When BitInvest launched its crypto arbitrage service, it set out to solve some of the key dangers typically associated with arbitrage, in particular the danger of the client losing money because of lengthy time exposure to the market.
“No one has ever lost a cent of money with us,” says BitInvest co-founder Sean Gishen. “That’s important for clients to know. The first thing anyone getting involved in crypto arbitrage should be asking is what are the chances of me losing money?”
Gishen explains that there are risks associated with arbitrage: the two principal risks are sudden changes in forex rates, and bitcoin prices.
Arbitrage involves the buying of crypto assets at a slight discount abroad and then selling them at a high price in SA. This is a function of exchange controls: the relative scarcity of US dollars and euros in SA means investors pay a higher price in SA for internationally-traded assets such as bitcoin.
“The arbitrage profit on cryptos rises and falls, depending on demand,” says BitInvest co-founder Andrew Droussiotis. “During the initial lockdown that started in March 2020, there was a noticeable widening in the arbitrage gap – above 5% at times. More recently, that gap has narrowed to between 1% and 2.8%, but we would expect that gap to return to more normal levels of around 3-4% in the coming weeks.
“Given the crash we have seen in crypto prices over the last two months, arbitrage trading is a proven and reliable way of generating passive income no matter what the market conditions are.”
Advantages of BitInvest’s arbitrage method
There are a number of advantages to trading arbitrage through BitInvest:
- No trades will be executed if the arbitrage gap is too small. “Our target is to get as close to 2% or better for the client as possible, after costs,” says Gishen. This requires patience, as the arbitrage gap can remain below 1.5% for weeks. BitInvest has historically delivered net profits in excess of 2% per trade. While this is not guaranteed, BitInvest is confident of achieving this on most trades by executing only when the arbitrage gap is sufficiently large to cover costs and deliver the target profit to the client.
- Once a suitable arbitrage trade has been identified, BitInvest is able to execute with speed. The client mandates BitInvest to place trades when suitable arbitrage opportunities are present.
- BitInvest charges clients 1% of capital invested. That cost is partially offset through sourcing better forex rates than are typically available for retail customers.
- BitInvest invoices its clients for the 1% fee once a month. Most arbitrage service providers deduct their fees on completion of each trade.
- BitInvest uses computer algorithms to track arbitrage opportunities on a variety of crypto assets. Trading on some of these crypto assets can be settled in minutes, thereby reducing the risk of a sharp market move wiping out the arbitrage profit.
- The process is completely seamless for the client as BitInvest handles the entire process, with profits appearing in the clients’ accounts in 48 hours or less.
To access this arbitrage opportunity, clients are required to use a portion of their single discretionary allowance (SDA) of R1 million a year, and can also apply for an additional R10 million a year foreign investment allowance (FIA), for which tax clearance is required from the South African Revenue Service (Sars). BitInvest has engaged the services of specialists to assist with FIA applications.
Wealth managers are learning the benefits of crypto arbitrage
Gishen says wealth managers are starting to show keen interest in crypto arbitrage, often under pressure from clients themselves.
“Wealth managers would find it very hard to justify investing directly in crypto assets like bitcoin because of the volatility involved, but crypto arbitrage is a different story. We have done everything possible to eliminate as many risks as possible from crypto arbitrage and deliver a decent net return to clients. Retail investors are starting to ask questions of their wealth managers and want to know how they can gain some exposure to cryptos without incurring too much risk. Arbitrage is certainly one of the safer ways of gaining exposure to the benefit of cryptos, especially if investors wish to limit their exposure to long term positions and generate quick rand profits.
“As a result, we currently have relationships with wealth managers who like the yield enhancement that arbitrage can bring, and they are starting to recommend crypto arbitrage to their clients.”
The information in this article does not constitute investment advice.
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