Why the arbitrage market never sleeps

While crypto prices have crashed, arbitrage opportunities remain unaffected.
Ovex has taken two ways to earn interest in the crypto sphere and combined them. Image: Chris Ratcliffe, Bloomberg

Crypto veterans who have survived one or more market crashes know to turn to crypto arbitrage at times like these.

Find out more about Ovex’s Arbitrage service here.

Ovex founder and CEO Jon Ovadia says there has been a noticeable uptick in demand for crypto arbitrage services in recent weeks, as a result of the crash in crypto prices.

“This is something that we have seen before. Whenever crypto prices are subdued or falling, we see crypto traders moving into arbitrage, which is something that is relatively unaffected by the general level of crypto prices,” he says.

Bitcoin prices on SA exchanges have traded at 3-5% higher prices than on overseas exchanges for much of the last month. Ovadia points out that the arbitrage gap between SA and overseas exchanges has remained relatively constant, even though the prices of cryptos have crashed in the last month.

“In fact, we have seen the arbitrage gap widen while crypto prices were in freefall,” he says. “This is not uncommon in a market crash. What tends to happen is that there is a time lag between SA and overseas exchanges.

“Prices fall faster on overseas exchanges than they do on SA ones, so the arbitrage premium can be very attractive at times.”

Ovadia says it looks increasingly possible that crypto prices will remain subdued for the foreseeable future and may be vulnerable to further price drops.

“One way to protect yourself against any further drop in crypto prices is to switch to arbitrage. It’s difficult to call where we are in the crypto cycle, but rather than trying to call the bottom of the crypto market, it is safer to exploit price differences in crypto assets between local and overseas exchanges.”

Rather than arbitrage differences in bitcoin prices, Ovex spotted an opportunity to arbitrage a stablecoin called True USD (TUSD) which is backed 1:1 by the US dollar.

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. The arbitrage gap varies between 1% and 3%, similar to that of bitcoin.

Doing arbitrage on your own can be technically challenging, and one of the major risks is market movements that can wipe out any anticipated arbitrage profit while in the middle of an arbitrage trade. As we have seen in recent weeks, crypto prices can move 10% or more in a day, and getting caught in the middle of one of these moves can be devastating for arbitrage traders.

Ovex has eliminated that risk by guaranteeing clients’ capital so they can never be exposed to a loss.

It does this by hedging clients’ exposure – effectively locking in arbitrage profits at the moment the client authorises a trade. It is also possible to automate arbitrage trading with Ovex, authorising the company to trade on your behalf until your foreign investment allowances (up to R11 million a year, subject to tax clearance) are used up.

While crypto arbitrage trading is not entirely risk-free (you still have risks such as currency risk and, however remote, the risk that the exchange may fail), many traders are drawn to arbitrage because some of the major risks are removed – in particular, the risk of being exposed for long periods to the market.

Ovex currently ships more than R4 billion a month on behalf of clients, having hit the R2 billion mark in October last year. Ovex partnered with Trust Token, a San Francisco-based stablecoin 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.

Earn up to 20% a year in a DeFi interest account

Crypto investors are able to earn up to 20% a year in decentralised finance (DeFi) interest accounts, as demand for DeFi explodes. The surging demand for DeFi is a new trend in financial services, and is occurring completely outside traditional financial services providers.

You can now earn annual interest of 4% or more on your cryptos, but Ovex has managed to spice this up by combining two ways to earn interest in the crypto sphere:

  1. Yield farming, where Ovex hunts around for the best returns on cryptos in the market, at the lowest possible risk; and
  2. Spot-futures arbitrage, which is a way to lock in profit differences between prices on bitcoin spot versus futures prices.

The net result is annual interest of up to 20% a year on an Ovex crypto account, says Ovadia.

You can find out more here.

Brought to you by Ovex.

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

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