex

There’s no limit on referral income

Says Ovadia: “The crypto arbitrage opportunity is not an unlimited thing. There is a cap on how much foreign exchange any South African can purchase in any given year, and that limit is R11 million – assuming you have tax clearance from the South African Revenue Service [Sars]. But there is no limit on how much one can earn through the referral programme.”

Response to the referral programme has been “extraordinary” says Ovadia. “Our arbitrage services is designed to be as low-risk as possible, and we’re very proud of our role in introducing this product on a broad scale to the SA market. Now we’re taking it a step further by making it possible for clients to earn substantial income through our referral programme.”

The referral programme scales up dramatically depending on the number of people introduced.

For wealth managers with a large client base, the referral fees alone – even before accounting for arbitrage profits – can run into millions of rands.

To participate in crypto arbitrage, clients are required to use their R1 million a year single discretionary allowance (SDA), for which no tax clearance is required from Sars, and their R10 million a year foreign investment allowance (FIA).

The ideal starting capital is at least R100 000, though returns are likely to be slightly better if the starting capital is R200 000. This is because forex buying costs are a fixed R500, so the larger the capital, the smaller the impact on profits.

Find out more about the referral programme here.

Ovex’s arbitrage method

Arbitrage involves profiting from price inefficiencies in the same asset trading on different markets. There is no centralised exchanger for bitcoin, which means there are slight price differences in all exchanges, and these prices differences create opportunities for traders 24/7. As soon as a price difference appears between two exchanges, arbitrage traders will narrow this price difference by buying cheaply on one exchange and selling it on the more expensive one.

Rather than try to exploit price differences in bitcoin, Ovex clients trade a stablecoin called True USD (TUSD) which is backed 1:1 by the US dollar. True USD is issued by San Francisco-based Trust Token, and for South Africans offers arbitrage profits similar to that typically seen in bitcoin.

A stablecoin is a type of crypto asset fully backed by fiat currency, such as the US dollar. Just as with bitcoin, Ovex clients can purchase TUSD in the US and then sell them at a higher price on the Ovex exchange.

Arbitrage and passive income from cryptos are here to stay

“The bottom line is that crypto arbitrage is here to stay, and Ovex is always developing new ways for our clients to earn passive income – hence the launch of our referral programme,” says Ovadia.

“The crypto market may be in the doldrums now, but this is a good opportunity for people to sign up in readiness for when the arbitrage premium returns to the market.”

Click here to find out more about Ovex’s crypto arbitrage service.

Brought to you by Ovex.

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