Bitcoin Arbitrage Opportunities: A Short Guide

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Last updated on May 23rd, 2017 at 03:08 am

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

Owner at 99 Coins ltd.
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.
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29 Comments on "Bitcoin Arbitrage Opportunities: A Short Guide"

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Darmody
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Darmody

Hi,

I am curious about the legal restrictions on transferring BTC from foreign exchanges to sell them on US exchange? Any input on money transfer/foreign exchange rules from the point of US laws?

Thanks.

Zsofia Elek
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Zsofia Elek

Hi Darmody, it is probably the best to consult on this topic with a local lawyer who is familiar with digital assets as the regulation and rules are even different between the US states about how they handle cryptocurrency and money transfers.

jonathan
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jonathan

Hi Everyone!
Great article.
Heaps of information, thank you for sharing!

couple of questions regarding getting onto an exchange
there are so many exchanges to trade on just for 1 location, it does create a frustrating choice

how do i spot the good exchanges?
what are common limitations in exchanges (i am aware that not all exchanges allow short positions?)
what kind of exchanges will generally have the arbitrage opportunities? Low volume vs High volume?
what exchanges should i stay away from, bad reputation

Cheers,
Jonathan

Zsofia Elek
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Zsofia Elek

Hi Jonathan, thanks for the feedback. We have an article where we have gathered several exchanges which also includes reviews about their services. You can read it here: https://99bitcoins.com/best-bitcoin-exchanges-comparison-review/

Peter
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Peter

Hi ZSofia,

We are testing a new service and wanted to get your thoughts to see if it will be helpful and has value for those who do cross-market crypto trading. It helps to find best arbitrage deals across different crypto exchanges.

Let me know what you guys think? We are considering to turn it into a full-scale project, but firstly we wanted to get your opinions and possibly test results to see if you guys could profit from it. Please provide your comments and suggestions. We are really looking forward to get your feedback! Thank you!

Best Regards,
Peter

Zsofia Elek
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Zsofia Elek

Hi Peter, this sounds very interesting however at the moment I am afraid we are not able to test your site as we don’t do on demand reviews and also we are pretty busy nowadays with internal content. Please note, I had to remove the link from your comment as that is not allowed in the commenting rules.

Bliss mass
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Bliss mass

Can someone explain to me what it marc mean

Zsofia Elek
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Zsofia Elek

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.

Jeff
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Jeff
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… Read more »
steave kim
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steave kim

Now the price of Korea is 2900 $
This means that it is no longer available.

HS
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HS

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.

Zsofia Elek
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Zsofia Elek

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.

Shay
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Shay

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!

Joe Gooch
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Joe Gooch

You also may hold USD, and the value of dollars might decrease…

Anonymous
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Anonymous

Nice analysis. Thanks a lot.

None of your business
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None of your business

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

Mike
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Mike
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… Read more »
Butor
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Butor

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.

Richard Yarussi
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Richard Yarussi
Butor
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Butor
Anonymous
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Anonymous

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.

Anonymous
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Anonymous

Why will the bank ask you to close the account?

Stephan
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Stephan

They won’t ask you to close the account in the Western world, but will just make you pay taxes on it if you weren’t before. In China or other countries with Capital Controls they could close the account and try to fine you.

Roger
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Roger

Specualtion is taxfree at least in switzerland, and in most othter european countries you may pay some taxes if you earn that for a living, but thats only fair.

bitcoin wallet
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bitcoin wallet

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.

Zsofia Elek
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Member
Zsofia Elek

Thanks for the feedback. There’s always two sides of a coin.

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