Arbitrage has become one of the favourite ways for newcomers to dip their toes into cryptocurrencies.
It used to be a pretty well-kept secret for crypto aficionados, as it was considered too technically involved for most people.
That has changed in recent years as crypto companies like VALR have found a way to make this available to a broader market.
Arbitrage takes advantage of price differences in local and international bitcoin prices and lets you make a quick 3-5% profit on average on a single trade at relatively low risk (there are some risks, but we’ll get to these).
By way of example, the bitcoin price on overseas exchanges was trading at the rand equivalent of R762 000 on Monday. On VALR, bitcoin was trading at R796 000.
That’s a more than 4% price difference, or arbitrage profit, begging for someone to uplift. That’s exactly what VALR has done with its new arbitrage service.
“A lot of veterans in the crypto space know about arbitrage and have been using this for years as a way to make passive income. It’s a little more difficult for people who are new to crypto and so we decided to simplify the process for them and make this opportunity accessible to many more people,” says VALR CEO Farzam Ehsani.
Bear in mind that the arbitrage gap (or ‘arb’ as it is more commonly known) can disappear to zero and even turn negative, meaning it is cheaper to buy bitcoin in SA than it is overseas. These are rare but not unusual events.
Then at other times the arbitrage gap can widen to 15% (as it did briefly just two weeks ago).
Says Ehsani: “We have executed trades between 2-6% in the last few weeks. The rate is dependent on market conditions, but this range has persisted for quite some time now.”
“We will never execute a trade that is going to make a loss. We aim to deliver at least 1% on a single trade – although it has nearly always been higher than this. Exchange control regulations are the main reason this arbitrage opportunity exists and making use of VALR Arbitrage is really a no-brainer for any South African citizen or resident that has any excess capital allowance during the year.”
Guarantee against capital loss
VALR is able to guarantee against capital loss by fully hedging all arbitrage trades. This effectively means the profit is locked in as soon as the trade is executed.
Here’s how it works
A few moving parts need to be considered here.
- The client needs to open an account with either Investec or Mercantile Bank – facilitated by VALR’s FX partner – for purposes of shifting forex offshore.
- VALR monitors the arbitrage gap on a real-time basis waiting for an opportunity for profit.
- VALR clients require a minimum of R200 000 of their own funds.
- Clients can use their R1 million discretionary allowance and R10 million a year foreign investment allowance (FIA), for which they need tax clearance – VALR helps with this too.
- Once the R1 million discretionary allowance is exhausted, you need to make an application to the South African Revenue Service (Sars) to access part or all of the R10 million FIA. VALR has made arrangements with tax consultants to lodge this initial application at a cost of R1 000, which should be more than covered by the arbitrage profits. You do not have to use all R10 million in one go. Assuming just R200 000 is used for each arbitrage trade, each subsequent application to Sars will cost R100. This is a relatively small cost to be deducted from any arbitrage profits made.
- This is repeatable every year (existing offshore investment allowances permitting).
VALR takes a 25% share of the client’s profit. If no profit is made, VALR receives no share of profit and no fees are charged.
“We have been deliberate in aligning our interests with our clients which is why we opted for the profit-share model: When customers do well, so do we. We don’t want to churn a client’s funds to generate fees for ourselves and not for the client. While some other service providers will charge 1% on your total capital regardless of the outcome, we make sure we only receive profits when the client does,” says Ehsani.
“We have seen an uptake with VALR Arbitrage among those that were previously doing the arbitrage themselves – these customers tell us that we are able to generate a better return for them even after our profit-share, as we are able to keep down costs with high volumes and streamlined processes.”
A married couple who are both tax compliant would have access to R11 million each to participate in crypto arbitrage, although they would only need to have R200 000 each to use their full allowance over several trades.
That’s a total of R22 million. At an average return of say 2.4% a year (which is what was historically achievable over the last 12 months), that comes to a combined profit of R528 000 a year.
Bear in mind that arbitrage profits are volatile (like cryptos themselves).
Go here to find out more about the arbitrage service or to sign up.
VALR is one of the largest crypto exchanges in SA in terms of trading volumes, and also offers the widest range of cryptocurrencies in SA.
Brought to you by VALR.
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