Arbitrage is not a new idea. People have been arbitraging for years across different markets for the same stock. Even before any type of stock market back in 650 BCE, silver was underpriced in Persia, and merchants would profit by buying silver in Persia and selling them in Greece. Traders used to do this for stocks, bonds, and foreign exchange markets, however, regulations and the complexity of the systems have discouraged traders from doing so. However, cryptocurrency is the wild west of trading and it is still possible to arbitrage between different exchanges. For example, a trader would search for a specific coin that is cheaper on exchange A than on exchange B. Then the trader would buy the coin on exchange A and sell it for a higher price on exchange B for profit.
So why can traders still arbitrage between exchanges for cryptocurrency?
Lack of Regulations
Unlike the stock market where brokers need to offer the best price on the market, in the cryptocurrency world, there is no regulation on that. This lack of regulation leads to a price difference of 1-3% sometime.
Demand in Different Geography
In January of this year, a phenomenon of “Kimchi Premium” happened. Korean exchanges listed Bitcoin at 43% higher than in the exchanges in the United States. Even during the 2017 bull market, Chinese exchanges listed Bitcoin 6% higher than the exchanges in the US.
Size of the Exchange
Normally, the smaller exchanges have a lag time with the larger exchanges in terms of pricing. Traders could use this trick to exploit the lag time. As of the time of writing, there are 79 exchanges listed on CryptoCoinCharts.
Foreign Currency Arbitrage
Time the trade to buy BTC in USD, sell it to make EUR, then convert the EUR back to USD. Above are the basics of the 4 arbitrage ideas, but don’t forget about the fees of the exchanges while arbitraging. Sometimes, it could really reduce the profit of the trade. So, let’s explore other ideas for arbitraging.
Being listed in popular exchanges in the cryptocurrency world could make all the difference in a coin. Whenever a coin gets listed onto a popular exchange, there are moments where the coins rise in value. This became a big problem that Coinbase was accused by their customers for insider trading when they listed Bitcoin Cash. It experienced a 70% price soar.
And on July 13th, Coinbase released info that they are looking at possible coin additions on their platform, but made no promise to list them or not. ADA, XLM, ZEC, ZRX, and BAT were among the suspects and they were all in the green that day. Being listed on Coinbase is not an easy task. There are over 1890 coins for them to choose from.
There is also the Binance price pumps. Binance is another popular exchange where coins experience a temporary price soar from listing side effect. Check the price peak during the listing of Civic on May 28th, 2018.
In order to follow the coins prices, traders should follow coins subreddits and social media. Join Telegram for coin discussion to figure out which hype train to jump on during some free time.
Zeus Exchange will have a high speed API to increase liquidity which will help users to arbitrage at a quicker rate so traders could make profits at a faster rate.
lllustration by Marina Demchenko (Mamihlapinatana Studio)