Bitcoin arbitrage: how does it work in 2023?
Bitcoin is currently much more volatile than any other cryptocurrency, which makes it a prime candidate for arbitrage. Let's take a look at the highlights of this economic operation.
- WHAT IS BITCOIN ARBITRAGE?
Bitcoin arbitrage is the practice of exploiting price differences between markets. These price differences occur because certain exchanges are more liquid than others. Larger exchanges with more trading will drive the rest of the market in certain ways. The smaller exchanges follow the price of the larger ones, but with a small lag. This small lag is what makes arbitrage selling possible.
And as practice shows, such financial manipulations can really bring serious profit if you can understand and learn how to manage the complexities of this procedure. So, what are these complexities?
- LOCK CONFIRMATION
One of the causes of confusion is the delay between exchanges during bitcoin transfers. This happens because of a technology called blockchain confirmation. We won't go into technical details, but just stipulate that this process takes about 10 minutes. Most exchanges require 6 confirmations before allowing the newly transferred funds to be used. If you are doing arbitrage, you have to wait an hour before you can sell the same bitcoin in another market. As you can understand, an extra hour can eliminate any available arbitrage.
But you can get rid of it. By keeping a small bitcoin balance in a larger exchange, you can take advantage of immediate arbitrage. If you trade 1/10 bitcoin during arbitrage, keep at least 1/10 bitcoin in the more expensive exchange. After an hour, your 1/10 bitcoin will be transferred from the cheaper exchange to the more expensive one. If you want to be able to arbitrage more than once an hour, just keep some extra money in the more expensive exchange.
You should consider transaction fees before you even start bitcoin arbitrage. Most exchanges have a fee of 0.6%. This fee is charged twice because it happens for every exchange. Let's look at a small example calculation using Bitstamp and CampBX exchanges:
Bitstamp costs: $105.00 + $0.63
Expenses for CampBX: $100.50 + $0.60
Real profit: (4.5 - 1.23) = $3.27
- CHOICE OF EXCHANGER
Another important thing to remember about bitcoin arbitrage is the correct choice of the exchanger. It can be quite difficult to find exchangers with different rates at which you can win. That is why we offer you a small list of available exchangers used by many arbitrageurs:
Advcash. This payment system has become a real salvation for arbitrageurs. It offers very favorable rates for various cryptocurrencies.
Payeer. A payment service that also has cryptocurrency units at an affordable price.
F1ex. This exchange in most cases offers the most favorable price for BTC-e, which can easily be used in arbitrage.
The list of exchangers that are suitable for working on the principle of arbitrage can go on for quite a long time. In this case, all the same, the main thing is to constantly monitor exchange rates and compare them. To do this, you can use special services and sites that collect data on the value of cryptocurrencies on various exchanges. But they also do not guarantee profitable arbitrage, as updating the data on the site requires some time, which can reduce the efficiency of arbitrage trading or exclude its probability altogether.
It is important to note that modern resources can provide special arbitrage bots, which will independently track the price difference while trading. Their effectiveness is also questionable. Strange as it may seem, it is best to trust your own eyes.