Will the crypto premium in South Africa last forever?

As long as SA has exchange controls and Bitcoin keeps going up, there are likely to be opportunities to profit from crypto arbitrage.
Image: Chris Ratcliffe, Bloomberg

Those who have been following the crypto markets will have noticed that the arbitrage premium has become smaller in the last few years – that is, South African prices for crypto assets are more in line with overseas prices.

2017 was probably the heyday for crypto arbitrage when South Africans paid 5-10% more for bitcoin than they would overseas. There were sustained periods when that premium jumped to 25% or even 30%. Using your offshore investment allowances, you could ship US dollars abroad, buy bitcoin on an offshore exchange and immediately ship it back for sale on a local exchange and lock in a more or less immediate profit.

That arbitrage premium has fallen to between 2% and 5% in the last few years, which is still attractive enough to make a decent risk neutral profit.

Set up a call with an OVEX arbitrage expert to find out more today.

“It’s a question we get asked a lot: how long will there be an arbitrage market for cryptos?” says OVEX CEO Jon Ovadia.

“As markets grow in size and efficiency, arbitrage opportunities tend to diminish, and that is what we are seeing with cryptos such as bitcoin. That said, there is still a very attractive arbitrage opportunity for South Africans to buy crypto offshore and sell locally.

“In recent months, we’ve seen average net profits of 2.2% on our arbitrage trading, which is significant.”

The premium on crypto in South Africa exists because there are more people in South Africa who wish to buy cryptocurrency than those who wish to sell it.

If a South African wants to quickly and easily buy cryptocurrency with ZAR, they will need to buy it from someone who has cryptocurrency and wishes to exchange it for ZAR. Sellers are limited, which means that in order to gain quick easy access to cryptocurrency the buyer must pay a premium to the seller. As long as bitcoin is going up and there is no simple instant way to send money overseas to buy crypto there will always be more buyers than sellers, and thus the premium should remain.

The premium is currently sitting at just over 4%, making it a great time to get started with arbitrage.

OVEX offers a fully automated service to take advantage of this arbitrage, which can be technically challenging for someone trying to do it on their own. Arbitrage trading is less risky than normal crypto investing because you are exposed to the market for a brief period of time.

South Africans can use their discretionary allowance of R1 million a year, plus a further R10 million foreign investment allowance, for crypto arbitrage. For a married couple, that comes to R22 million a year that can be used for arbitrage trading. At an indicative return of 2.2% on this amount, the potential profit would be R484 000 a year.

OVEX has generated more than R30 million in profits for clients from its automated arbitrage service (you can also do a manual arbitrage service through OVEX, which requires you send the funds offshore yourself and sell for ZAR via the OVEX OTC desk).

Rather than buying bitcoin on an overseas exchange and sending it to SA, OVEX executes trades using a stablecoin called True USD (TUSD), which is backed 1:1 to the US dollar.

Effectively, you are buying cryptocurrency offshore, shipping them to SA and selling them locally for a 2-4% profit. OVEX takes care of the logistics of the arbitrage trade while eliminating as many of the risks as possible.

The chief risk is that the crypto price drops while the trade is in progress. OVEX mitigates this by extending credit to clients from the moment the arbitrage trade is executed, so that profits are locked in as soon as the trade is authorised.

“Cryptos are volatile, and because of this many people are frightened to invest in them. For the more risk averse, crypto arbitrage makes a great deal of sense,” says Ovadia. “You are not exposed to market moves, you are merely trying to take advantage of price differences in the same asset on different markets.”

Find out more from a OVEX arbitrage expert today.

Another benefit OVEX offers clients is assisting them get tax clearance through the South African Revenue Service (Sars). This is needed to access your R10 million a year foreign investment allowance, and requires that your tax affairs be up to date (no such clearance is required for the R1 million a year discretionary allowance).

To access this R10 million foreign investment allowance does not mean that you have access to this amount in one go. You can break it down into smaller amounts of say, R500 000, which would require 20 tax clearance certificates at a cost of about R2 000 a time going to the tax accountant.

OVEX takes care of this application process at no cost to its clients.

OVEX recently closed a strategic investment round, valuing the group at nearly R2 billion from Alameda Research, a Hong Kong based firm managing over $3 billion and running the fourth largest crypto derivatives exchange in the world, FTX.

“The bottom line is we think crypto arbitrage will be around for a while yet, and we are constantly researching new potential types of arbitrage trades that could benefit our clients,” says Ovadia.

“We maintain that this is a relatively low risk way to get involved in cryptos, and it’s an opportunity that a lot of South Africans are waking up to.”

Have more questions? Set up a call with an OVEX arbitrage expert today.

Brought to you by OVEX. 

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