6 CommentsIs it really possible to create Bitcoin arbitrage and generate revenue ?
So as I promised you I intended to take a deeper look into the option of arbitraging Bitcoins between different exchanges. Basically What I want to do is buy “cheap” Bitcoins at BTC-E where the exchange rate is lower. Then, transfer the Bitcoins to Mt.Gox and sell them at a profit of at least 10% (so my profit won’t get eat up with all of the transaction fees). I tried to find reference for someone doing this on the web for a long time and couldn’t find any. So here’s my case study of how I generated a 12.12% ROI in 1 hour.
(11:46 AM) Step 1 – The starting point
I started out with with the following funds at BTCe:
and this is my Gox’s initial account:
(11:51 AM GMT) Step 2 – Buying “cheap” Bitcoins at BTCe:
So at this point I bought 0.488BTC at an exchange rate of 141.999 USD. The transaction was pretty much completed immediately and the BTC was transferred to my account. The cost was $69.295512
(11:53 AM) Step 3 – transferring my fund to Mt.Gox
Now I initiated a BTC withdrawal from BTCe and moved my 0.488BTC to Mt.Gox
(1:01 PM) Step 4 – The money arrives at MtGox
It took around an hour until the money arrived at Mt.Gox – This is a crucial point and we’ll get to that later. As you can see I’ve already lost around 0.001BTC due to fees.
(1:02 PM GMT) Sell Bitcoins at a profit
At this point I sold 0.486 for $77.7. To remind you, the initial spend was $69.295512. Which brings us to a profit of $8.404488 – an ROI of 12.12% in roughly one hour.
Final step – Withdraw the money from Mt.Gox
I’m adding this paragraph as I’ve gotten a lot of comments regarding the fact that you can’t withdraw money from Mt.Gox easily. This is indeed the case today, but the way I see it, it all comes down to how much you believe in Mt.Gox. Meaning, if you think that Gox isn’t going away anytime soon then this money will reach its owner eventually, but if not, then this process is probably not for you. Also the reason this arbitrage is possible is probably a lot due to the hardships people face when trying to withdraw money from Gox. Personally, I believe that even if it take 2 months, the money will reach its owner. I will update on how this goes in later posts.
So Is arbitrage possible in Bitcoin ?
1. Yes. It is possible, but not necessarily profitable. (you’ll see why in a minute).
2. From online testimonials and friends I understand there are a lot of issues regarding withdrawing USD from Mt.Gox. This is also one of the reasons for the price difference between these exchanges. Meaning people value their money at BTCe more than at Gox. You need to take this into account. Since it can take up to 3 months to get your money it will be hard to reinvest and so this will not become an arbitrage “per-se” but rather a loan you give to Gox with a profit.
Note: One of the blog’s readers suggested using a more flexible exchange like VirWox. I’m not sure if this would work but perhaps moving money into there will allow you to get the money faster. I will post an update on this in one of my next posts.
3. 2 important fees are not included – The fee to deposit money at BTCe and the fee to withdraw from Mt.Gox. Still, since these fees are fixed, you can easily calculate them according to your transfer method.
4. There are some programs that are said to do exactly what I just did on autopilot. I haven’t tried them. If you have – I would love to hear about your experience with them.
5. If the BTC price were to suddenly drop while waiting for the money to arrive at Gox I would have lost money, so keep that in mind. Having said that, other then the “great crash” on May 2013 I don’t remember Bitcoin prices changing so dramatically in 1 hour, so my estimate is that worst case scenario you end up breaking even.
6. In order for this to be really profitable you would have to exchange large amounts of money, which would mean more risk. But imagine how much you’d profit if you did the same with $10,000 (hint: around $1,212)…
I wrote an article that explains the math involved in a simple way to arbitrage across cryptocurrency exchanges. Important to know what you are getting into so that you will not be trading at a loss. https://steemit.com/arbitrage/@kesor/the-math-behind-cross-exchange-arbitrage-trading
1. The great Bitcoin crash was at April 10 2013 – sad day for all of us.
2. I had an idea in which you can avoid all the fixed fees by arbitraging them into litecoin (instead of USD). that could be faster and cheaper. the only problem is the low volume of ltc in the exchanges dealing with it.
One key fact is missing – how did you transfer money to BTC-e? Is there any way to do so without eating up all of the profit?
In this example I used funds that I already had there (don’t really remember when I deposited them). But this case study is done on a small amount of money. Multiply this by 1000 for example and you won’t have any problem with deposit commission in my opinion.
You forgot:
Step 5. Withdraw your money from Mt. Gox to your bank.
Look at conclusions #2 and #3 – They talk about this. I know that Gox is having trouble at the moment but I think that in the end it all comes down to if you believe that Gox will stay for the long term or not. And my belief is that they will come through in the end.