Ovex moves nearly R2bn a month in crypto transactions

Most of it on behalf of institutions and high-net-worth individuals.
Jon Ovadia, founder of Ovex. Image: Supplied

It’s no longer a secret that arbitrage opportunities abound in the cryptosphere.

The price difference between bitcoin on overseas and local exchanges hit 5% this week. That means you could export US dollars or euros to an overseas exchange, buy bitcoin, and ship it back almost immediately to a South African exchange and sell it for a 5% profit.

It’s being going on for years, but requires jumping through a few hoops – such as opening accounts on multiple exchanges, and getting Reserve Bank approvals. In late 2017, that arbitrage gap went as high as 24% at times, which is a massive profit for a few hours work.

Ovex was launched three years ago to simplify the arbitrage process. Arbitrage is the exploitation of price differences in the same asset on different markets: for example, buying bitcoin (or any other asset) cheap overseas and selling for a higher price locally.

It’s virtually risk-free

It’s almost risk-free because you’re never holding the asset for more than a few hours. When Moneyweb first reported this story, there was disbelief among some readers who wrote and asked whether it was a scam.

Says Ovex founder Jon Ovadia: “We do get asked that from time to time, since one of the red flags for any scam is making extraordinary claims of profit. We say you can make up to 6% a week through our arbitrage service, but that is not guaranteed – nor is it that exceptional, since there are times when you can make 6% on a single trade.

“This is about as close as you can get to risk-free profits.”

There are also some arbitrage traders who would rather keep this a secret.

They believe the more people that exploit the arbitrage gap on crypto assets such as bitcoin, the quicker the gap (and profits) will disappear. That’s unlikely, for the simple reason that arbitrage gaps exist in most countries which have capital controls, such as SA. Zimbabweans and Zambians are forced to pay much higher premiums for their bitcoin than customers in Europe or SA. The reason is because of their weak local currencies and capital controls that restrict their ability to acquire hard currencies such as the euro or US dollar.

Rather than exploit the arbitrage price gap in bitcoin, Ovex partnered with Trust Token, a San Francisco-based ‘stable coin’ platform with a market cap of nearly $500 million that allows users to buy cryptocurrency offshore at the international price, without ever having to leave Ovex. All the logistics of shipping foreign currency abroad is handled by Ovex.

A stable coin is a type of crypto asset fully backed by fiat currency, such as the US dollar. Just as with bitcoin, Ovex clients can purchase Trust Token US dollars (TUSD) offshore and then sell them at a higher price on the Ovex exchange. The arbitrage gap varies between about 3% and 5% (sometimes higher, sometimes lower).

Covid prompted a spike in crypto volumes

Arbitrage is Ovex’s bread and butter. Volumes shot up during the Covid crisis, and now exceed R2 billion a month, reaching as high as R120 million a day. The larger part of Ovex’s business is its over-the-counter (OTC) desk, which offers institutions and high-net-worth individuals a secure and private channel for arbitrage or purchasing cryptos.

Whether the trade size is R500 000 or R50 million, Ovex is able to execute a trade at one price with zero slippage. This is only possible because of its ultra-deep liquidity, meaning it has sufficient capital backing to be able to execute and settle very large volumes that are often a stretch too far for smaller exchanges. Ovex is backed by Invictus Capital, which manages about $44 million in crypto assets.

Ovex was originally backed by Llew Claasen of Cape Town-based venture capital company Newtown Partners, and then executive director of The Bitcoin Foundation. That relationship cooled during the great 2018 meltdown in crypto prices, and Newtown Partners put the brakes on additional funding. Ovadia went out in search of new partners and eventually settled on Invictus, which was sold on the vision of building a unique crypto exchange based on arbitrage and large volume OTC trades. These are trades, usually large, that take place outside the regular exchange.

Credit lines

The Ovex OTC desk offers another advantage for clients in search of larger volume trades: it can open up large credit lines to enable immediate trade execution, with delayed settlement. In other words, you can trade now and deposit the funds later. This is particularly appealing when the arbitrage gap momentarily widens to, say, 6% or even 8%. The OTC desk will fund your trade and lock in your profits at this level, allowing you to transfer funds later.

The OTC desk and broker platform enables brokers to sign up their clients and trade on their behalf.

“This is a revolutionary offering in the crypto space and I don’t think it has been done by any exchange worldwide,” says Ovadia.

“Once a user enables a broker on their account the broker has full access to the user’s account, and is able to deposit, withdraw, and trade with security features such as email verification for sensitive actions like withdrawals. This allows the broker to assist a user with arbitrage trading, or assisting non-tech-savvy users with buying and selling cryptocurrency the same way a broker helps users buy traditional equities.

Brought to you by Ovex.

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Now that is what I call a niche market created by an informed entrepreneur. Well done sir!

Copy paste, nothing that he created.

Why not just train and manage a bot to take the trades based on a no trade no profit ? Conduct it BTC and you’ll have a winner!

Bizarrely. The returns offered are quite genuine.

Heaven knows how you handle the tax liabilities.

Just declare “crypto arbitrage” on your return? Also, some of the profits are accruing, on paper at least, in another jurisdiction.

You’re betting that BTC doesn’t fall by the small % you gain on the arbitrage. The small reward isn’t worth the large risk.

How are institutions able to move cash offshore to take advantage of the arbitrage opportunity? HNWI I can understand, using R1m SDA and R10m after getting TCC but institutions? Surely an invoice needs to be produced for an institution to make an offshore payment, or if profits repatriated offshore, they are taxed in SA and bringing them back via crypto could be seen as income, so how does SARB allow these institutions to make these offshore payments? I have always known that there are different rules for different people and companies in SA when it comes to SARB and exchange control and this might possibly prove it. Also, I had netted 33% during the widest arbitrage gaps during the previous bull run to USD20k, totally crazy stuff.

Why not bet on which rain drop on your lounge window will win the race to the sill???

This is not sane investing

I was looking to see if OVEX has an FSP licence, but couldn’t find that. Surely running R2b of other people’s money through your business that is a requirement?
The reserve bank also does not allow corporates to purchase virtual/crypto currencies abroad so how is it that OVEX is allowed to do that?
And then, how can they provide temporary credit and take % of the profit from another person’s SDA/FIA if the reserve bank clearly states that it is illegal?

“Furthermore, the use of another individual’s SDA or FCA, whether through the granting of a ‘loan’ to such an individual or any other similar agreement, is regarded as a simulated transaction for the purpose of circumventing the provisions of the Exchange Control Regulations and therefore an illegal activity. In this regard, we refer you to Exchange Control Regulation 10(1)(c), read with Exchange Control Regulation 22”

Smells a bit fishy. Just wondering how they circumvent all the reserve bank’s regulations.

You nailed it….

I like this bit:

”The price difference between bitcoin on overseas and local exchanges hit 5% this week. That means you could export US dollars or euros to an overseas exchange, buy bitcoin, and ship it back almost immediately to a South African exchange and sell it for a 5% profit”

Haha – there are only a few companies in sunny SA that has the authority to seel foreign currency direct in SA. These transactions that they allude to needs very specific Exchange Control approval –
Approval won’t be granted to trading in Tokens – its against control.

Beware,If something looks to be good to be true, it usually is!

This is precisely what I was alluding to – zero FSP licence as well as SARB stating that corporates or institutions are not allowed to make forex payments without certain documentation, mainly related to export payments or profit repatriation offshore. SARB certainly states that corporates or institutions cannot make forex-related payments for the purposes of purchasing crypto – which brings me back to my main point that only “certain” people or businesses are allowed to circumvent exchange control and FAIS requirements, that much is obvious. Plus, the part you mentioned, where OVEX provides credit as well, this is way more than merely fishy.

End of comments.

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