Bitcoin Arbitrage Opportunities: A Short Guide

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Bitcoin arbitrage is the buying of bitcoins on an exchange where the price is very low and selling it at an exchange where the price is relatively higher. The prices of Bitcoin vary on various exchanges, due to the fact that the markets are not directly linked, and the trading volume, on many exchanges, is low enough that the price does not adjust to the average right away.

Here a great video by Andreas Antonopoulos about why these arbitrage opportunities even exist:

A Simplified Example of a Bitcoin Arbitrage Opportunity

The price of Bitcoin on Coinbase is $650 and the price of Bitcoin on BTC-E is $636, the difference between the prices is $14, and this is quite a decent opportunity for arbitraging. Lets say, you buy 100 bitcoins on BTC-E at the rate of $636 each and subsequently, you sell them at Coinbase at the rate of $650 each, you make $14 per Bitcoin. Lets get down to the math

Number of Bitcoins bought in BTC-E = 100

Price of each Bitcoin                                    = $636

Total price                                                       = $636 * 100 = $63,600

Number of Bitcoins sold in Coinbase      = 100

Price of each Bitcoin                                   = $650

Total                                                                = $650 * 100 = $65,000

Total profit                                                     = $65,000 – $63,600= $1,400

Thus, you can see that Bitcoin arbitrage seems like a wonderful opportunity to make some passive income, but there are a few barriers to it.

Barriers to Bitcoin Arbitrage

  1. The time it takes to verify each of the transactions (buying and selling) can add up and the exchange rate might change within that timeframe.
  2. Many exchanges require a lot of verifications in order to trade a large number of Bitcoins.
  3. Depositing fiat currency can be a time taking process (can take up to 10 days depending on your payment method).
  4. Many exchanges have fees, which I have overlooked in the given example, that you should take into account.
  5. Pay attention to the transaction volume on each exchange as you may end up not being able to sell all of the Bitcoin you bought at the cheaper exchange.
  6. Price differences also reflect an exchange’s reputation. For example, BTC-E’s exchange rate is lower these days because less people are trusting the exchange to handle their money correctly. Less trust = less buyers = lower exchange rate. The same thing happened during the last days of Mt.Gox where the price was lower and lower because people didn’t trust the exchange to allow them to withdraw their money.

A Detailed Bitcoin Arbitrage Calculator

So now let’s take the real live example (not a simplified one) and actually include all of the different fees that are involved in such an arbitrage. Those fees include:

  • Fiat deposit fees
  • Fiat withdrawal fees
  • Bitcoin deposit fees
  • Bitcoin withdrawal fees
  • Transaction fees

I’ve taken the liberty to create some sort of calculator using Google spreadsheets just to show you how hard it can be to actually create a profit. Take a look below:

If you want to clone this calculator yourself feel free to download it at this link. All of this suggests that Bitcoin arbitrage is quite a difficult task. If you play around with the numbers a bit you’ll see that if the spread (difference between buy and sell values) grows a bit larger you start to become profitable. But in the current state we are actually losing money in the process.

However, if you look even further into the calculator’s data you’ll see that BTC-E takes up to 10 days to receive your deposit. In that time the spread can change. So the best tactic would be to keep some fiat currency in the exchange before hand and choose the right time to execute the arbitrage.

Should I Try to Arbitrage Bitcoin?

If you have some extra BTC, or cash, then you’re welcome to try it yourself.  As long as you are careful, and set strict guidelines for when, and how, you will engage in this process.  Unlike speculation, margin trading, and other activities that can be viewed as market manipulation, and in some cases, may even be truly harmful to the market as a whole, arbitrage is a positive process.

Bitcoins should not cost varying amounts across each exchange, especially consider that all of the exchanges can be accessed from one’s computer.  Arbitrage simply brings the exchanges together to an average price.  As Bitcoin’s market grows, the gap between exchanges will narrow, as the rate at which people arbitrage increases.  The current volume can certainly help an individual make a significant amount of cash, but it is not yet worthwhile for large financial firms to engage in Bitcoin arbitrage directly.

Overall, Bitcoin arbitrage may be an opportunity to make some passive income but at the same time, it has risks. Moreover, almost all exchanges have an API and these can prove to be very prosperous for you. Utilizing these APIs will give you the tools you need to create a custom arbitrage bot, or hire someone to do it for you.  Still, even attempting to arbitrage manually can be very beneficial, as long as you watch closely, and make sure you are placing simultaneous trades.

My personal opinion is that if you want to make some real profit from arbitraging you have to become an arbitrage professional. You probably won’t be able to arbitrage successful on your first or second try. Like everything else it takes practice, patience and experience. If you’ve had any experience with Bitcoin arbitrage I’d love to hear it in the comment section below.

Ofir Beigel

Blogger and owner of 99Bitcoins. I've been dealing with Bitcoin since the beginning of 2013 and it taught me a lesson in finance that I couldn't get anywhere else on the planet. I'm not a techie, I don't understand "Hashes" and "Protocols", I designed this website with people like myself in mind. My expertise is online marketing and I've dedicated a large portion of 99Bitcoins to Bitcoin marketing.

20 Comments

    • Zsofia - 99Bitcoins support on

      We would be happy to help if you specify your question. Please let us know what have you missed from the post that needs explanation.

  1. I’m new to Bitcoin and haven’t taken the plunge yet, but thought I picked up on an impossibly lucrative arbitrage opportunity that maybe someone could poke holes in. I’m in Canada, my wife is Korean. Currently, most exchanges in Canada are selling Bitcoin for about $3300 CAD. Meanwhile, in Korea, you can sell them for 3.1 million KRW…. which if you take the CAD-KRW exchange rate into consideration is approximately $3750 CAD… so that’s an arbitrage opportunity of $450 if I buy the coins in Canada, transfer them to my wife on her Korbit account, and sell immediately. Even with the transfer fees, etc… there is still a sizable arbitrage opportunity here, no? Thoughts? Am I missing something very obvious??

    • Zsofia - 99Bitcoins support on

      Hi Jeff, indeed there still could be arbitrage opportunities on the market, most people just do not have access to both exchanges as they are not residents of both countries.

    • This only works until you run out of CAD. Korea has strict FX controls which means you can’t get the KRW out. Unless you find a way to get around the FX controls, this won’t go very far.

  2. Thank you for such a practical information.

    I just don’t understand how should i realize the profit?
    I mean, after I buy and sell the currencies, i remain with bitcoins and their value might decrease.
    And also, I have to hold bitcoins in advance at the market with the hight value right?

    Tnx!

    • Ofir Beigel on

      Hey Shay, I don’t really understand your question. If you buy low and then sell high you get back fiat currency (i.e. Dollars or Euros) and you are no longer exposed to Bitcoin’s volatility. Also, as I state in the article, you need to hold some amount of coins in the market in order to be able to immediately execute on any price gaps and not wait for the transaction to be sent to the exchange.

  3. None of your business on

    $636 * 100 = $63,300
    Should be $63,600
    Making the profit $1400 instead of $1700.

  4. Hello.
    I new to BTC and was trying to use you calculator to check out some arbitrage opportunities.
    I have a few questions about your calculations, and think I may have found an issue.

    The issue:

    It looks like for the Withdrawal fee, you’re using the number as a percentage, which is under calculating the fee (using 99.98% for your multiplier, instead of 98%).

    The questions:
    Why is it that you’re using the USD exchange rate amount when calculating the multiplier for the exchange 2 fee? Is the 1% charged on the USD amount, not the 1 % of the BTC amount?

    What are the other fees on lines 8 and 9? I don’t see them used in the calculations.

    In general, is the below the correct flow of fees? I’m trying to put together a more granular view of this so one can see where each amount is paid. Will share once I’m sure I understand the flow is correct.

    1. Convert from USD to BTC fee (money in – this fee / exchange rate gives you total BTC in wallet 1)
    2. Fee from Exchange 1 for exchange transaction (% of BTC held or inferred USD amount on that exchange?)
    3. Fee from Exchange 2 for exchange transaction (total from 1 – sum of 2+3 tell you how many BTC in wallet2
    4. Convert from BTC to USD fee (total BTC / exchange 2 rate – this fee gives you net revenue for the transaction)

    Thanks.

    • Ofir Beigel on

      Hey Mike,
      you are correct regarding the issue, thanks for letting me know that. I’ve just updated it.
      The multiplier for the exchange 2 fee is the withdrawal fee. In the calculator I don’t take into account the 0.0001 BTC cost of transferring Bitcoins between exchanges. So here’s the flow:

      Deposit USD in exchange (deposit fee0
      Convert USD to BTC (conversion fee)
      transfer BTC between exchanges (at the moment I don’t take this into account since it’s small enough)
      Exchange BTC to USD on new exchanges (conversion fee)
      Withdraw USD from new exchange (withdrawal fee)

      Once done subtract what you withdrew from what you deposited.
      Hope this is clearer now.

  5. Some exchanges like Bitfinex offer short selling. That mechanism allows you to do long/short arbitrage, where transfer between exchanges is not necessary anymore. That overcomes the transfer latency issue.

  6. Another problem is banks, if they see fiat transactions of large volumes then will attract investigation. When banks find out that those deposits withdrawals are from bitcoin exchanges, then probably will ask you to close the account.

  7. Definitely great post for newbie and advance account holder. One of the disadvantages of having a decentralized or virtual digital currency is that we don’t know where to complain once we lost our money. But there are also good side benefits of it which a lot of people are taking risks of it.

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