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[TOP STORY] Talking Bitcoin arbitrage

A parabolic rise in Bitcoin always comes down and settles: Moneyweb contributor Ciaran Ryan.


SIMON BROWN: I’m chatting now with Ciaran Ryan. He is a Moneyweb contributor on everything crypto. Ciaran, good morning. I appreciate your time. I spoke to my producer yesterday and said, “Let’s talk the Bitcoin arbitrage”. But then, of course, Bitcoin does what it truthfully sometimes does best, which is a swan-dive off the edge, and at one point yesterday Bitcoin was down over 20%. It had been at almost $42 000 late last week. People who are new to Bitcoin might be freaked out by this but, truthfully, if you’ve been watching the crypto space in the last five or 10 years, this is what happens.

CIARAN RYAN: That’s right. In fact, for those who were around in 2017 this might look very familiar, because what happened then was you had Bitcoin reaching an all-time high, which at that time was about $20 000, and it spent the next year-and-a-bit going down, dropping by 84%. And you and I were probably sitting through that. We are not terrified by a 20% drop anymore, I don’t think.

SIMON BROWN: We’ve almost become immune. We chatted late last year, in fact, in our recorded interviews, and we were made to look a bit like mugs because at the time of recording Bitcoin was under $20 000. At the time of release, it was close to $40 000 already – certainly over $30 000. It’s that huge level of volatility that exists within the cryptos that we’ve mentioned to the downside, but equally so to the upside. It doubled in literally a couple of weeks. And, as an investor/trader in cryptos, it is par for the course.

CIARAN RYAN: Exactly. In fact, I remember the conversation we were having. You were asking me if I thought it’s going to reach $20 000. I was very brave and said, “Yes”. Well, of course, it crashed right through that and went all the way to nearly $42 000. 

So it is a volatile asset and a drop of 20/25%, well, really was overdue and expected. When you see that kind of parabolic rise in Bitcoin –  it’s happened before – it always sort of comes down and settles. But I think this time is different to  2017 for a number of different reasons. You didn’t have the institutional backing behind Bitcoin that you now have, back in 2017. At that time it was mainly retail investors. Now you’ve got companies like MicroStrategy, where big, big investors on Wall Street, even JP Morgan, Bank of America, are giving it a thumbs-up and saying this thing is going higher.

That has changed fundamentally over the last few years. Why has it changed? Why is it all of a sudden getting this institutional backing? It’s because I think they can see some fairly reckless central-bank behaviour around the world with money printing, the bailouts that are happening. That’s never going to happen with Bitcoin because you’re always going to have this cap of 21 million. There’s never going to be more than 21 million in the issue. So that solves this. One of the big problems that you have with central-bank monetary policy is unlimited issuance of currency.

SIMON BROWN: Yes. And independents such as Simon Dingle will insist I mention that Bitcoin might have crashed some 20%-odd, but it’s still about six times where it was just a year ago. 

Lastly Ciaran, the reason I really wanted to chat to you is the Bitcoin arbitrage. I’m running the numbers this morning, and it’s not as exciting. If we take Bitcoin at $35 000, the rand/dollar R15.55, we get to about ZAR 544 000. But sites such as Luno are currently trading at R549 000 – that’s only about a percent. We’ve sometimes seen that arbitrage up as much as 4, 5, 6%. Is that an opportunity, albeit we’ve got exchange controls and of course the risk of price movement to buy in the US and to sell in South Africa?

CIARAN RYAN: There is an arbitrage opportunity. It used to be much higher. Back in December 2017 that arbitrage gap went as high as 24%, and even 30% on occasion. It’s nothing like that now. So 4% or 5% is pretty much the top end of what you’re seeing when we’re trying to arbitrage Bitcoin at the moment. There are ways that you can actually lock that in. A company like Ovex here in South Africa would do it for you. They don’t do it through Bitcoin, they do it through what they call a stable coin, for Trust USD. But you can actually lock in your arbitrage profit from the moment that you buy-in. So there is no risk. That is the great thing about arbitrage  – that you are not really in the market for very long. I’ve done it on a few occasions where, while you’re waiting for the Bitcoin you buy it cheaply overseas and you send it back to South Africa. And while you’re waiting for that to happen, the price can plunge and you can lose. There is that risk.

 But there are a lot of companies now coming out that are doing this in some very clever ways. But as more and more people get involved in it, that arbitrage gap is becoming smaller. But with even 4% or 5%, after your costs are taken in, you might come out the net with about 3%. It’s still interesting for a lot of people. You hear about these crypto scams that are offering 10% a month. Well, arbitrage is a way of doing it relatively risk-free, without having put your Bitcoin at risk.

SIMON BROWN: Although, perhaps as we do more of it, classic arbitrage, it becomes more efficient and it starts to fade away. We’ll leave that for today. Ciaran Ryan, Moneyweb contributor in the crypto space, I  appreciate your time.

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Anything above $32 000 is up if you ask me.

Moneyweb talking to Moneyweb about cryptocurrency that Moneyweb is punting.

Starting to sound very much like the Naspers approach to business.

Not all crypto related services offering 10% yueld/month are scams – you should know that Ciaran, if youre such an expert?

End of comments.

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